Asian economies to remain strong despite volatility
Investor sentiment across the board will take a beating from the fallout of the subprime crisis, analysts say, but its impact in Asia is expected to be tempered by the growth of the region's economies, underscored by their strong domestic consumption and the mainland's staggering foreign reserves.
'The growth of Asia is no longer only directly tied to the US economic strength. Driven by strong domestic consumption, increased spending in infrastructure and with less dependence on exports, the US is not as important to the developing world as it once was,' said David Mitchell, director and head of intermediary business at Fidelity Investments. 'Asia's dependence on developed markets will continue to diminish as people look to other sources for investment.'
Despite a number of positive decisions made in the US earlier in the year; including the Federal Reserve interest rate cuts and a US$146billion injection into the American economy, fund managers expect volatility to linger in the year ahead.
Amid this uncertainty, cash-rich investors are increasingly moving out of the rocky equities market and looking to grow their savings elsewhere.
'Local investors appear to be more conservative though they are not as fragile as in 2002-2004 when people were pouring money into capital guaranteed funds,' said Rosita Lee pui-shan, head of investment products at Hang Seng Investment Management Limited. 'Instead, certain types of conservative products, such as total return bond funds or asset allocation funds, are more attractive to the market.'
Indeed, the US mortgage debacle has created some investment opportunities. 'Investors are finding tremendous values and attractive entry points for high-yield bond products as they are thinking more long term and are diversifying their portfolio by adding more fixed income into the mix given the uncertainty in the market,' Mr Mitchell explained.
Diversity and a long-term approach are key characteristics that will define the year, with JF Asset Management's newly launched commodities-related Five Elements Fund an example of one product that is targeting both these goals.
The new fund aims to leverage on the rapid pace of urbanisation and industrialisation in the region through a portfolio of commodities, mining, infrastructure, logistics, power and agricultural stocks.
'The fund is a way of getting clients to look at things differently. There is a shift away from geography and more on sector. This is a holistic Asia product,' said Terry Pan San-kong, JF Asset Management's head of retail business. 'Clients get distinct exposure in one portfolio that offers good diversification. This is a higher growth product.'
As investors become more sophisticated, many are ditching the get-rich-quick mentality in favour of longer-term returns. 'There is lower turnover in the stock market and people are not diving into the market every time it plummets. They are more cautious, and that is wise,' Mr Pan said.
This vigilance is expected to last well into the year, with global markets continuing on their yo-yo ride. 'Investors are not sure when the subprime impact will be over. They will not have confidence
until they see light at the end of
the tunnel,' said Isabella Chan Shuet-sum, head of sales and marketing at Franklin Templeton Investments.