February 2010
Market Review
Asian markets fell in January, with sentiment hurt by fears about monetary tightening in China, along with proposed banking reforms and disappointing employment data in the US. Among the laggards were China, Hong Kong and Taiwan, whereas Indonesia and Japan outperformed.
China unexpectedly raised the proportion of deposits that banks must set aside as reserves in an attempt to curb bank lending. India similarly hiked lenders’ reserve ratios. Most central banks kept interest rates unchanged, even though inflation has started to creep higher. Exports saw a spurt across most of the region, boosted by China’s sharp fourth-quarter GDP growth. Only Korea’s economic growth decelerated amid declining exports and domestic demand.
In politics, Sri Lanka’s incumbent president Mahinda Rajapaksa was re-elected in the nation’s first peacetime election in decades. Despite winning, the president arrested his key opponent, which augurs badly for the country.
Portfolio Review
There were no major portfolio changes during the month.
In portfolio-related news, carmaker Toyota Motor’s faulty accelerator pedal problems seem set to worsen, with the number of recalled vehicles worldwide approaching the total number of units sold by its parent last year. Canon’s full-year results exceeded expectations, mainly through good cost control. Samsung Electronics benefited from stronger earnings from its semiconductor and LCD divisions and expects sales of flat screen TVs to grow by 30% this year.
Rio Tinto posted sharply increased fourth-quarter output, buoyed by Chinese demand.
Outlook
Looking ahead, it is uncertain how long the market correction will last. In the near term, sentiment appears highly sensitive to worries about the removal of fiscal stimulus and the start of the monetary tightening cycle. The faster regional economies recover, the more nervous investors will become. Given the extent of last year’s rally, however, such a pullback would be healthy as market valuations will realign with fundamentals and present buying opportunities.
As bottom-up stock pickers with a focus on quality, we are cautiously optimistic about the year ahead, believing that markets will become more discriminating after last year in which, generally, the shares of weaker companies performed best. Our focus will remain on well-run businesses that have good long-term prospects, emerging from the downturn in a stronger position than they entered it.
Source: Monthly Factsheet Aberdeen Asset Managers Limited