GLOBAL - Tiger economies are offering strong investment potential as Asia emerges from economic crisis.
Corporate restructuring and economic reforms introduced after the Asian crisis of 1998, coupled with reform in China, means that countries such as Korea, Hong Kong, Taiwan, Singapore, Malaysia and Thailand, are now sprouting attractive investment opportunities in the face of volatile markets.
According to Baring Asset Management (BAM), the region’s problems appear less acute compared to other markets in West. For example, over the last year the MSCI World Index was down 16% compared to the MSCI AC far East Free (ex-Japan) Index which was up to 7%. Year-to-date the Asian (ex-Japan) index was up 10.7% compared to the World Index, down 3.8%.
But if a recovery does get underway, Asia is also expected to be one of the first regions to benefit due to its traditional export dependence on the West and its cyclical markets which tend to mirror the global economy.
“The Far East is coming out of the rehabilitation period which was needed to shed debilitating cronyism and over-investment and is now much stronger. The pain of reform is paying off with increased economic stability in the region and an improved state of foreign exchange reserves,” said James Squire, BAM’s Asia Pacific equity investment.
“Since corporate reform in Asia, capital expenditure has become more disciplined and positive cash flows have reached previously unheralded levels. De-leveraging has occurred and returns recovered to pre-crisis record levels. However, these higher returns and improved balance sheets have yet to be rewarded by the markets.”
This means that Far Eastern stocks are currently discounted compared to the US and Europe, Squire explained.
But he warned that any risks to the region’s stability are primarily external; such as faltering US demand, political tensions or the Japanese banking economy.
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