This provides a positive global backdrop for Asia, as the region’s superior relative growth prospects help to attract further capital inflows.
We are also seeing more evidence of the ability of Asia to decouple in terms of economic growth, so investors are shifting away from just looking at historic correlations between US economic growth and Asian economic growth, and indeed the market performance of the two areas. Simply put, Asia now has more internal growth drivers than in its US dependant past.
Macroeconomic data is backing up this view. For example, Chinese exports have remained robust, growing at around 30 per cent year-on-year, despite the beginning of a US slowdown, while Indian GDP growth remains extremely strong at nearly 9 per cent. In some of the other areas of Asia away from the two largest economies (China and India), there are also some quite encouraging domestic economic recovery signs. For example, in Singapore, consumption is being boosted by quite sizeable immigration of well-educated professionals: the population is increasing by around 50,000 per annum. This is also helping to increase property prices, particularly in the luxury sector.
Inflation also seems to be much less of a problem than perhaps the consensus expected a few months ago. Chinese inflation is still only growing at around 1.5 per cent, while some areas, such as Taiwan, are actually going into deflation again. The recent decline in oil and raw material prices has helped, but the inflation numbers also reflect the lack of pricing power at the company level, as rising raw material prices have not been fully passed on to consumers. Some central banks in Asia are now actually thinking about loosening monetary policy. For example, we have already seen interest rates fall in Indonesia and the Philippines.
We remain positive for the prospects for Asia, even though we have seen a strong rally since the lows in May. All of the factors that made us positive about Asia prior to the global sell-off in May still exist, and we can see no reason to change our views. If anything, liquidity conditions in Asian markets are improving. In some ways, that is typical of the fourth quarter, but it is also perhaps indicative of the fact that as growth becomes scarce in the rest of the world, then where it does exist, people are going to chase that growth, leading to good capital inflows into Asian markets.
Stuart Parks, head of Asian equities, Invesco Perpetual.
