Asian equity markets are set to bounce back in 2012, according to Fidelity Asia Fund portfolio manager David Urquhart.
Asian markets are looking cheap, with valuations at 10.3 times price to earnings ratio and 1.5 times trailing book value, Urquhart said. He pointed to research by Goldman Sachs and CitiGroup which showed that when valuations have historically been this low, there have been 12-month long rallies of 16 per cent or more, 92 per cent of the time.
The Organisation of Economic Co-operation and Development has also forecast the Asian region to grow about 7 per cent in 2012.
One of the reasons behind the forecast growth is the predicted 1.5 per cent increase in the labour market across Asia each year over the next 10 years – compared to Europe and the US, which are growing at only 0.3 per cent, according to Urquhart.
The positive account balance of the countries in the Asia regions (with the notable exception of India) was also a contributing factor, Urquhart said.
“Asian economies still have the ability to use both monetary and fiscal policy to help stimulate domestic demand, while in the West high levels of debt have made fiscal tools unavailable,” Urquhart said.
Similarly, the high foreign exchange reserves of Asia countries means they “still have the capacity to lend and borrow”, Urquhart said. He added that corporate debt was at its lowest level in the region since 1981.
“Overall, Asia’s healthy financial system, robust domestic demand, low debt levels, high savings rates, and the emergence of China as an anchor of growth for the region will continue to be supportive of multi-year growth in the region,” said Urquhart.
