Dow Jones)--After getting the cold shoulder for much of last year, Asian equities, particularly Indian and Chinese stocks, are getting a closer look from fund managers.
The global economic slowdown generally dampened enthusiasm for the region. Between rocky markets and investor redemptions, funds took shelter in cash and retreated to home markets when possible. But now there are signs the tide is turning. Managers note that prices have fallen to more attractive levels and are also encouraged by government spending plans, particularly in China.
"Our preferred region is Asia Pacific ex Japan," Douglas Cairns, investment specialist at Threadneedle Asset Management, said noting that recent Chinese government stimulus plans are having a beneficial impact. "In addition, the region's banking system is relatively sound and valuations overall have fallen significantly."
Fund managers were "slightly overweight" the region during the month of March, according to Dow Jones' monthly survey of fund managers in Asia. Weightings reflect managers' portfolio composition compared with benchmark indexes. North American stocks have carried more weight in the last six months, but Asian stocks are gaining. Among Asian stocks, China and India came out on top with fund managers "overweight" on the two.
Managers pointed out the benefits from China's investment package and various tax cuts.
"Judging from the data we've seen coming out of China recently, the package seems to be quite successful and we expect this trend to continue," said Mark Mobius, fund manager at Templeton Asset Management Ltd. Mobius noted China's strong credit growth and continued improvement in its Purchasing Manager's Index (PMI) over the last few months, signaling a possible bottoming in the country's manufacturing sector.
Fund managers expect sectors such as infrastructure as well as consumer-related and commodity sectors to benefit from government-led spending.
India hasn't rolled out as much government spending - the government has introduced spending plans totaling US$26.4 billion compared with China's $588 billion - but lower prices are drawing in buyers. The Bombay Stock Exchange's 30-stock Sensitive Index is down more than 39% in the last 12 months. Similarly, the Shanghai composite index is down 36% from 12 months ago while the Hang Sent is down 37% over the same period.
"We believe valuation levels have fallen to attractive levels for medium-term investors. Forward looking price to earnings ratios...are low by historical standards," Threadneedle said, adding that dividend yields are also high relative to history, government bond yields and interest on cash.
Fund flows show that investors are also flowing back into Asia. During the week ended March 20, Asia ex-Japan equity funds took in US$409 million, most of which was underpinned by flows into regional or greater China mandates, according to Boston-based fund flow tracker EPFR Global.
Looking at other asset classes, fund managers remained upbeat on bonds but selectively. Fortis Investments, for instance, sees value in investment grade corporate bonds but believes treasury securities are too expensive.
Each month, Dow Jones Newswires surveys fund managers on portfolio weighting recommendations for the succeeding months, with most looking at a 12-month horizon. This latest survey was taken over the past 10 days. The respondents for this month's survey were Aberdeen Asset Management, Credit Agricole Asset Management, Fortis, ING Investment Management, JF Asset Management, Prudential Asset Management, Schroder Investment Management, Standard Life Investments and Threadneedle. For the survey, each participant was asked to assign recommendations to each asset class. The weightings from each fund manager were then averaged: 0 is neutral, up to +0.5 is slightly overweight, above +0.5 to +1 is overweight, above +1 is very overweight. Meanwhile, 0 to -0.5 is slightly underweight, below -0.5 to -1 is underweight, below -1 is very underweight.
OVERALL GLOBAL WEIGHTINGS March09 Feb Jan Nov Oct Sept Cash +0.25 0 +0.25 +0.50 +0.75 +0.25 Bonds +0.25 +0.75 +0.75 0 0 +0.50 Equities +0.25 +0.25 +0.50 +0.25 0 -0.50 Commodities 0 -- -0.50 -0.75 -0.75 -0.75 GLOBAL BONDS March09 Feb Jan Nov Oct Sept Asia ex-Japan +0.25 -0.25 0 -0.25 0 0
Japan 0 +0.50 -0.25 0 -0.25 -0.25
North America -0.25 0 +0.50 +0.25 0 0
Europe +0.25 +0.25 +0.25 +0.50 +0.25 +0.50
Non-Asian +0.25 +0.25 +0.25 -0.50 -0.25 -0.25 emerging mkts GLOBAL EQUITIES March09 Feb Jan Nov Oct Sept Asia ex-Japan +0.25 +0.25 -0.25 +0.25 0 0
Japan -0.50 0 -0.25 0 0 0
North America +0.25 +0.25 +0.50 +0.25 0 +0.25
Europe 0 0 0 0 -0.25 -0.25
Non-Asian 0 -0.25 -0.50 -0.25 -0.50 -0.50 emerging mkts ASIAN EQUITIES March09 Feb Jan Nov Oct Sept Japan -0.50 -0.50 -0.25 -0.25 -0.25 -0.75 China +0.50 +1.25 +0.75 0 +0.50 0
Hong Kong +0.25 +0.25 +0.50 +0.75 +0.50 +0.50
Taiwan -0.25 -0.50 -0.50 -0.25 +0.25 -0.25
South Korea -0.75 -1.25 -0.50 0 +0.25 -0.50
Singapore +0.25 +1.00 +0.50 0 0 -0.25
Indonesia +0.25 +0.25 +0.25 -0.25 -0.25 0
Philippines 0 +0.25 +0.50 -0.25 -0.50 -0.50
Thailand +0.25 +0.25 +0.50 -0.25 -0.25 0
Malaysia -0.50 -1.00 -0.50 -0.50 -0.25 -0.50
Australia -0.50 -1.00 -0.50 -0.50 -0.25 -0.50
New Zealand -0.50 -1.00 -0.75 -0.50 -0.50 -0.50
India +0.50 +1.00 +0.50 -0.25 0 -0.50
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