Emerging Markets

Barings Bullish On Asian Equities

Max Skjönsberg London 23 April 2012

Barings Bullish On Asian Equities

Baring Asset Management believes that Asian stocks are attractively valued and expects these markets to deliver strong returns in coming months.

Asian companies with a strong domestic focus that are sheltered from any external shocks are the favoured stock picks at the UK-based emerging market-focused investment house.

More specifically, the asset manager highlights firms that it thinks will benefit from infrastructure development and rising domestic consumption in the region. Barings describes the rise of the Asian consumer and the fast-growing and increasingly affluent middle class as key long-term investment themes.

In China, where stocks are continuously volatile despite robust economic growth, Barings favours consumer and information technology firms, while being on the guard against policy-sensitive areas such as banking and property, as it does not expect Chinese policy-makers to cut interest rates in the short term.

The Chinese economy is evidently slowing down, but the question is how much. There is presently a huge variety of investment views on whether the country’s economy is heading for a soft landing or a hard landing. Some asset managers have also questioned the accuracy of official data in China. But for the first time since November 2010, the latest Bank of America Merrill Lynch poll shows optimism for the Chinese economy, with a net 4 per cent of the regional panel expressing a positive view.

A tour around the region

Barings is underweight Hong Kong, where the property sector has taken a hit from the recent arrest of the co-chairmen and co-managing directors of Sun Hung Kai Properties. The political ramifications for the rest of the sector appear unclear at this time, the firm says.

The asset manager singles out South Korea as “a fertile ground for good stock selection opportunities”, emphasising global brands such as Hyundai Motor and Samsung Electronics.

In Taiwan, Barings takes a more cautious view, highlighting the possibility that the government could move to introduce a capital gains tax on property and securities transactions. The firm is therefore concentrating its efforts on the information technology sector and beneficiaries of continued strong demand growth for Apple products.

In southeast Asia, the firm is eyeing investment opportunities in Thailand - the stand-out performer among the ASEAN countries in recent months - and particularly Thai banks. These are currently enjoying strong loan demand from domestic corporates looking to increase capital expenditure, Barings says.

Similar to many other western investment firms, Barings is very positive on the long-term outlook for Indonesia on the back of rapid growth in domestic consumption and infrastructure development.

Barings also says that the Philippines has several similarities with Indonesia, for example a young and fast-growing population and an improving fiscal position, but that valuations are beginning to look somewhat stretched after some time of strong performance.

What is described as the defensive nature of the Malaysian market will likely hinder performance relative to other regional economies, Barings says. Elections are due to be held in the middle of the year, with uncertain outcomes.

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