US sub-prime crisis won’t harm Asia-Pacific economy long-term

11 October 2007
According to managing director of Aberdeen Asset Management Asia Limited, Hugh Young, 2007 has been a surprisingly good year for economies and stock markets in Asia-Pacific. He said performance had exceeded the company’s previous expectations by a long stretch.

However, Mr Young said that there had been quite a strong reaction to the sub-prime issue, which has caused Asian markets to fall “quite dramatically”.

And, as Asian markets actually have very little exposure to US sub-prime, he believes the crisis has hit people on a more sentimental level rather than because it poses a real threat to the economy. Nevertheless, markets have rebounded fairly rapidly.

The company has had a positive year in terms of portfolios in absolute terms, but its relevant performance so far has been poor, according to Mr Young.

“Across most of our Asian equity portfolios we have lagged benchmarks,” he said, “and that, primarily, is due to the fact that we are not invested in some deeply cyclical stocks which have been leading markets.” He cited 200 per cent year-to-date growth reported by Korean company Hyundai Heavy.

Although Aberdeen has made some minor changes to its portfolio, Mr Young said that its companies’ earnings are in line, or even better, than expected.

For the future, one of its ‘macro’ concerns for Asia-Pacific equities is the US slowdown, although Mr Young claims this has been a worry for some years. He said this likely to become less of a concern moving forward as trade becomes less reliant on the US.

By contrast, its ‘micro’ concerns are actually more tied up with Asian politics and cultural issues, which are in no way connected to the sub-prime fiasco.

In terms of long-term equity in Asia-Pacific, Mr Young believes the situation is as healthy as ever and that growth will be strong.

“Asian countries and Asian companies are very well financed and better and better run as each day goes by,” he said.

“So, looking ahead five years, I can state with a high degree of confidence, my conviction in Asian equities,” concluded Mr Young.

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