Far East Asia market to grow despite unrest in Hong Kong

If you look at the MSCI Far East Asia ex-Japan index, it peaked at 571.85 points on September 4 after ending last year at 526.60 points, for growth of 8.59 per cent and a price-to-earnings (P/E) ratio of 11-12 times, while EPS (earnings per share) growth this year equals 44 per cent. 

Since then, the index has been declining on anxiety over the Hong Kong political issue. However, this could be a short-term factor as activity in the mainland economy is unlikely to be affected, though capital outflows could push money-market rates higher in Hong Kong. 

So, setting aside the Hong Kong market, the region still has some other smaller and defensive markets amid the risk-off mood. All in all, we expect that when the issue is relieved, the Far East Asia market will recover and continue to grow. 

The following show why this region should be viewed favourably. Policy measures introduced to stabilise growth in China aided sentiment, particularly towards mainland and Hong Kong equities. The Shanghai Composite Index has gained 15.42 per cent year to date, and the Hang Seng Index has gained 3.08 per cent. 

Expectations that global central banks will retain an accommodative stance for an extended period further boosted confidence. 

Buying by foreign investors has driven Taiwanese equities higher. The Taiwan Stock Exchange Weighted Index has gained 8.95 per cent since end-2013. Healthy economic data have supported the Malaysian market, while in Thailand, the SET Index has grown by an outstanding 24.68 per cent year to date because of relaxed political tensions, the establishment of a new government and the implementation of economic policies.

At the sectoral level, information-technology companies have gained, partly on an upbeat demand outlook in light of upcoming product launches. Fears of supply disruptions in Iraq have pushed crude-oil prices higher, which has benefited energy stocks, while telecommunications and utilities have also advanced. 

Conversely, materials have lagged the broader market amid weak iron-ore prices due to concerns over slower Chinese demand.

For next year, Bloomberg forecasts that EPS growth of Far East Asia ex-Japan’s listed companies will reach 49 per cent and that the MSCI Far East Asia ex-Japan will outperform itself next year, so the market in question is an attractive one for investment. 

For instance, investors may select a feeder fund with a policy to invest mainly in Far East Asia ex-Japan through a stock-selection strategy, such as companies equipped with global technology or business leadership, or special-situation stocks that may lead to a company turnaround, such as business recovery and restructuring. 

 

Source: Bloomberg, September 30, performance highlights, Fidelity Advisor World Funds. Since investment involves risks, please study the information carefully before deciding to invest.