Tuesday February 11, 3:45 PM
1Q03 FUND SURVEY: A FEW BRIGHT SPOTS AMIDST GLOBAL UNCERTAINTIES
By Vasu Menon, Chief Editorial finatiQ
Findings from our inaugural first quarter 2003 fund survey. Five managers participated in the survey; SG Asset Management, Schroder Investment Management, Aberdeen Asset Management, OCBC Asset Management, and Henderson Global Investors.
We sought their views on global equity markets.
Europe Preferred To The US
European equities were seen as more attractively priced than US equities. With M&A activities picking up in recent months, indications are that European stocks have fallen to levels where investors are willing to consider buying.
Although fund managers' outlook on Europe has improved, the sluggishness of the Eurozone, including the UK, prevents most of them from overweighting the region too much. Aberdeen Asset Management expressed concerns about the European Central Bank's reluctance to reduce interest rates.
The US market was generally kept to a moderately underweight position given the uncertainty over the Iraq issue and the weak outlook for corporate profits. But there are mixed signals on the economic front. Some economic indicators have either held up or shown signs of improvement, like manufacturing numbers.
SG Asset Management has a contrarian overweight call on the US as it is "more confident about the short-term performance of US equities"
But, the general consensus for now is that US equities are still considered expensive, companies' earnings remain uncertain, and the growing fiscal imbalance could derail long-term recovery.
Concerns About Latin America
In this period of high volatility in the global markets, non-Asian emerging markets turned out to be relatively favoured by fund managers. The average neutral weighting is derived from various factors like Eastern Europe's growth potential and supportive valuations. Latin America was largely avoided due to its economic instability, like Argentina's debt crisis, and the region's higher exposure to the US economy on the whole.
Most Bullish On Thailand, India And South Korea
Asian equities, excluding Japan, are well-liked by all the managers, given attractive valuations and the leverage which most Asian economies have to a global recovery. But Henderson remained neutral on Asian equities as the high dependence of Asian countries to the US means that a less than ideal recovery in the US economy may drag down the overall performance of Asian economies.
Within Asia, fund managers are most bullish on Thailand, India, and South Korea. These economies have done well, especially Thailand. Over the last three months to 31 January 2003, the Stock Exchange of Thailand index is up by 10.9%. India is not far behind, with a 9.8% rise in the Bombay Sensex. The Korea Stock Price Index, on the other hand, gave up 8.7% due to concerns of domestic consumer credit problems and profit-taking by fund managers. But given that South Korean stocks continue to have a growth story, and are cheap relative to the entire Asian market universe, fund managers still overweight the country.
Thailand is most favoured by fund managers due to its strong domestic demand theme. Full year 2002 gross domestic product growth was 5%. Export growth is healthy and low interest rates have spurred consumer spending. Kam Yoke Meng, fund manager from OCBC Asset Management, believes that going into 2003, "earnings momentum and strong consumer spending should continue", given positive macro and micro factors in the Thai economy.
Japan, Philippines, Australia And New Zealand Least Favoured
According to the fund managers, Japanese equities are unlikely to see any uptick soon as deflation and banking problems persist in Japan. Australia and New Zealand may be safe havens to some investors but they will lag the regional economies once recovery gathers speed.
Neutral To Overweight On Hong Kong, China, Indonesia and Singapore
China stands out for its resilient domestic economy, with 2002 GDP growth at 8%. Foreign investments into the country is set to see a record in 2002 and could continue rising over the next several years, as their WTO status begins to reveal more concrete results. Henderson Global Investorshas an overweight on China as "equities look well placed given the booming Chinese economy, evidenced by robust industrial production, surging exports growth and investment, and strong retail sales. The economy is expected to grow about 8% in 2003." OCBC Asset Management, on the other hand, has an underweight on China as it believes that corporate earnings momentum is lacking, and this will cause the stock market to drift lower towards the second half of this year.
AVERAGE WEIGHTINGS TABLE
1 for underweight, 2 for underweight, 3 for neutral, 4 for overweight and 5 for very overweight.
| US |
2.25 |
| Europe including UK |
3.75 |
| Asia Pacific ex-Japan |
3.5 |
| Emerging markets (non-Asia) |
3 |
| Japan |
2 |
| Hong Kong |
3.375 |
| Taiwan |
2.75 |
| South Korea |
4 |
| China |
3.125 |
| India |
4 |
| Thailand |
4.25 |
| Philippines |
2 |
| Indonesia |
3.33 |
| Malaysia |
2.75 |
| Singapore |
3.75 |
| Australia |
1.75 |
| New Zealand |
1 |
* Regional weights were provided by SG Asset Management, Schroder Investment Management, Aberdeen Asset Management and Henderson Global Investors, while country weights were given by SG Asset Management, OCBC Asset Management, Aberdeen Asset Management and Henderson Global Investors.
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