Asia: The Global Economy Growth Engine

The Asian emerging markets have clearly weathered the worst financial and economic crisis since World War II better than many other regions.

Of course Asia was also affected, but the region nonetheless managed to avoid a decline in economic output.

Thanks primarily to the sound development in China and India, a 4.8% increase in regional GDP is expected for this year. Given that global output is set to fall by more than 2% during the same period, this is quite impressive.

On the back of a huge stimulus package and a splurge in lending, the Chinese economy has increasingly picked up speed during 2009.

The other major Asian emerging mar-kets such as South Korea have also ended their recession in the course of this year and are growing once again.

The upswing to continue next year as well, bolstered by sustained stimulus from monetary and fiscal policy as well as a clear recovery in world trade. Chinese GDP is likely to grow by 8.7% in 2010; Indian GDP by 6.5%. For the entire Asian region we have penciled in growth of 6.7%.

Many consider medium-term growth for the region in the 7 to 8% range to be feasible. In view of the more moderate growth trends expected in world trade, we believe that growth of over 9%, as achieved in the years before the crisis in some cases, is unrealistic.

However, the Asian emerging markets may return to a higher growth path in the long term. For this to happen though, domestic demand would have to generate much more growth impetus. This is especially true for China.

Swiss investment bank UBS remains bullish on Asian stockmarkets for next year, and China and Hong Kong are its picks, but it sees the risk of a significant correction on fears of rising interest rates.

UBS Asia equity strategist Niall Macleod said in an outlook report that, while stocks are no longer at bargain levels, equity valuations in Asia are not stretched and are likely to rise in 2010.

Asian countries have struggled with deflation this year, with Japan's consumer price index at minus-2.5 per cent, China's at minus-0.5pc and Singapore at minus-0.8 per cent.

Interest Rate remains Low

Central banks in the region have kept rates low - Bank of Japan this week held its key overnight lending rate at 0.1 per cent, Singapore is at 0.03 per cent. China's rate is 5.31 per cent.

In contrast, Australia's Reserve Bank governor raised the rate for the third consecutive month to 3.75 per cent, on fears that rising underlying inflation could lead to asset bubbles in the economy.

Many have suggested Australia has made a mistake in moving its interest ahead too fast; and this can limit economic growth in Australia; the high interest environment in Australia is particularly a challenge for many first home owners; as well as adding pressure to Australia's export income; which is already impacted by falling exports in agricultural products; although resources continue to grow, but in actual monetary terms, due to the rising AUD, it has very little impact for Australia's economy and companies.

There is a real concern that Australia's monetary policy has been tightening too soon and this could dampen Australia's growth prospects; this is a factor why many analysts have their preference in Asian stock markets rather than Australian sharemarket for 2010.

Sectors To Watch in Asia

While the markets have climbed significantly in 2009; some sectors are likely to continue climbing.

Financials

Many analysts suggest Asian banks are probably the best proxy in Asia. Additionally, the local banks have performed better than US banks and have better management over their debts. Additionally, as Asia starts to increase interest rate once again, profits are likely to increase. Another reason is European & American mutual funds & pension funds are required to top-up their investments in 2010; and there is a high probability they will increase their holdings in Asia, particularly Asian financial companies.

Asian banks, especially those in Hong Kong, Taiwan, Singapore have been highlighted as the best possible investments in the region because of their transparency, liquidity and also open to foreign investments.

Another sector worth mentioning is the insurance sector, insurance is already a major industry in Asia, insurance companies worldwide have been adversely impacted by decline in global equities markets; as well as the collapse of AIG.

Ironically, Asian insurance companies have benefited enormously from the collapse of AIG; as well as ING's exit of their regional financial businesses. Some of the AIG & ING's assets have been snapped by local insurance companies for very reasonable price; at the same time, insurance companies have used these as good reasons to increase their premium as well.

Manufacturers

Most Asian manufacturers including Chinese manufacturers still rely on US for exports, the US sector is gradually recovering evidenced by its retail spending; although manufacturing sector remains subdued in US. Regardless, Asian manufacturers will benefit from recovering US economies; this can help textile companies, and other companies that are producing retail related goods.

As both US and Europe step out of recession; even only slightly and gradually; one thing for certain is the return of retail spending. While retail spending is low compared to previous years; it is recovering; and weakening USD has also attracted significant increase of consumers to US for spending; especially those from Europe and Asia.

There are 2 more factors contributing why manufacturers are attractive in Asia; US's inventory level is reaching very low point; and they have started restocking their inventory.

Manufacturers set to recover the most are those relate to clothing, discount goods as these goods are mainly sold into discount stores in North American such as Wal-Mart and Costco; this particular sector in US is performing very well ahead of other retailers. Large, more expensive items such as furniture, or those relate to home renovation & building constructions (eg. Building materials, lightings) may not recover until the building industry has recovered more in North America.

Solar & Green Technologies

Asia is emerging as the world's largest green technologies hub; especially those relate to solar energy devices. China, Taiwan, Korea and Japan all have significant solar industries; Japan has most of the world's most advanced solar technologies; while China & Taiwan are 2 major manufacturers.

As the world continues to embrace renewable energy, especially those in North America and Asia; we have already seen notable jump in orders for solar cells and other environmental related companies.

Once again, unfortunately, Australia has been missing out a lot of opportunities in the green energy sectors; years of under-funding and lack of innovations / supports have seen many Australian environmental companies now moving offshore; with Suntech Technologies probably the best example which has moved its operations to China and listed the company on NYSE instead of Australia.

Another country you should look into is Singapore; which has many world's most advanced water management technologies and companies. Singaporean Government has been supporting environmental sectors for over 20 years now; and its water technology companies (most of them are listed on SGX) are now present everywhere including China and Middle East.

Real Estate Companies

There are several reasons why Real Estate companies are attractive in Asia.

1) Real Estate sector in Asia had not undergone through the same recession / credit crisis as in North America and Europe; therefore, most of real estate companies still have sound balance sheet.

2) Introduction of REIT is expected to commence in late 2010; we believe this will bring a major transformation to China's real estate sector. Real estate investment companies based in Hong Kong & Singapore are also likely to benefit from this trend; both investing into real estate opportunities in China as well as becoming funds managers for these assets.

3) As we have seen back in the early 2000s when REIT was first introduced into Hong Kong & Japan; they were very popular in Asia due to the relatively higher yield compared to bank deposits

4) Asian real estate companies have been expanding their presence in international markets; and they have been purchasing assets in North America and Europe; this will further strengthen profitability as the real estate markets start to turn around in North America.

Healthcare & Biotechnology Sectors

Healthcare is a booming sector globally and Asia is no exception. Majority of Asian countries are actually growing ageing populations; especially Japan, Taiwan, Hong Kong and China; with India as the only exception.

Due to this fact, Asian's ageing population is expected to reach around 30% of the entire population within a decade; and this will cause further demand for healthcare services and also demand for better medicine and biotechnology.

Sectors that have been highlighted as good opportunities include hospital real estate operators and investors; pharmaceutical companies; also those engage in development of specific sectors such as optical, medical devices and e-health sectors.

Other sectors set to benefit in Asia also include those involve in retirement villages, aged care services.

Telecommunications Sectors

This is always a major industry across Asia; including both communications hardware and those relate to mobile (cell phone) industries. iPhone is now widely used across Asia and with China becoming perhaps the single largest iPhone market very soon. New infrastructure are being planned and installed to allow better and faster telecommunications deliveries across the region.

Needless to mention; China has the world's largest online population with over 300 million users in China, and that's the official figure, the unofficial figure is close to 400 million net users.

Chinese IT and Telco companies are also market darlings in international markets; most of the companies are trading at relatively higher P/E than other Telecommunications companies in other regions. Furthermore, mobile applications are becoming very popular in Greater Chinese markets; adoption of iPhone will see a further surging demand for mobile applications in the region.

Another sector investors should keep their eyes on are Online Computer Gaming sectors; many suggest this is a Shining Sector in China & Taiwan; and improvements in IT and Telecommunications infrastructure will further enhance networks' delivery speed and quality.

How to Invest in Asian Markets while in Australia?

Thanks to Internet, investors can now invest in Asian markets very easily and quickly. For many investors; they had accounts opened in Asia already and easily executive investment trades over Internet; brokerage rate in Asia is only just a fraction to Australian brokerage, we have seen brokerage as low as $5.00 per trade.

If you do not have an account active in Asia; you can ask these brokers and see if you can open up an account from overseas. We know that most Hong Kong brokers allow foreign investors to open accounts; but Taiwanese and Chinese broking firms usually have more restrictions as well as payment transfer restrictions.

For those do not wish to trade directly; you can choose one of the many Exchange Traded Funds available; if you can open up an account either through CFD platform or in United States, then you can access to thousands of ETFs in those markets; you can invest into regional specific exchange traded fund; or even into regional-industry specific like Asian Technology Companies Fund.

If you prefer to invest in the traditional investment funds; then you can consider invest through Australian mutual funds specializes in Asian equities / markets or through one of the many Asian funds available in Asia; Hong Kong market offers a wide range of Asian investment funds that are unavailable in Australia; but they are usually open to foreign investors.

Although 2010 is regarded as a "Cautiously Optimistic" year for sharemarkets; if you choose wisely and carefully; most analysts still believe that Asian will stage a further growth in 2010 especially if US can continue to show signs of recovery even small signs before moving to a full recovery cycle in 2011/2012.