By Fintan Ng 
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The Star I Business I 7 May, 2010 

PETALING JAYA: Market observers are confident that the long-term fundamentals in Asia outweigh any temporary sell-down due to the Greek debt crisis. Schroders plc’s Asia ex Japan equities head Louisa Lo said in a teleconference yesterday that the region was now more significant in terms of rising economic and political clout.

She said the key themes that would continue to boost fundamentals into the next decade included favourable demographic, consumption, fiscal and financing, currency and innovation trends. For the near-term market outlook, Lo sees potential headwinds including unexpected external shocks such as the developing Greek debt crisis.



“Asia will be a short-term casualty,” she said, adding that the market tailwinds of strong economic growth, positive earnings momentum, loose monetary policy as well as healthy macro and micro balance sheets would help the region weather any impact from the Greek crisis. Similarly, local analysts were largely unfazed about the sell-down over the past week despite the fact that the MSCI World Index, a gauge of equities in 23 developed nations, lost 1.3% erasing all gains for 2010 at mid-afternoon New York time on Wednesday.

Yesterday, Asia’s main bourses continued to bleed red ink as risk appetite remained subdued despite recent clear indications of growth in the United States and Asia as well as earnings momentum. The euro continued to weaken against major currencies including the US dollar while investors continued to demand for higher yields to hold on to sovereign bonds from Spain and Portugal.

AmResearch Sdn Bhd managing director Benny Chew told StarBiz that the recent sell-down was risk aversion coming back to the market despite the good fundamentals underlying the region’s economies and markets. “Our view is that the coming months will see a tug-of-war between rising risk-aversion and these fundamentals. There’s bound to be some profit-taking at some point,” he said. Chew added that the next one or two months would be crucial, noting that there was a blip in manufacturing growth in China, which could indicate slower demand.

Singular Asset Management Sdn Bhd managing director Teoh Kok Lin said it was not unreasonable to expect a sell-down due to the crisis as investor concerns rose over the contagion spreading to other southern European countries. “What’s happening in Europe will have an effect on other parts of the world including here, but Asia’s economies have seen intra-regional trade grow while domestic demand is also driving growth,” he said.

BNP Paribas senior investment strategist for Asia Andrew Freris sees a subdued impact for the region from any slowdown in the EU. “As the gross domestic product growth rates of Asian economies reflect now primarily domestic rather than export-related growth drivers, exports in general, and those to the EU in particular, are relatively less important for the future growth trajectories,” he said in a May 4 research note. Freris said the impact from any future disruptions to the EU’s growth on Asia via exports would likely be modest.