View more on these topics

The value of old Asia

Asia caught the technology bug in a big way. The sector&#39s ascent has been


hypnotic in its speed and the level of gains. A whole investment cycle has


been compressed into about six months.


The internet IPO market has provided the most thrills although telecoms


and outsourcers, such as wafer fabricators, have also done well.


With the Nasdaq now correcting, investors are having to think for the


first time about what they have been buying. In the case of concept stocks,


it is often not very clear. On the way up, investors asked few questions,


and momentum looked after the rest.


Now valuation is an issue.


The more concept-driven the stock, the less anyone can say what a fair


price is. When sentiment reverses, the hollowness of arguing valuations on


the basis of revenues, which has been readily accepted, becomes evident.


The racier companies are going to consume a lot of cash just finding


customers. Moreover, with no lock-in clause for the venture capitalists who


are seeding them, there is the prospect of secondary issues just months


later.


The issues of quality and over-supply have seen increasing numbers of


investors ask whether many of Asia&#39s tech offerings are sustainable.


The broad technology-media-telecoms sector is as much as 50 per cent of


some regional indices – a far higher proportion than in the S&P 500.


If they unwind a small fraction of that, the web of tech stock


cross-holdings will start to reverse, forcing the retail margin players


against the wall. It could be vicious.


Aberdeen has tacked a sceptical course toward tech stocks from the start


because, once the hype is stripped out, we have been unable to reconcile


valuations with attendant risk.


More than that, Asia&#39s old economy looks startlingly good value. The


region is barely into an expansionary cycle – unlike the West. Rather than


bottom-fishing for value stocks that might turn out to be cheap for good


reason, we have been investing in real growth.


Many companies, especially small and medium caps in the value-play markets


where tech has little or no representation, have looked especially


promising.


The speculative transfer of investment into the tech arena has added to


our perception of neglect. Yet earnings are recovering strongly, interest


rates are still low, and business confidence is reviving.


The stocks we favour range across markets and capitalisation. However, our


filters aim to isolate the well- managed ones, with business focus and


clean balance sheets.


Generally, we favour countries such as India and those in Australasia.


They are seeing economic recovery broaden, with improved external


performance and liquidity positions.


There are queries over ongoing institutional reforms and the stability of


financial sectors, which are necessary for corporate sector restructuring.


Growth prospects are still dependent on government willingness to


restructure. But stocks look cheap, with price/ earnings ratios in the low


teens in some cases, and downside risk discounted.


Overall, the end of the first quarter has left Asia&#39s new economy stocks


on top, but only just. The Nasdaq is causing anxiety. Renewed US interest


rate fears and valuation concerns have sparked talk of a bigger correction.


Given technology&#39s correlation across markets, volatility is likely to


increase, not abate.


The fact that we are invested mainly in areas dubbed old economy is more


emotive than descriptive. It is simply a question of paying the right price


for growth.

Recommended

LIA should have stayed silent on polarisation

I am sure this is not the first letter you have received from an IFA onpolarisation but I feel I must make my point. I have been a member of theLIA for more than 15 years, during which I think that I have beensupportive of the organisation, notwithstanding that I have felt, from timeto time, […]

Pressure increases on Standard Life to convert

Pressure has increased on Standard Life to demutualise as one of the largest with-profit policyholders has jumped on the conversion bandwagon.Barclays Global Investors, the second largest institutional investor has publicly lent its support to the cause of carpetbagger Fred Woollard, who is leading the charge to demutualise.Scottish Value Management head Colin McLean, another large investor […]

Jasper McMahon

The managing director of Misys Interactive Trading says the company is onthe brink of a very exciting development for IFAs where they will genuinelybe able to e-trade in life and pensions. New software and systems will havea major impact on the marketplace, he says.No matter how much you goad him on, Jasper Mc^_Mahon will not […]

TMO goes short on redemptions

The Mortgage Operation is offering a three-year mortgage fixed at 6.59 percent, with the redemption period extending a year after the fix ends.Clients can cut the period of the redemption penalty to the fixed per^_iodat an additional 0.1 per cent on the rate.TMO says the loan is in response to public demand for short redemptionlock-ins […]

Japan Economic Insight

James Dowey, Chief Economist, and Paul Caruana-Galizia, Economist

The conventional wisdom is that following a roughly 50 per cent rise in the stock market in 2013 in Yen terms, the Japan trade is over and done*. So the story goes, those big gains were due to a one-off boost from quantitative easing (QE) and a depreciation of the Yen — policies that one should think of as a palliative to Japan’s economic weakness, but not a cure. Rather the cure, and by implication the necessary condition for a longer-term investment case, is deep structural reforms — a painstaking re-weaving of Japan’s economic and social fabric, no less. The story continues: this is a much tougher test than launching a blast of QE, and one that prime minister Shinzo Abe, although well intentioned and well supported by the public thus far, is likely to fail. Stick a fork in Japan, it’s done…continue reading

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

    Leave a comment