“Both markets are displaying strong growth and also offer a range of companies with direct and indirect exposure to China. Both rank highly for free trade, open markets, lack of corruption and a competitive tax regime.
“Equities in Asia have significantly de-rated and now trade at a material discount to overall global equities. The reason for this continues to be pessimism surrounding China, which we believe is divorced from the facts. While there is a slowdown in the heavy industry areas of China, the service sectors are now a strong driving force behind economic growth.”
In terms of other areas, John Yakas, manager of the Polar Capital Asian Financials fund, notes the real estate sector has outperformed in the past month helped by potential interest rate cuts in the region and a lower likelihood of rate rises in those markets linked to the US dollar.
But he adds: “Domestic rate cuts could start proving a negative for the bank sector since margins will be difficult to sustain in the face of falling interest rates and increased intervention by regulators to ensure cuts are passed on to borrowers. However, interest rates in emerging markets remain well above the levels seen in the developed world and with ample room for banks to still charge enviable spreads. Added to which, central banks will be cautious in cutting rates to avoid pressure on their currencies.”
In Asia, once again, China is the driving force in terms of economic growth and investment opportunities. In the past 12 months, UK retail investors have steered clear of Asia and Japan, but with elections in the US this year and in some parts of Europe, it is possible Asia could see a similar improvement in investor sentiment to that which has helped the broader emerging markets sector rebound in 2016.
Nyree Stewart is features editor at Investment Adviser
