The tiger burns bright once more

Devastated in a tidal wave of financial destruction in 1997, Asia is fighting back and opening up to lucrative investment

Only a few years ago the darling of the global equity market had to be the Far East. Economic growth in the region was anything between 5 per cent and 10 per cent. A young population determined to improve itself by investing and saving, strong government finances without the drag of a welfare state, all seemed to provide a fairy-story tale of riches for investors. The financial crisis triggered by the devaluation of the Thai baht on 2 July 1997 meant this story ended unhappily. Devaluation spread like a tidal wave virtually wiping out stock markets across the region, even the mighty centre of Hong Kong was swamped. The fall in stock markets was worse than the Wall Street crash of 1929 and many commentators felt it would take years to recover. But the tiger has been reborn and is once again roaring.

Only a few years ago the darling of the global equity market had to be the Far East. Economic growth in the region was anything between 5 per cent and 10 per cent. A young population determined to improve itself by investing and saving, strong government finances without the drag of a welfare state, all seemed to provide a fairy-story tale of riches for investors. The financial crisis triggered by the devaluation of the Thai baht on 2 July 1997 meant this story ended unhappily. Devaluation spread like a tidal wave virtually wiping out stock markets across the region, even the mighty centre of Hong Kong was swamped. The fall in stock markets was worse than the Wall Street crash of 1929 and many commentators felt it would take years to recover. But the tiger has been reborn and is once again roaring.

The origins of the crisis lay in over-investment and over-borrowings in American dollars. Companies expanded rapidly, money was easy and corruption probably widespread. Much of this has now been blown away. One of the region's great advantages - its young population - meant that change was not culturally abhorrent. The region has therefore started to open its markets to foreigners; this in turn has brought new ideas to the locals. In particular, corporate accounting has improved along with a greater emphasis on shareholder value - something western economies take for granted. Corporate profits have risen dramatically in some cases and both overseas and local investors have returned to the stock markets. Many markets rose by over 50 per cent in 1999 and some top performing unit and investment trusts have doubled in value.

So what is the outlook for 2000? Interest rates and inflation are low while real economic growth should be around 7 per cent. A strong yen against the dollar helped Asian exports. China's entry into the World Trade Organisation will mark a real opening up of the largest country in the world. This should boost free trade and accelerate reform. In addition factors that have been propelling western markets higher - restructuring, a focus on shareholder value and new technologies, particularly the internet - are now beginning to hit Asia.

The "easy part" of the Asian recovery has happened but providing there are no external shocks Asian markets should continue to perform well. There are still potential problems, recovery in markets may slow much needed reform in the banking and corporate systems. Rising American interest rates are also not helpful and political unrest is often not far away.

In my view the key countries to look at in the region are China/Hong Kong, Taiwan, South Korea, Singapore and the outsider Malaysia. China has had real problems with deflation but excess capacity has fallen while export growth has picked up strongly. The economy is set to grow by around 7 per cent but the key factor is entry into the World Trade Organisation. This will spur reform and also help reduce China's risk premium. It will bring problems because imports will increase as the country is opened up and rising unemployment could cause social unrest. However, China, especially on a monthly savings basis, could prove very profitable. My suggestion would be an offshore fund run by Aberdeen called China Opportunities.

Hong Kong will be a key beneficiary of China's entry into the World Trade Organisation as it is still seen as a gateway into the country. A natural base for multinationals. This can be seen by the location of the third Disneyland in Hong Kong scheduled to open around 2003/04.

South Korea has seen the strongest recovery in Asia despite huge debts of some of the largest conglomerates. The country should see sustainable growth of around 5 per cent per annum. It now ranks among the top 10 online user nations.

Taiwan has elections in March which may unsettle the country but it has a very strong tech stock industry and has been a major beneficiary of the outsourcing trend in PCs and telecommunications. China's entry into the World Trade Organisation will also result in better market access for Taiwanese exporters.

Singapore is probably the most mature of the markets and responded in the most positive way to the original crisis. The government aims to transform Singapore into a service centre with a focus on technology. Malaysia adopted the opposite policy to its neighbour Singapore and reintroduced capital controls in the crisis. This much-criticised and unorthodox approach has worked! Low interest rates, a cheap currency and booming exports have led to much inward investment. A return to the MSCI Index in May should boost market returns. This is my market of the year.

So how do you play the region's return to favour? Both unit trusts and investment trusts look attractive and there are plenty of good quality trusts. In unit trusts, I would look at Fidelity South East Asia (also available as an investment trust under Fidelity Asian Values on a discount of around 10 per cent). This follows a conservative strategy focusing more on blue chips. Managed locally by K C Lee this makes an excellent core holding. Two other unit trusts that I rate extremely highly but are virtually unknown to the public are Solus Eastern Enterprise and Lloyd George Eastern Opportunities. Adaline Ko used to run the former fund until October last year. It has a tremendous track record.

However, new managers Lawrence Yip and Christopher Wong were brought in. Both have an envious record in the region, so I am prepared to back the change. But Adaline under Lloyd George launched a new fund in January. She has a more aggressive approach than Fidelity but I expect to see this fund near or at the top of the league tables over the next year or so.

Quality investment trusts include Schroder Asia Pacific, Fidelity Asian Values and Fleming Asia. All three funds are sporting double digit discounts and if the region and the trusts' assets continue to improve these should narrow dramatically.

Remember that there are different ways to play this theme. In buying into South East Asia you are in effect getting into technology on the cheap. These areas are behind the West but catching up fast - the region remains a strong buy.

Mark Dampier is head of research at Hargreaves Lansdown

News
Susan Sarandon described David Bowie as
peopleSusan Sarandon reveals more on her David Bowie romance
Sport
Louis van Gaal would have been impressed with Darren Fletcher’s performance against LA Galaxy during Manchester United’s 7-0 victory
football
News
people
Arts and Entertainment
Christian Grey cradles Ana in the Fifty Shades of Grey film
filmFifty Shades of Grey trailer provokes moral outrage in US
PROMOTED VIDEO
Voices
The new dawn heralded by George Osborne has yet to rise
voicesJames Moore: As the Tories rub their hands together, the average voter will be asking why they're not getting a piece of the action
Arts and Entertainment
Jo Brand says she's mellowed a lot
tvJo Brand says shows encourage people to laugh at the vulnerable
Sport
Rhys Williams
commonwealth games
Life and Style
People may feel that they're procrastinating by watching TV in the evening
life
Arts and Entertainment
Southern charm: Nicolas Cage and Tye Sheridan in ‘Joe’
filmReview: Actor delivers astonishing performance in low budget drama
News
Isis fighters travel in a vehicle as they take part in a military parade along the streets of Syria's northern Raqqa province
i100
Life and Style
fashionLatex dresses hit the catwalk to raise awareness for HIV and Aids
Travel
travel
Life and Style
The veteran poverty campaigner Sir Bob Geldof issues a stark challenge to emerging economies at the Melbourne HIV/Aids conference
health
Arts and Entertainment
Benedict Cumberbatch and John Malkovich talk Penguins of Madagascar at Comic-Con
comic-con 2014Cumberbatch fans banned from asking about Sherlock at Comic-Con
Arts and Entertainment
Chris Pratt stars in Guardians of the Galaxy
filmGuardians Of The Galaxy should have taken itself a bit more seriously, writes Geoffrey Macnab
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    The benefits of being in Recruitment at SThree...

    £18000 - £23000 per annum + Comission: SThree: SThree, International Recruitme...

    Test Analyst - UAT - Credit Risk

    £280 - £300 per day + competitive: Orgtel: Test Analyst, Edinburgh, Credit Ris...

    Trainee Recruitment Consultants - Banking & Finance

    £20000 - £25000 per annum + OTE £40,000: SThree: SThree Group have been well e...

    Graduate Recruitment Resourcers - Banking Technologies

    £18000 - £25000 per annum + OTE £40,000: SThree: Huxley Associates are looking...

    Day In a Page

    Backhanders, bribery and abuses of power have soared in China as economy surges

    Bribery and abuses of power soar in China

    The bribery is fuelled by the surge in China's economy but the rules of corruption are subtle and unspoken, finds Evan Osnos, as he learns the dark arts from a master
    Commonwealth Games 2014: Highland terriers stole the show at the opening ceremony

    Highland terriers steal the show at opening ceremony

    Gillian Orr explores why a dog loved by film stars and presidents is finally having its day
    German art world rocked as artists use renowned fat sculpture to distil schnapps

    Brewing the fat from artwork angers widow of sculptor

    Part of Joseph Beuys' 1982 sculpture 'Fettecke' used to distil schnapps
    BBC's The Secret History of Our Streets reveals a fascinating window into Britain's past

    BBC takes viewers back down memory lane

    The Secret History of Our Streets, which returns with three films looking at Scottish streets, is the inverse of Benefits Street - delivering warmth instead of cynicism
    Joe, film review: Nicolas Cage delivers an astonishing performance in low budget drama

    Nicolas Cage shines in low-budget drama Joe

    Cage plays an ex-con in David Gordon Green's independent drama, which has been adapted from a novel by Larry Brown
    How to make your own gourmet ice lollies, granitas, slushy cocktails and frozen yoghurt

    Make your own ice lollies and frozen yoghurt

    Think outside the cool box for this summer's tempting frozen treats
    Ford Fiesta is UK's most popular car of all-time, with sales topping 4.1 million since 1976

    Fiesta is UK's most popular car of all-time

    Sales have topped 4.1 million since 1976. To celebrate this milestone, four Independent writers recall their Fiestas with pride
    10 best reed diffusers

    Heaven scent: 10 best reed diffusers

    Keep your rooms smelling summery and fresh with one of these subtle but distinctive home fragrances that’ll last you months
    Commonwealth Games 2014: Female boxers set to compete for first time

    Female boxers set to compete at Commonwealth Games for first time

    There’s no favourites and with no headguards anything could happen
    Five things we’ve learned so far about Manchester United under Louis van Gaal

    Five things we’ve learned so far about United under Van Gaal

    It’s impossible to avoid the impression that the Dutch manager is playing to the gallery a little
    Screwing your way to the top? Good for Lana Del Rey for helping kill that myth

    Screwing your way to the top?

    Good for Lana Del Rey for helping kill that myth, says Grace Dent
    Will the young Britons fighting in Syria be allowed to return home and resume their lives?

    Will Britons fighting in Syria be able to resume their lives?

    Tony Blair's Terrorism Act 2006 has made it an offence to take part in military action abroad with a "political, ideological, religious or racial motive"
    Beyoncé poses as Rosie the Riveter, the wartime poster girl who became a feminist pin-up

    Beyoncé poses as Rosie the Riveter

    The wartime poster girl became the ultimate American symbol of female empowerment
    The quest to find the perfect pair of earphones: Are custom, 3D printed earbuds the solution?

    The quest to find the perfect pair of earphones

    Earphones don't fit properly, offer mediocre audio quality and can even be painful. So the quest to design the perfect pair is music to Seth Stevenson's ears
    US Army's shooting star: Lt-Col Steven Cole is the man Hollywood calls when it wants to borrow a tank or check a military uniform

    Meet the US Army's shooting star

    Lt-Col Steven Cole is the man Hollywood calls when it wants to borrow a tank or check a military uniform