September 2008
Markets & Economic Overview
Asian equities remained volatile in August with market performance mixed across the region.
Inflation continued to climb despite the recent retreat in the price of crude oil and other commodities. Central banks in India, Korea and Indonesia raised key interest rates.
For the second quarter, economic growth shrank in Hong Kong and slowed in Singapore and Thailand. Forecasts were lowered in Taiwan and the Philippines.
Malaysian opposition leader Anwar Ibrahim was sworn in as a member of parliament after he won a by-election by a wide margin. At the time of writing, Thai prime minister Samak Sunderavej has declared a state of emergency following weeks of street protests.
Portfolio news
We initiated a position in Hong Kong's Public Financial and topped up United Plantations. Conversely, we top-sliced Korean Reinsurance.
Quarterly earnings for Malaysia's AEON Credit were positive despite the high inflationary environment, helped by an improvement in operating profits from its retail and property management arms. On the other hand, Korean Reinsurance's performance was weighed down by appraisal losses from equity investments, while Singapore's Wheelock Properties' profits fell on poorer sales at two of its projects; nonetheless, we are comfortable because the company has a strong balance sheet and good cash flow.
Strategy and outlook
Looking ahead, we expect market sentiment to be swayed by the still unfolding crisis in the credit markets, as major financial institutions face massive write-downs. On a brighter note, the threat of inflation within the region appears to be diminishing, with commodity prices having peaked. However, that may be a symptom of slowing growth – which brings its own challenges. With much of the developed world on the cusp of recession, the likelihood of coordinated monetary response has increased. Interest rate cuts will make little difference if credit conditions remain tight.
We are, therefore, cautious in our outlook, although with equity markets consolidating we see opportunities to add to the portfolio. The caveat is that corporate earnings growth is expected to flatten. Our holdings have performed relatively well so far and we are confident that they will weather the downturn, given their strong management and robust balance sheets.
Source: Monthly Factsheet Aberdeen Asset Managers Limited