February 2010
Market Review
Asian markets fell in January, with sentiment hurt by concerns over monetary tightening in China, along with proposed banking reforms and disappointing employment data in the US.
Among the laggards were China, Hong Kong and Taiwan, whereas Indonesia bucked
the downtrend.
China unexpectedly raised the proportion of deposits that banks must set aside as reserves in an attempt to curb bank lending. India similarly hiked lenders’ reserve ratios. Most central banks in the region continued to keep interest rates unchanged, even though inflation started to creep higher.
Exports saw a spurt across most of the region, boosted by China’s sharp fourth-quarter GDP growth. Only Korea’s economic growth rate decelerated amid declining exports and domestic demand.
In politics, Sri Lanka’s incumbent president Mahinda Rajapaksa was re-elected in the nation’s first peacetime election in decades. Despite winning, the president arrested his key opponent, which augurs badly for the country.
Portfolio Review
There were no major changes to the portfolio in January.
In portfolio-related news, our holdings posted largely positive results. Korea’s Samsung Electronics benefited from stronger earnings from its semiconductor and LCD divisions. In India, Housing Development Finance Corporation’s net interest margin expanded, and Infosys’ quarterly profits were better than expected. For Thailand’s PT Exploration and Production, profits fell less than expected for the full year, in spite of lower product prices and expenses related to the Montara oil spill.
Outlook
Looking ahead, it is uncertain how long the market correction will last. In the near term, sentiment appears highly sensitive to worries about the removal of fiscal stimulus and the start of the monetary tightening cycle. The faster regional economies recover, the more nervous investors will become. Given the extent of last year’s rally, however, such a pullback would be healthy as market valuations will realign with fundamentals and present buying opportunities.
As bottom-up stock pickers with a focus on quality, we are cautiously optimistic about the year ahead, believing that markets will become more discriminating after last year in which, generally, the shares of weaker companies performed best. Our focus will remain on well-run businesses that have good long-term prospects, emerging from the downturn in a stronger position than they entered it.
Source: Monthly Factsheet Aberdeen Asset Managers Limited