Wary investors are spoilt for choice in Asia

EMERGING MARKETS

BY CLIFFORD GERMAN

Mexico's misfortune may be Hong Kong's opportunity if the emerging markets can recover from the general panic that seized them late last year. Unlike Latin American economies which have relatively high levels of debt and recent histories of inflation, the emerging economies of East and South Asia have followed relatively tight monetary policies, with low debt and low inflation.

They are also relatively strong in manufacturing industry and exports, and well placed to take advantage of sustained growth in world trade. Unlike Latin America, which is heavily dependent on North American markets, East Asia in particular has an each-way bet, benefiting from Japanese investment and US export markets. And share prices are cheaper than they were after falling 20-40 per cent in the past 12 months.

Historically, Hong Kong has been the dominant market, but the other emerging markets in Asia offer investors an increasing choice. The Hong Kong market fell 15 per cent in the six weeks after the Mexican crisis broke, triggering a wave of liquidation by mainly US-based fund managers pulling money back home.

Inevitably the sell-off spread to other markets, regardless of the fundamentals. But the Hang Seng index has since rebounded and stands only 5 per cent below the level at the start of the Mexican panic.

The shake-out however came on top of a steady fall in share prices from the peak levels reached in early 1994. Once again Hong Kong led the way, reflecting the political uncertainties over its future under Chinese rule, as well as the current adminstration's policy of linking the Hong Kong dollar to the US dollar, a policy that inevitably makes Hong Kong hyper- sensitive to the successive rises US interest rates over the past year.

The importance of property companies and banks, both highly sensitive to interest rates, in the Hang Seng index, further increases the impact of US interest rates. From the all-time peak last February Hong Kong shares fell more than 40 per cent and are still one third lower than a year ago.

Inevitably, the Hong Kong stock market is highly volatile. But Hong Kong is a resilient economy. Michael Thompson-Lawson, chief executive of Crosby, the specialist agency broker and fund manager, points out that Hong Kong has never experienced a domestically-generated recession, and as long as trade accounts for 200 per cent of gross domestic product, such a thing is next to impossible.

Crosby also takes a more optimistic view about US interest rates being close to the peak, which implies a more optimistic outlook for Hong Kong, too. The threat of inflation and political instability in mainland China has also receded perceptibly in recent weeks.

Taiwan and South Korea have been much less volatile than Hong Kong, although they tend to be less favoured by UK investors and fund managers. Malaysia and Singapore are more easily traded, have combined market capitalisations greater than Hong Kong, and have suffered less in the past12 months. But the Singapore economy is showing signs of strain after two years of rapid growth and Malaysia is also showing signs of over-heating. Neither is on Crosby's buy list.

Investors have other options. Thailand is likely to benefit from a peaking in US interest rates, and the outlook for company earnings is good. Shares in Indonesia look cheap in relation to rising earnings Small investors are well advised to look for a balance of risks among unit trusts and investment trusts.

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

Voices
Homeless Veterans charity auction: Cook with Angela Hartnett and Neil Borthwick at Merchants Tavern
charity appeal
Sport
Amir Khan is engaged in a broader battle than attempting to win a fight with Floyd Mayweather
boxing Exclusive: Amir Khan reveals plans to travel to Pakistan
Arts and Entertainment
Caroline Flack became the tenth winner of Strictly Come Dancing
tvReview: 'Absolutely phenomenal' Xtra Factor presenter wins Strictly Come Dancing final
Sport
Ched Evans in action for Sheffield United in 2012
footballRonnie Moore says 'he's served his time and the boy wants to play football'
PROMOTED VIDEO
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

    Carlton Senior Appointments: Private Banking Manager - Intl Bank - Los Angeles

    $200 - $350 per annum: Carlton Senior Appointments: Managing Producer – Office...

    Carlton Senior Appointments: San Fran - Investment Advisor – Ind Advisory Firm

    $125 - $225 per annum: Carlton Senior Appointments: San Fran - Investment Advi...

    Sheridan Maine: Commercial Finance Manager

    Up to £70,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

    Sheridan Maine: Regulatory Reporting Accountant

    Up to £65,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

    Day In a Page

    The week Hollywood got scared and had to grow up a bit

    The week Hollywood got scared and had to grow up a bit

    Sony suffered a chorus of disapproval after it withdrew 'The Interview', but it's not too late for it to take a stand, says Joan Smith
    From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?

    Panto dames: before and after

    From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?
    Thirties murder mystery novel is surprise runaway Christmas hit

    Thirties murder mystery novel is surprise runaway Christmas hit

    Booksellers say readers are turning away from dark modern thrillers and back to the golden age of crime writing
    Anne-Marie Huby: 'Charities deserve the best,' says founder of JustGiving

    Anne-Marie Huby: 'Charities deserve the best'

    Ten million of us have used the JustGiving website to donate to good causes. Its co-founder says that being dynamic is as important as being kind
    The botanist who hunts for giant trees at Kew Gardens

    The man who hunts giants

    A Kew Gardens botanist has found 25 new large tree species - and he's sure there are more out there
    The 12 ways of Christmas: Spare a thought for those who will be working to keep others safe during the festive season

    The 12 ways of Christmas

    We speak to a dozen people who will be working to keep others safe, happy and healthy over the holidays
    Birdwatching men have a lot in common with their feathered friends, new study shows

    The male exhibits strange behaviour

    A new study shows that birdwatching men have a lot in common with their feathered friends...
    Diaries of Evelyn Waugh, Virginia Woolf and Noël Coward reveal how they coped with the December blues

    Famous diaries: Christmas week in history

    Noël Coward parties into the night, Alan Clark bemoans the cost of servants, Evelyn Waugh ponders his drinking…
    From noble to narky, the fall of the open letter

    From noble to narky, the fall of the open letter

    The great tradition of St Paul and Zola reached its nadir with a hungry worker's rant to Russell Brand, says DJ Taylor
    A Christmas ghost story by Alison Moore: A prodigal daughter has a breakthrough

    A Christmas ghost story by Alison Moore

    The story was published earlier this month in 'Poor Souls' Light: Seven Curious Tales'
    Bill Granger recipes: Our chef creates an Italian-inspired fish feast for Christmas Eve

    Bill Granger's Christmas Eve fish feast

    Bill's Italian friends introduced him to the Roman Catholic custom of a lavish fish supper on Christmas Eve. Here, he gives the tradition his own spin…
    Liverpool vs Arsenal: Brendan Rodgers is fighting for his reputation

    Rodgers fights for his reputation

    Liverpool manager tries to stay on his feet despite waves of criticism
    Amir Khan: 'The Taliban can threaten me but I must speak out... innocent kids, killed over nothing. It’s sick in the mind'

    Amir Khan attacks the Taliban

    'They can threaten me but I must speak out... innocent kids, killed over nothing. It’s sick in the mind'
    Michael Calvin: Sepp Blatter is my man of the year in sport. Bring on 2015, quick

    Michael Calvin's Last Word

    Sepp Blatter is my man of the year in sport. Bring on 2015, quick