'Overreaction' to policy risks presents opportunities: Aberdeen

Aberdeen fund managers are optimistic over US growth, noting continued strong corporate profits, good cash flow and attractive dividend pay-outs. With both labour and housing data on the mend, it foresees a gradual pick-up in investment. The chief risks are over the pace of recovery, and the ability of the Federal Reserve to read the signs correctly as it scales back its asset purchasing. 

While uncertainty over that has sparked renewed financial market volatility, Aberdeen says a return to a more normal interest-rate environment is positive. Until very recently record low bond yields had distorted price signals, forcing many investors to chase more risky returns. 

Aberdeen contends that Thailand is well placed because of decent growth in gross domestic product supported by attractive structural factors, such as infrastructure spending, urbanisation and current low interest rates. As with the United States, the recent equity sell-off presents a potential buying opportunity as companies are better value than they were. 

The main macro headwinds come from a weaker export sector. Chinese demand is slowing while tighter monetary policy begins to squeeze the supply of credit there. 

 

Country-specific 

 

While that has sparked concerns that emerging markets as a whole face more difficult times, Aberdeen stresses that difficulties are country-specific. Many developing economies have stuck to reforms and have strong trade and external balances.

“Signs that the US is in a cyclical recovery continue to emerge, which is good for the world,” said Adithep Vanabriksha, the company’s chief investment officer. 

“It is a long time since we saw US economic leadership. That is vital because of unrest in Europe amid its debt crisis and gathering credit problems in China. For investors, a shift is taking place as fundamentals become important in the wake of reduced policy stimulus. This can only be good for markets in the medium to long run. 

“In Thailand companies look very solid, particularly domestic businesses such as banks, retailing, utilities, media and healthcare, reflecting robust balance sheets and cash flow,” he said. “Companies affected by the 2011 floods – insurance, electronics and automotive – have seen a steady and satisfactory recovery with earnings on course to return to normalcy in 2013. 

“Valuations overall are still moderate and supported by earnings growth of around 11 per cent according to our forecasts.” 

Pongtharin Sapayanon, head of fixed income for Asia-Pacific, added: “We expect GDP growth in Thailand to average around 4.5 per cent for 2013, which is slower than in the first quarter, because of an export slowdown and a stronger baht. However, Thailand remains a strong performer regionally and soft inflation data [have] supported the recent interest-rate cut and hence fixed-income investments.”