January 2010
Markets & Economic Overview
Asian small cap equities outperformed the broader asset class in December, as economic data
continued to improve across most of the region. Among the best performing markets were
Taiwan and Korea, with their exports posting the first increase in more than a year.
China’s recovery continued to gather pace in November on the back of brisk bank lending,
while India posted a strong rebound in industrial activity, despite shrinking farm output caused
by the poor monsoon.
Inflation accelerated in China, India, Sri Lanka and Thailand. Most central banks kept interest
rates at record lows, but Australia raised rates for a third consecutive month.
In policy news, Beijing stepped up measures to curb real estate speculation and reduce
overcapacity in several industries. In India, policymakers plan to help finance infrastructure
spending from the sale of shares in three state-owned power companies.
Portfolio news
There were no major changes to the portfolio over the month.
In corporate results, Hong Kong’s Hung Hing Printing and Kingmaker reported decent interim
earnings, while Malaysia’s AEON Credit and United Malacca’s quarterly results were in line with
forecasts. Pos Malaysia’s nine-month results disappointed slightly because of lower revenues
and interest income. Elsewhere, Jollibee divested two Taiwanese restaurants to focus on core
brands in China.
Strategy and outlook
Looking ahead, Asian markets may continue to rise, although it will be harder to make
headway, given the strong performances posted in 2009. Recent corporate earnings growth
has been driven by one-off factors, such as cost-cutting and inventory restocking, and a more
fundamental improvement in profitability will be required if the rally is to be sustained. On the
other hand, rising fiscal indebtedness will pressure governments of developed economies in the
West to withdraw stimulus support, increasing the risk of policy mistakes. With the inherent
imbalances in the global economy still not addressed, the likelihood of a global correction
appears to have been carried over into 2010. In such an environment, we see our stock-picking
approach as especially relevant. Our well-managed holdings are financially sound, and should
emerge stronger, whatever the current headwinds.
Source: Monthly Factsheet Aberdeen Asset Managers Limited