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Attractiveness of Long-term investment in Emerging markets
NORTH AMERICA
The greenback continues facing downward pressures and this will carry on the consumer weakness. As compared to the Savings and Loan crisis in the 1990s, leverage today is considered much higher. It is forecasted that this economic weakness will persist into 2009. The US economy is in the progress of a recession and an earning announcement will likely disappoint the market. In short, the US is still in the centre of a credit crisis JAPAN
A spillover of US weakness is unavoidable to Japan. Leading indicators have shown that it has been in impeding recession for months. The recent trading of US dollar to Japanese Yen, which is below 100 is likely to hurt both the economy and stock market of Japan. A high Nikkei and USD/JPY correlation will continue to weigh down the Japanese stocks. In short, the economy is slowing with a range of indicators sliding downwards. EUROPE
The European Central bank (ECB) expects a 2% GDP growth for this year. But there is still a downside risk to this optimistic estimate if the US recession is long drawn. European stocks are priced cheaper than the US ones but have so far been under performing on the global stock markets. This is due to Europe's high interest rates. The ECB could cut its interest rates from 4% to boost its economy if necessary. In short, the economic growth is expected to slow down in 2008. EMERGING MARKETS & ASIA EX-JAPAN
Asia Pacific developing economies still see a strong forecast growth of 7.7% (2008) as compared to 8.2% (2007). Economic resilience is likely in the face of a US recession. This is not a decoupling argument but a matter of relative growth and performance is likely to grow stronger. Returns on equities are also higher and are likely to be more resilient. In short the long term investment is still attractive for Asian Ex-Japan. Emerging markets will benefit from a flow of funds this year as they did in the early 1990s. TAIWAN
Diminishing cross-Strait political uncertainty could put the island on stronger footing in terms of sovereign rating outlook. And there is already stock market resilience as the TSE index has its best performance this year to date in Asia. In short, the presidential elections victory of KMT should improve cross-straits relationship and economic ties over a long term with mainland China. THAILAND
The Thai economy is coming off the bottom of its cycle and short-term interest rates cuts are expected throughout the course of the year. In short, new government policies are likely to be pro-business and market friendly. SINGAPORE
Inflation and a strong Singapore dollar will have some impact in its competitiveness. However, the forward PE at 12 times is not expensive. The market is also defensive with an expected dividend yield of over 4%. In short, Singapore is a small economy which is highly sensitive to the US economy and markets. |
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May, 2012
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