July 2008
Markets & Economic Overview
Asian equities fell in June, led by India. The continued escalation of food and fuel prices
renewed fears over corporate earnings. This was compounded by the ongoing credit crisis,
negative US economic data, and despite this the Federal Reserve's decision to hold interest
rates steady.
First-quarter growth remained healthy in most countries, but Singapore reported declining
exports to the US and Europe. In Japan, economic data was mixed: while first-quarter growth
was upgraded, consumption fell for a third month. Inflation rose to record highs across the
region. Many central banks raised interest rates, although China, India and Taiwan chose to
hike bank reserve requirements instead. In contrast, Australia, Japan and Thailand opted to hold
interest rates steady.
In politics, Thai prime minister Samak Sundaravej survived a no-confidence vote and a similar
motion against Malaysian prime minister Abdullah Badawi was dropped.
Portfolio news
In June we sold Malayan Banking, a relatively recent holding, on concerns over its lack of focus,
including the recent spate of overseas acquisitions, and Leighton Holdings, an exceptionally
rewarding long-term position. In Japan, we pared the weighting in Bank of Kyoto and increased
Mitsubishi Estate's.
In portfolio news, Rio Tinto reached an agreement with Chinese steel maker Baosteel to raise
iron ore prices by up to 97%.
Strategy and outlook
We expect equity markets to stay volatile. Sentiment remains captive to deteriorating
economic growth and worsening corporate earnings. Central bank policy does not appear to
have kept up with inflation, while government moves to cut energy subsidies will likely increase
price pressures in the short term. With markets broadly back to levels last seen 12 months ago,
consolidation is well underway. But market support schemes that were mooted recently would
represent a backward step.
Having been concerned about the bubble in certain markets (notably China) and, in a general
sense, having been unexcited about valuations across the region for a couple of years, our
appetite is starting to be whetted after the recent sharp falls, all the more so as we have few
concerns about our holdings. Our investments in aggregate boast strong balance sheets and
responsible management teams.
Source: Monthly Factsheet Aberdeen Asset Managers Limited