October 2008
Markets & Economic Overview
Asian equity markets fell sharply in September, following the financial sector upheaval, which
has spread from the US to Europe, and US lawmakers’ initial rejection of the Treasury’s
US$700bn rescue package.
Regional economic growth continued to contract as demand for exports from the West
weakened. Japan and Taiwan launched economic stimulus packages, while Korea and Indonesia
cut taxes.
Retreating commodity prices helped inflation moderate across most of the region. China
and Taiwan cut interest rates (the former for the first time in more than six years), whereas
Indonesia, the Philippines and Thailand raised rates.
Japan’s Taro Aso became prime minister but faced an immediate setback when a minister
resigned unexpectedly. In Thailand, Somchai Wongsawat took over as prime minister after
Samak Sundaravej was forced out. Malaysian opposition leader Anwar Ibrahim, having served a
five-year ban, was sworn in to parliament after winning a by-election.
Portfolio news
In September, we added selectively to holdings that we believe will emerge from the current
turmoil in a stronger position, or those that have corrected sharply this year. These include
Singapore Technologies Engineering, Rio Tinto, China Mobile and PetroChina.
Against this, we pared Malaysia’s Public Bank and Hong Kong’s CLP.
We also exited Kookmin Bank in Korea, accepting its repurchase offer and sold China’s Zhejiang
Expressway because of its poor business outlook, with stagnating revenue growth from its toll
roads and a lack of clear direction in its securities arm.
Strategy and outlook
Looking ahead, markets are likely to remain unsettled as the worsening credit crisis takes its toll
on the global financial sector. Global economic growth is expected to slow further, particularly
with the massive job losses from the rapid consolidation in the financial sector worldwide.
Meanwhile, Asia’s dependence on exports makes it susceptible to the slowdown in the West,
even though it remains the fastest-growing region for now. On a brighter note, inflation
appears to be receding, with the retreat in the prices of oil and other commodities. This should
alleviate pressures on corporate margins and wages, and enable policymakers to pursue growth
more freely. Although we expect corporate earnings growth to stall, we are optimistic that Asia,
with its quality companies, will weather the downturn. In addition, any indiscriminate selling
may present opportunities for us to add to our preferred holdings.
Source: Monthly Factsheet Aberdeen Asset Managers Limited