16th February 2015
Ahead of Chinese New Year on 19 February, Andrew Swan, manager of the BlackRock Asia fund, comments on the outlook for Asian equities…
As China celebrates the year of the goat, investors should be looking to Asian equities to reflect many of the goat’s finest qualities. The goat is a resilient animal, used to solitude but not afraid of reaching higher levels. We see a similar journey for Asian equities in 2015.
Leading up to Chinese New Year, progress of the reform program announced in China in November 2012 continues to divide debate. Despite ongoing scepticism, reform has progressed across a number of fronts not least; fiscal budgeting, reducing the systemic risks to the banks through local government debt and slowing the expansion of the shadow banking system. All of this is helping to reduce the risk premium overhanging China.
The recent interest rate cut demonstrated that policymakers are willing to take serious steps to achieve the stability of growth that can provide a solid foundation for the government to work on ensuring employment and social stability. Without such, it would be difficult to advance necessary reforms and focus on the larger structural concerns.
The opening up of new sectors to private players will provide fertile ground for many of the “new economy” internet companies to expand into. The state-owned enterprises which, until the latter part of 2014, had been very out of favour are now providing opportunities that we haven’t seen before, in terms of improving efficiencies and properly aligning management incentives.
We’re also interested in companies which will benefit from the government’s push to reorient exports; moving from low-end manufacturing, such as textiles and toys, towards products which are higher up the value chain and have some level of intellectual property attached. “The recent fall in the oil price will also act to remove many of the shackles that have held Asia back in recent years. It will help to reduce inflation, improve current account deficits and will boost consumer and earnings power across the region. These positive steps towards cyclical and positive change are yet to be fully appreciated by investors.
Stability in global growth, structural reform in India and improving liquidity in the region, combined with attractive valuations and low ownership, could mean that like the goat, after a few years of solitude, Asian markets will reach higher ground.