“Markets reacted negatively to a wide range of disappointing macroeconomic data in May, and we believe that there will be more negative data to come,” says Jason Pidcock, manager of the Newton Asian Income Fund from Newton, part of BNY Mellon Asset Management.

“For this reason, we are likely to maintain our relatively cautious outlook for the rest of the year, despite the increasing number of high-quality companies available at attractive valuations.

“We are particularly aware of the problems in China, where the efforts of 2009 and 2010 to stimulate growth are beginning to have an adverse impact upon the economy; our Chinese exposure is very selective,” he adds.

“There’s no doubt that a significant economic slowdown in China would affect the whole region but we do not expect growth to collapse.”

Pidcock continues, “Growth remains strong and we expect this to continue. Furthermore, we believe that the concerns over China’s economic growth are broadly priced into markets and we would describe our view of the country as cautious rather bearish.

“We think that its economy is likely to plateau from here, with GDP numbers unlikely to fall below 7%. The economy is in the process of rebalancing and this might not happen quickly or smoothly. As such, further interest rate cuts and fiscal stimulus are likely, although these measures are unlikely to be as aggressive as they were in 2008.”

Look South East…
“We are more optimistic about much of South East Asia and countries such as The Philippines, Thailand, Singapore and Malaysia. Indeed, this view was reinforced on a recent Newton visit to the region; growth in these areas seems to be holding up well, with Thailand and The Philippines, in particular, benefiting from falling commodity prices.

“Though dependent upon these lower costs, we would expect these countries to be relatively immune to a Chinese slowdown, in part, because they have not undergone a credit boom so there is no reliance upon rising property prices to fuel growth but also because they still boast robust domestic consumption,” Pidcock adds.

3 July 2012

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