February 2010
Market Review
Asian small cap equities recorded declines largely in line with the broader asset class in January, with sentiment hurt by fears about monetary tightening in China, along with proposed banking reforms and disappointing employment data in the US. Among the laggards were China, Hong Kong and Taiwan, whereas Indonesia bucked the downtrend.
China unexpectedly raised the proportion of deposits that banks must set aside as reserves in an attempt to curb bank lending. India similarly hiked lenders’ reserve ratios. Most central banks in the region continued to keep interest rates unchanged, even though inflation has started to creep higher.
Exports saw a growth spurt across most of the region, boosted by China’s sharp fourth-quarter GDP growth. Only Korea’s economic growth rate decelerated amid declining exports and domestic demand.
In politics, Sri Lanka’s incumbent president Mahinda Rajapaksa was re-elected in the nation’s first peacetime election in decades. Despite winning, the president arrested his key opponent, which augurs badly for the country.
Portfolio review
There were no major changes to the portfolio over the month.
Corporate results were largely positive: India’s Godrej Consumer Products reported healthy sales volume and profit growth, while paint companies ICI India and Kansai Nerolac were boosted by benign raw material costs; Hong Kong’s AEON Stores’ sales and average spending rose during Christmas, while in Thailand, loans growth, fees and investment gains underpinned Tisco Financial’s full-year earnings. Conversely, South Korea’s Daegu Bank was hurt by its exposure to Kumho’s losses, albeit its core operating performance was encouraging.
Outlook
Looking ahead, it is uncertain how long the market correction will last. In the near term, sentiment appears highly sensitive to worries about the removal of fiscal stimulus and the start of the monetary tightening cycle. The faster regional economies recover, the more nervous investors will become. Given the extent of last year’s rally, however, such a pullback would be healthy as market valuations will realign with fundamentals and present buying opportunities.
As bottom-up stock pickers with a focus on quality, we are cautiously optimistic about the year ahead, believing that markets will become more discriminating after last year in which, generally, the shares of weaker companies performed best. Our focus will remain on well-run businesses that have good long-term prospects, emerging from the downturn in a stronger position than they entered it.
Source: Monthly Factsheet Aberdeen Asset Managers Limited