Bet on smaller Asian countries

Major Asian markets will continue to falter this year, says Raymond Chan of Hamon Investment Group. The company manages the Renaissance Asian Fund and Renaissance China Plus Fund.

He says domestic factors will continue to weigh on the Korean, Japanese and Taiwanese economies. Though they’ll remain stable, they’ll also be subject to the whims of the global environment. Consequently, Chan doesn’t expect much growth.

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To add to this ongoing challenge, exports have been very weak for many Asian countries.

But the scenario is slightly better in Southeast Asian countries, since they’re more dependent on domestic factors than on exports.

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Growth in the Thailand and the Philippines, on the other hand, has been solid, with acceleration in the first half of the year. Thailand has recovered well from the 2011 floods, Chan says.

As for the Philippines, “There has been some [bond] upgrades on the sovereign side, and we see foreign direct investment (FDI) going there. The good news is inflation is not an issue, so the Central Bank remains very accommodating in terms of monetary policies.”

As a result, Asian markets overall have performed well so far this year. In the Philippines and Thailand, they’re up 20% and this should remain constant for the rest of the year, says Chan, with the markets and economies remaining stable.

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India, though, has experienced high inflation. Like China, its government has imposed strict monetary tightening. And over the last 18 months, India’s fiscal deficit has constrained growth and led to lower returns.

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“Investors feel the government has taken no action to implement policies to boost growth,” says Chan. “This includes putting forward FDI policies and investing in infrastructure projects.”

Since the beginning of the year, absolute inflation has been high—approximately 6%-to-7%—but the trend is coming down. He expects there will be some easing, and that interest rates will be cut in India.

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The liquidity environment has also been steadily recovering, and the market interest rate has improved, falling from 12% to about 8.5%-to-9%.

Chan is optimistic because India named a new finance minister in July.

“He has a good track record in driving growth and, as a result of his appointment, investors might see some of the current policy actions gathering momentum going into 2013.”