Go Global: Your Window To The Outside World

At DSIJ, helping readers become astute investors has been a tradition. Cherished for over 27 years now, this tradition has enabled our patrons build wealth in the most meaningful manner. Changing with times has been our core strength and the prime reason for our success as India’s # 1 Investment magazine. With the global economic landscape having changed a lot over the past couple of decades, global financial markets have nearly integrated over time. This offers many cross border investment opportunities today.

Keeping in line with providing the best of advice to our readers, here is another first from DSIJ - A global view with a special emphasis on the Asia Pacific region. DSIJ has always trusted the best minds when it comes to providing advice to readers. Keeping in sync with the same, we have Vikas Gattani, CEO, Progress Capital, providing us with his valuable insights on the happenings around the Asia Pacific markets and suggesting investment ideas which are sure to work wonders for your portfolios.

Vikas is a seasoned financial industry veteran with over twenty-two years of experience in trading and investment management in Asia Pacific financial markets. He was formerly CIO of the internal Hedge fund group of JP Morgan Asia and has earlier also run Asian Investments group at Merrill Lynch, Hong Kong. He is the founder and CEO of Progress Capital, a multi-family office run out of Singapore managing assets for ultra-high net worth individuals. The idea of this article is to provide fortnightly investment/financial market related news/views in high growth Asia Pacific markets excluding India. It is intended to provide information and eventual investment opportunities for readers of DSIJ who would like to diversify their investment horizon outside of India.

In China, where politics dominates economics, the Party’s once in a decade leadership change in November 2012 seems to have given the economy a new lift and hope. Xi Jinping who has taken over the party leadership from Hu Jintao will assume Presidency in February 2013. This is widely expected to usher in a period of reforms over the coming years.

The new Chinese leadership is looking to help evolve the economy from its previous export-driven and investment-reliant model to one which will be more a consumption-led economy going forward. The new regime is widely expected to focus on improving the efficiency of the economy through financial and service sector reforms.

In the two months since Xi Jinping and the new Politburo took office, manufacturing indices have climbed, A-shares have risen by about 17 per cent from their lows of 1960 levels and the property market in China has shown signs of revival in terms of volume. The leadership’s actions over the next nine months will set the direction and tone for the decade to come.

On the economic front, recent data from China continues to show signs of stabilisation and recovery. China’s manufacturing data showed a third month of continued expansion, where PMI was 50.6 in December 2012. This was followed by the strong trade data as well. Imports grew by 6 per cent against an expected 3.5 per cent and exports grew by 14.1 per cent against an estimated 6 per cent for December. The trade surplus almost doubled on a YoY basis to USD 31.6 billion.

A better manufacturing and trade data is leading to expectations that GDP growth for 2012 has stabilised around 7.4 per cent and with a pickup in the PMI , growth in 2013 is now projected to come around 7.8 per cent. GDP growth for Q4FY12 for China came in at 7.9 per cent against an estimated 7.8 per cent.

However, China’s December CPI accelerated to 2.5 per cent as compared to an estimated 2.3 per cent, driven by higher food prices as the country experienced the coldest winter in 28 years. PBOC expects price gains might be a concern for H2CY13, while the National Bureau of Statistics said pressure of food costs may ease after the CNY holidays.[PAGE BREAK]

The mild rebound from China will offset a growth drag in the US/Europe and the overall environment will remain challenging for external growth-dependent economies such as Singapore, Taiwan and Korea. Korea will likely temper the drag in H1CY13 by boosting stimulus efforts through rate cut and front-loaded fiscal easing. These countries will not see a meaningful rebound until the second half of CY2013 as the US economy will witness transition to a three per cent growth path only in late 2013. 

A change in government and a new thought process is not just limited to China. In Singapore, the government announced a slew of measures on January 11, 2013 aimed at capping the red-hot property market. These measures targeted not only foreigners and permanent residents (PRs) who have been aggressive buyers in the Singapore property market over the past few years, but also the local population. This is the 9th round of cooling measures introduced by the government since September 2009 and should cap prices in both residential and industrial sectors and bring down transaction volumes by 30-50 per cent. The measures include the introduction of Additional Buyers’ Stamp Duty (ABSD) for foreigners (to 15 per cent from 10 per cent), for PRs (1st prop 5 per cent, 2nd prop 10 per cent) and for citizens (1st prop none; 2nd prop 7 per cent). Moreover, Loan to Value (LTV) will lower to 50 per cent from 60 per cent and cash down payment will increase for all buyers of residential properties.

Philippines and Thailand stand out as countries which can benefit from further monetary easing since inflation is low and there is room for central banks in these countries to cut rates. Also, there is room for fiscal policy stimulus in the Philippines and Thailand, with a significant pipeline of infrastructure projects that complement private investment.

Like India, Indonesia suffers from high inflation of around 6.5 per cent and its basic balance deficit constraints its monetary policy. Additionally, China’s transition to a slower and less commodity-intensive growth will continue to weigh negatively on commodity exporting Indonesia. Bank Indonesia kept its policy rate unchanged at 5.75 per cent at its monthly meeting in January 2013.

The year has started on a strong note for Asian equities. This is purely because Asian economies have shown resilience in the face of challenging global macro conditions given their favorable demographics, rising income levels, and more importantly their prudent macroeconomic policies. Most Asian markets are up from one to five per cent for the year with strong foreign fund inflows. ASEAN markets, particularly Thailand and Philippines, look set to continue their strong bull run which has been in place over the last 2 years. Their political stability, rising income levels and reasonable valuations support this assumption.

The Chinese market and H-Share index (Chinese companies trading in HK) have seen a strong up-move of about 20 per cent in the last two months. However, the market is coming off very attractive valuations at 10x its 2013 earnings. Both A-share and H-share markets should consolidate at current levels prior to the Chinese New Year in early February before they resume their upmove further. Policy pronouncements at Central party’s committee meeting in March 2013 will set the tone for further moves in these markets. One can look to gain exposure to A-share/H-share market by buying HK listed ETFs (2823 HK/2828 HK). In US, FXI US is the ETF for FTSE China 25 index.