Mobius points to continued growth from China

Between the end of October 2007-8 the IMA Asia Pacific ex Japan sector lost 52.15 per cent as Asian markets bore the brunt of the sudden loss of investor confidence and with it risk tolerance. The flight to quality saw a huge sell off in emerging market stocks that were deemed to be too risky by panicked investors. The market turmoil that accompanied the credit crunch didn’t appear to reflect the economic situation on the ground however, as the region continued to grow relentlessly. Markets appear to have woken up to this fact and in many regions are well on their way to recovering their pre crunch values.

A large part of China’s growth has been driven by its booming export sector, supply goods for western consumers. Alas, western consumerism is not what it once was as the overhang of consumer debt looms large. Key to China’s continued growth will be the increase in domestic consumer demand to pick up some of slack left by declining export markets; Mark Mobius, executive chairman of Templeton Asset Management and emerging markets guru, agrees: "Development of China’s domestic economy into a consumer society will be necessary for its continued economic prosperity. Many of these developments are on the horizon with reform of education and healthcare already underway."

Furthermore, he believes that the rapid uptake of informational and communications technology will lead to further reforms. Information bans are being broken by the internet and cell phones and this increased availability of information is reducing the regions traditionally high tolerance for corruption in its government officials. This is likely to preserve the regimes appetite for reform although he believes China’s disciplined society is likely to be patient.

Continued growth in China is likely to lead to further strong performance from the IMA Asia Pacific ex Japan sector as the whole region profits from China's expansion.

The IMA Asia Pacific ex Japan sector has gained 81.82 per cent from 27 October 2008 to 17 September 2009 as the regions stock markets regain some of their earlier momentum. This has led to the MSCI China index gaining 120.35 per cent over this same period and many funds in the sector have profited. In particular the Jupiter China fund, the Premier China Enterprise fund and the Threadneedle China Opportunities fund have done well returning 131.02 per cent, 111.82 per cent and 109.38 per cent respectively. While investor confidence has returned, there are still plenty of obstacles to be overcome if the world’s most populous nation is to maintain the high levels of growth it has become accustomed to.

Performance of MSCI China vs IMA Asia Pacific Ex Japan sector



Source: Financial Express Analytics

With no sign of inflationary pressures in the short-term and continued reform driving growth in the long-term the outlook for Asian equities appears to be excellent.