Asian Economies

[Eggball]

How does the board think the Asian economies, particularly India and China, are going to fare over the next 3-5 years? I'm thinking of investing in a managed fund in that area and wondered whether or not it's a reasonable bet. The money used would, of course, be what I could afford to lose, but I don't want to lose it at all if I can avoid it. Any opinions?

 

[ClubMan]

You are looking for somebody who can predict the future - right?

 

[Marcos]

You are looking for somebody who can predict the future - right?

One thing the poster is NOT looking for is a sarcastic and unhelpful comment.

Eggball, I got a similar troll-ish reaction from the above when I first deigned to post on this forum......http://www.askaboutmoney.com/showthread.php?p=524408#post524408

As to your question, imo over the time period that you are willing to invest (3-5 yrs) a low-charging fund that invests in these regions should perform okay and even if meltdown does occur it is unlikely you would lose all your money. However, you should know that the stock markets of both india and china are widely perceived to be bubbles waiting to burst having doubled in value (or more) over the last couple of years so maybe you should also consider other markets/regions so as to spread your risk?

 

[Eggball]

Thanks, Marcos. Bubbles always burst eventually, I know, but I suppose it's all in the timing. BTW, I didn't know posters could practice their nightclub routine on this forum. Clubman is sure to be a big hit.

 

[ClubMan]

One thing the poster is NOT looking for is a sarcastic and unhelpful comment.

How is it unhelpful to point out that nobody can predict the future? Not even you...

As to your question, imo over the time period that you are willing to invest (3-5 yrs) a low-charging fund that invests in these regions should perform okay and even if meltdown does occur it is unlikely you would lose all your money. However, you should know that the stock markets of both india and china are widely perceived to be bubbles waiting to burst having doubled in value (or more) over the last couple of years so maybe you should also consider other markets/regions so as to spread your risk?

I didn't know posters could practice their nightclub routine on this forum. Clubman is sure to be a big hit.

Thanks.

 

[kellyiom]

I don't think anyone can argue about the bubble argument in China however if an investor has the stomach for the volatility it (the region) should be a core holding for long-term equity investors, imo.
- chinese currency is undervalued so makes sense to borrow USD and buy Chinese real assets
- massive infrastructure spending is going on in China and by 2010 90% of the entire population will live within one hour of a motorway, keeping inflation down as factories can move inland where land and labour is cheaper and continue the conversion from agrarian to industrial and service economy
- productivity is going to keep rising as workers move from farms to factories
- when China has bad harvests, they have to buy food in which stays in the rich cities, keeping inflation down
- other Asian countries now export more to china than the US
- since 02, the rest of the world is growing much faster than the US
- exports will slow down seriously but stay positive

lots of negatives of course, usual disclaimer, this time it's different, etc etc zzz


Personally, I'm now big on Japan for lots of reasons but hope this helps.

 

[thomsk]

I would say that having examined yesterday's Indian economic summit, the future looks good. Many of the bigger Indian companies are apparently focussing their sights on acquiring some of their US counterparts.
Also, India does not seem to be affected as much as some countries by the USA's current ongoing crises'.
Japan also looks interesting for sure.

 

[camlin90]

Personally, I'm now big on Japan for lots of reasons but hope this helps.

I hope so... I invested in a Japanese fund earlier this year, on the premise that "it's crashed so much, it couldn't get much worse"... I am now down by 20%.

Maybe it's just a crap fund, I don't know.

What are the positive signs for Japan?

 

[MichaelDes]

I hope so... I invested in a Japanese fund earlier this year, on the premise that "it's crashed so much, it couldn't get much worse"... I am now down by 20%.Maybe it's just a crap fund, I don't know.What are the positive signs for Japan?

China - Avoid at all costs

India - Investment in infrastrucural funds only avoid all other sectors

Japan - Invest in Yen based only Topix tracker, it's undervalued and considered by seasoned analysts for at least a 30% bounce 08.

IMO the liquidity and credit cruch is going to affect all overvalued speculative markets. Thread carefully

 

[stir crazy]

Eggball, I got a similar troll-ish reaction from the above when I first deigned to post on this forum......http://www.askaboutmoney.com/showthread.php?p=524408#post524408

Perhaps ClubMan is a chatbot ?

Japan - Invest in Yen based only Topix tracker, it's undervalued and considered by seasoned analysts for at least a 30% bounce 08.

Right. I am still confused about a particular issue related to Japanese investment.

Lets assume we are correct and that the Japanese Yen will rise in value.
Doesnt this mean that shares will actually go down in value ? Hence Japanese shares are a bad investment ?

This is exactly what happened to me in the last 9 months. I invested in the Quinn Life Freeway fund* 'MSCI Japan Index' and the result is I lost money on this because the Yen rose. How can you say the Yen will rise therefore buying the Japanese shares are good ?
Someone please tell me why the currency issue wont come back to haunt me ?

 

[Calico]

Lets assume we are correct and that the Japanese Yen will rise in value.
Doesnt this mean that shares will actually go down in value ? Hence Japanese shares are a bad investment ?

This is exactly what happened to me in the last 9 months. I invested in the Quinn Life Freeway fund* 'MSCI Japan Index' and the result is I lost money on this because the Yen rose. How can you say the Yen will rise therefore buying the Japanese shares are good ?
Someone please tell me why the currency issue wont come back to haunt me ?

I'm not sure. Maybe it will. After all, japan is heavily dependent on exports to the US so a stonger yen means Japanese goods are more expensive resulting in possibly lower share prices. However, China is now Japan's biggest export market & the japanese consumer is bound to start spending again if they can ever shake off deflation. At the end of the day, Japanese shares are historically way way off anything like their peak and eventually funds are going to start flowing back into the market. When they do the index will rocket. Just take a long term view.

 

[bungaloid]

Many of the bigger Indian companies are apparently focussing their sights on acquiring some of their US counterparts.

sounds like we should be buying US then, not India.

 

[MichaelDes]

Right. I am still confused about a particular issue related to Japanese investment. Lets assume we are correct and that the Japanese Yen will rise in value.

Stir Crazy. I do not understand what you are saying. The Yen will strengthen in value against the dollar and sterling as it and the Euro are being held instead. Apart from gold. Watch £ tank today with the .25% MPC rate decision. The Japanese currency is undervalued, their market trades on a p/e of 15 times. If you buy yen based investments that strenghtens relative to the euro and the share prices goes up too then this is positive, is it not, or am I missing something. If I am, the currency swing will not be greater than the equity swing.

Let's look simply at the Sterling v Euro in last 3 months, as the Euro strengthened in the intervening period.

£10,000 at [inverse £0.66 to €1] = €15,151,51

€15,151,51 [inverse £.724 to €1] = £10,969.69

Does the same rules not apply when swapping euro into a stronger suited currency and then cashing back at a later date?

I'm not sure. Maybe it will. After all, japan is heavily dependent on exports to the US so a stonger yen means Japanese goods are more expensive resulting in possibly lower share prices. However, China is now Japan's biggest export market

The percentage breakdown of Japanese exports for the four regions are as follows for 1997 and 2007 [JP Morgan]

EU 19% - 1997 16% - 2007
Asia 45% - 1997 49% - 2007
US 29% - 1997 21% - 2007
China 7% - 1997 19% - 2007

The dollar will rise in value during 2008 against other currencies to compensate the rise in Yen according to Henry Paulson and his advisors, futures are building this way too. Finally BRIC is a much more lucrative market to Japan than US but never write off America, it has a habit of biting back when least expected.

 

[kellyiom]

The way I saw it a while back (and losing in 2007 as it happens!) was that Japanese investors started disliking their own economy following the abolition of the zero rate policy while foreigners saw it as a positive. There was also a major amount of uncertainty relating to the change in government coupled with governance issues on the LiveDoor scandal and the Fukui insider trading saga. Interestingly, Indian equity mutual funds were the favoured choice of the domestic investor in Japan but they just didn't want their own stocks but there was a massive gap between large & small cap (where a lot of active managers bought, to try and add value in less-researched names). What's different now is that GDP is much stronger, the sovereign credit rating's going up and now the div yield is above the 10 year bond yield, a supportive signal. As Calico mentioned lots of fast-growing economies are on Japan's doorstep, offsetting its dependence on the US. Most companies are below their book value and even after earnings have had six good years of growth. Their companies are usually also fairly conservative so if you expect a credit crunch would be better placed to rise it out. Overall though wages aren't really rising so this is cause for caution but the real catalyst which has been missing from every other false dawn is, yes, you've guessed it, rising real estate! See they're just as bad as we are really!

 

[MichaelDes]

What's different is div yield is above the 10 year bond yield, a supportive signal.

This is the Kernel to a tidal change in Japanese sentiment. Every time the dividend yield [which is norm miserly] beats bond yields, grey money switches from bonds to equity. The same bounce has occured previously in 2005, 2002 and 1998. The mechanisms are in place for this to occur again.

Overall though wages aren't really rising so this is cause for caution

Small point taxi fares are increasing in Tokyo as is restaurant expenditure. For the first time, Tokyo has 191 Michelin star restaurants compared to London and Paris with 50 and 91 respectively. In relation to salaries, I expect as labor markets tighten within certain sectors and in synch with corporate earning, wages will begin to rise forward of 2008. I fully understand your caution though.

 

[Calico]

To be honest, I don't think we should underestimate the possibility for Japan to disappoint. Time and time over the last 15 odd years it was hailed to come back and time and time again the recovery has stalled. And despite their geographical location their share prices seem to be wedded to the spending habits of the US consumer. Even worse is Japan's demography. 10% of the population is over the age of 75......

 

[MichaelDes]

To be honest, I don't think we should underestimate the possibility for Japan to disappoint. Time and time over the last 15 odd years it was hailed to come back and time and time again the recovery has stalled. And despite their geographical location their share prices seem to be wedded to the spending habits of the US consumer

The Nikkei has doubled in real terms over the last 4 years. I think it is hardly a disappointment, if the timing was right. Other markets such as BRIC etc are overvalued and somewhat unstable, especially faced with financial instability from the credit crunch. Japan seems more like a safe haven than anywhere else - companies and consumers are cash rich. Still, India, small to mid size caps and infrastructural funds look promising. I'm waiting for China to experience a major Blip, a doldrum market of the future IMO. Expect huge falls especially in any company with a cap at or near $1trn.

Many global investors are underweight in Japan and many have hardly a good word to say considering deflation and consumers keeping the wallets firmly closed. But the market according to Merrill Lynch is at its cheapest for 33 years. The phrase, "be optimistic when people are pessimistic" springs to mind. This market is in for a bounce in 2008. Eventhough it maybe a short lived one, like others, it will bounce nonetheless. The tipping point again is the equity yield overtaking bond yields.

10% of the population is over the age of 75......

The grey market in Japan is very affluent by European standards.

 

[MugsGame]

Perhaps*ClubMan is a chatbot ?

No perhaps about it. Just don't ask him if he eats pizza!

 

[stir crazy]

Stir Crazy. I do not understand what you are saying.

I am talking about what happened to me last time I entered the Japanese market during the past year when the market fell as the currency rose (at which point I exited). You appear to be justifying the investment in Japanese stocks based upon (among other things) a Yen which will rise in value. But doesnt a stronger Yen mean lower Japanese share prices ?I am the first to admit I am not a expert on such matters and am learning only slowly and carefully.
How do you know the share prices will rise enough to compensate for the export problems caused by a stronger Yen ? Do you see my confusion ?

 

[Calico]

Same old sputtering from Japan.....

http://news.bbc.co.uk/1/hi/business/7132333.stm