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Asia’s Spending Spree Will Save Investors amid Worldwide Economic Gloom: A Conversation with STEVE SENEQUE
POTENTIAL CATALYSTS FOR A RECOVERY IN JAPAN: A Conversation with Tatsuo Yamamuro
IT'S THE BANKS...
It’s the Banks, Stupid: The Superior Position of Asian Banks and the Implications for Asia’s Economies
As the U.S. and Europe scramble to implement increasingly extensive rescue packages for their failing banks, Asia’s own financial institutions present a conspicuous contrast to their ailing brethren in the west.
DARK CLOUD, SILVER LINING: How the Turmoil of 2008 May Have Laid the Foundation for Future Growth in Asia
With scarce credit and slower economic growth looming like a dark cloud over worldwide financial markets and investors wary of further ill tidings, it is easy to overlook the positive developments that 2008’s financial turbulence has quietly swept into Asia.
JAPAN’S SECOND RISING: Can Japan Continue to Prosper in the Wake of the Global Credit Crunch?
Rising from the ashes of the World War II, Japan overcame a shattered economy bereft of natural resources to emerge as the economic super-power of Asia. Indeed, driven by its manufacturing prowess and relentless focus on quality, Japan Inc. pioneered the export-led growth model that has since been emulated by many of the emerging economies of Asia.
BEEN THERE DONE THAT
BEEN THERE DONE THAT: How Japan's Banks Survived Crisis
A housing bubble bursts. Weak lenders founder and go belly up. Shotgun marriages produce a class of mega-banks deemed too big to fail. And the economy takes a hit amid a severe credit crunch. If that gives you a sense of déjà vu, it could be because the financial crisis currently engulfing the U.S. bears an eerie resemblance to Japan’s experience a decade ago. And the lessons Japan learned—many of them the hard way—could provide an important road map for American policymakers. “Japan’s experience has helped the U.S. realize that if the government does not act as fast as possible things could get much worse,” says Tatsuo Yamamuro, a fund manager at SPARX Asset Management Ltd. in Tokyo.
PEERING THROUGH THE STORM
October unleashed an unprecedented financial storm, which quickly spread from the U.S. equity and credit markets to financial markets around the world. Even financial institutions and other companies without direct exposure to U.S. sub-prime loans have been caught in the maelstrom of credit turmoil and asset de-leveraging. Driven by intense selling pressure from margin calls and investor redemptions, the MSCI Asia Ex-Japan index has fallen an astounding 33.6% so far in October alone, and stock markets in most Asian countries have shown similar declines. Based on our analysis of valuations throughout the region, we believe Asian markets have already priced in an unprecedented global economic slowdown in terms of the likely impact on corporate earnings. Despite the turmoil in the world’s financial markets, however, we remain bullish on the mid-to-long term fundamentals of Asia, both on a regional and corporate level.
POST OLYMPIC CHINA
POST OLYMPIC CHINA: Why the Chinese Economy May Stay on Track
Can China survive the Olympics? The staging of the Summer Games deftly avoided any major snafus and introduced the world to a hyper-modernized Beijing. But the fate of post-Olympics China seems to be on the minds of many investors these days with the markets in both Hong Kong and Shanghai underperforming so far this year. The massive makeover of Beijing leading up to the games cost an estimated $35 billion, but the capital city is unlikely to benefit from such largesse now that the Olympic torch is extinguished. However, China experts say that’s just a small part of the country’s overall growth story—especially when it comes to infrastructure related spending. In fact, the conclusion of games may actually be more of a blessing than a curse insofar as it encourages the Chinese government to refocus on the broader economy, says Tom Naughton, Chief Investment Officer for equity at PMA in Hong Kong, part of the SPARX Group.
BIONIC JAPAN
BIONIC JAPAN: Medical Industry Growth in an Aging Society
Japanese enjoy the longest lifespan of people anywhere, with the average for men extending to 79 years and 85 years for women. While Japan’s nationalized health care may or may not prolong lives—the system has its shares of critics--one thing few question is Japanese expertise in many cutting edge medical technologies and pharmaceuticals. Traditionally, medical products and services have been developed for the domestic market, but both small and large Japanese companies are looking abroad for growth—not only to the U.S. and Europe but also emerging economies such as China. For smaller companies, finding success abroad is often a matter of, well, life and death. That presents some interesting opportunities for investing in Japan, especially when it comes to small caps overlooked by many investors, says Tad Fujimura, Head of Investment and Research at SPARX Asset Management Co. in Tokyo.
KOSPI ADDS SPICE
KOSPI ADDS SPICE: Why Korean Shares May Revisit Highs
In the swank dance clubs and coffee shops of hip districts in Seoul such as Chungdamdong and Hongdae, trendy 20-somethings in designer jeans gab with friends on $850 music players-cum-mobile phones, the latest must-have gadget for Korea’s A-listers and wannabes. While not all Koreans are as flush and idle, it's a sign of the times amid a solid economic recovery. Despite global uncertainty and a swoon in local stocks since last fall, exports are up, consumer spending on discretionary items is firm and the unemployment rate remains paltry—just 3.0% in May. So if now seems like a good time to invest in Korea’s stock market, you’re not alone. Foreign and domestic investors alike have gingerly begun to bid up the benchmark Kospi index from its early March lows. Some money managers in Seoul expect the equity market to match or exceed last year’s highs before 2008 is over. Min Soo Kim, a portfolio manager at PMA Investment Advisors Ltd., part of SPARX Group, discusses his outlook for the Korean economy and market.
JAPAN'S NEW WAVE
JAPAN'S NEW WAVE: How 'Stealth' Brands Thrive in Asia
Investing in Japan has long meant investing in the country's tried-and true automakers and home electronics exporters. But these brand name manufacturers are just a fraction of the more than 4,000 publicly listed Japanese companies. While Japan Inc.’s mainstay exporters are one way to play the market, some stock pickers in Tokyo are busy identifying the next generation of global companies. Lesser known Japanese firms now are expanding their overseas sales rapidly, but off of a much lower base. At the same time, they benefit from a perception for superior quality and cutting edge technology that have historically been associated with Japan’s auto and electronics exporters. Yet chances are you’ve never heard of these up-and-comers since many target emerging economies in Asia. “Until recently, most outperformers in the market were sort of old economy cyclicals,” says Masa Takeda, a Tokyo-based fund manager at SPARX Asset Management Co., a unit of SPARX Group Co., Ltd. “But we believe a lot of the good news for them is already in their stock prices. That’s why we’re focusing on what we see as the next wave of global blue chips.”
DECOUPLING DOGMA
DECOUPLING DOGMA: Clarifying the Asian Correlation Conundrum
Tom Naughton, Chief Investment Officer in charge of equity strategy at PMA Investment Advisors Ltd., a Hong Kong-based asset management firm and part of SPARX Group, discusses the often misconstrued notion of decoupling between the U.S. and Asian markets. Says Tom: "There has been much written about U.S. and Asian market 'decoupling' over the past several years. Yet we feel this is a very misunderstood subject. The basic concept is fairly straightforward: the idea is that these two regional markets’ performance has a low level of correlation. We believe it is true that equity markets are correlated directionally. [But] we [also] believe that modest performance in the U.S. is not ipso facto linked to modest performance in Asia. In fact, the data seem to show that Asian markets may outperform the U.S. handily over a longer time horizon."
THE OTHER CHINA
THE OTHER CHINA: How Diplomacy May Boost Taiwan's Equity
The word “China” conjures up images of sprawling shoe factories in Guangzhou and the cacophony of construction in central Shanghai. It may also invoke headlines about the 2008 Summer Olympics in Beijing or ongoing protests in Tibet. But there’s another, quieter China 120 kilometers off the coast of the mainland that's arguably just as intriguing for investors. This alternate to the mainland boasts real gross domestic product growth near 7%, one of the highest GDP per capita ratios in Asia (after Japan, Singapore and Hong Kong) and world’s fourth-largest stockpile of foreign currency reserves. It also has an 80% global market share in notebook computers and makes over 40% of the world's flat-panel television displays. So who is this mystery economic powerhouse? Taiwan. Long overlooked by investors dazzled by mainland China, Taiwanese equity has become something of a wall flower among Asian markets. But some analysts say that Taiwan’s valuations indicate now may be the time for a second look. Indeed, its market is one of the few in Asia with positive returns so far this year. “After years of underperformance relative to other Asian markets, Taiwan looks well positioned to outperform both regionally and globally over the coming 2-3 years,” says Tytus Michalski, a Hong Kong-based analyst at , PMA Investment Advisors Ltd., part of the SPARX Group.
JAPAN'S SMALL BALL
JAPAN'S SMALL BALL: What Makes Investors Smaller Cap Fans
Springtime means baseball—the national pastime not only in the U.S. but also in Japan, where the season officially got underway on March 20. Japanese aces who have joined U.S. teams such as the New York Yankee’s Hideki Matsui and Seattle Mariner’s Ichiro Suzuki have gained fame as power hitters. Yet pro baseball in Japan tends to be a game of finesse where “small ball”—bunts, singles and doubles—dominates the play. Similarly, stock pickers in Japan say that while the country’s brand name auto and electronics exporters are well known overseas, it’s the unheralded Japanese smaller cap companies that can offer investors overlooked opportunities. Indeed, even as a strong yen is bruising many of Japan’s larger caps, Japanese small caps seem poised to improve their batting average thanks to some savvy squeeze plays, says Tad Fujimura, Head of Investment and Research at SPARX Asset Management Co. Ltd.
GREENER PASTURES
GREENER PASTURES: What U.S. Banks Can Learn From Asia
Slumping stock prices. Debt markets paralyzed by a credit crunch. An overextended banking system teetering on the brink of collapse. And plummeting property values. That may sound a bit like the sub-prime mess which has snared major commercial and investment banks in the U.S. But it actually describes the situation in Asia 10 years ago when markets from Bangkok to Tokyo cratered amid a crisis of confidence. The Asia of today looks much different from the cash poor and overleveraged region on the late 1990s. Asian corporates and financials seem to have learned their lessons and, as a result, are in much better shape than many of their counterparts in Europe and the U.S., says Tom Naughton, Chief Investment Officer of PMA Investment Advisors, Ltd., part of the SPARX Group.
JAPAN'S FREAKONOMICS
JAPAN'S FREAKONOMICS: How Policy Undermined the Economy
Are Japan’s wounds self-inflicted? That’s a matter of hot debate these days in Tokyo as the economy struggles to maintain momentum and the stock market zigzags. What’s clear is that a series of clumsy policy moves in recent months have done more to hamper the rate of growth in Japan than to stoke it. The term "kansei-fukyo," which means “government-made recession,” is now on the lips of many Japanese as the chief culprit in the kidnapping of a long anticipated domestic-led recovery. Critics say tough new regulations from mid-2007 on credit, housing and investment products, along with loose talk of tax hikes, quickly chilled Japanese consumer demand. That, in turn, has raised fears Japan might follow the U.S. into recession and see stock prices slump. But Tatsuo Yamamuro, a fund manager at SPARX Asset Management Ltd. in Tokyo, says those policy missteps' impact—bad as it was--has begun to fade and that current Japanese equity prices may present a buying opportunity.
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