June 2009
Markets & Economic Overview
Asian equities rose sharply in May, buoyed by the seemingly benign results of the US bank
stress tests, hopes that India’s Congress Party election victory would speed up economic reform
and tentative signs that the global recession may be abating.
Inflation in Japan, China, India and Singapore eased in April. Central banks in Indonesia and the
Philippines lowered interest rates.
First-quarter GDP figures were disappointing: Thailand slid into recession, Japan and Taiwan
contracted at a record pace, but India and Indonesia expanded. Japanese lawmakers approved
a 13.9 trillion yen supplementary budget, while Hong Kong will spend HK$16.8 billion to lift
the economy.
In politics, Indonesian president Yudhoyono’s Democrat Party claimed victory in the
parliamentary elections, while Pyongyang drew sharp criticism worldwide for conducting
nuclear and missile tests.
Portfolio news
In portfolio activity, we exited Hong Kong Exchanges and Clearing on valuation grounds
following the rapid rise in its share price.
In quarterly results, our Singapore bank holdings United Overseas Bank and Oversea-Chinese
Banking Corporartion’s operating profits held up well and their provisioning policies have been
conservative in anticipation of tougher times ahead. In India, HDFC’s net interest income rose,
while non-performing loans fell. Grasim was aided by good cost controls.
In Japan, earnings were generally lacklustre, led by exporters such as Honda Motor. A major
concern for these companies is the lack of visibility of medium-term demand, and margin
pressures because of the strong yen.
Strategy and outlook
Looking ahead, the sheer weight of liquidity may help to maintain the recent rally’s
momentum, despite the still uncertain outlook for both economic growth and corporate
earnings. Any global economic recovery is likely to be drawn out, given the structural problems
that persist in the West and China’s inability to compensate quickly enough for the collapse in
demand for Asian exports. As such, we expect a pullback at some stage. But we remain positive
about Asia’s long-term prospects, because of its better fundamentals with respect to debt
levels and latent demand.
Source: Monthly Factsheet Aberdeen Asset Managers Limited