Overseas investors look to Asian equities

The easing of economic regulation and high dividend returns has once again hailed the return to investments in equities in emerging Asian markets.

That's according to FIL Investment Management (FIL) which believes that as developed economies slow, and the demand for Asian imports diminish, governments in Asia will open up more of their equities market to overseas investment.

Speaking at a briefing in Sydney, Fidelity Asia Fund portfolio manager David Urquhart said the increased cost of European equity funds as a result of sovereign debt, and the fluctuating US market, are two factors that have increased interest in Asian emerging markets.

"The average debt to equity in Asia is at 25 per cent while return on equity is at 14 per cent, better than they were a decade ago," Urquhart said.

"We're seeing the widest returns for companies ever recorded - 64 per cent of companies who have reported in Asia have met or beat expectations, particularly in Thailand," he said.

According to FIL, export growth is still high at around 20 per cent, despite stalled growth in developed economies like the US and Europe. Urquhart said one of the reasons for this continued growth is manufacturers are demanding products that are cheaper, but still have similar quality to more renowned brands.

"China, for example, is encouraging lower end production be sent to countries like India and Indonesia - they are willing to give up some of their labour market because it benefits the region as a whole," Urquhart said.

Urquhart also said Asian central banks are looking to diversify their holdings of their foreign exchange reserves.

"At the moment, $100 billion out of Australia's $300 billion bonds are now held by central banks, and I would suspect most of that would be in Asia - partly because they have the largest foreign exchange reserves."

Urquhart believes Asia is still at ground zero in terms of the growth of homegrown products, and will look for investors to help grow their businesses.

Fund managers see this trend, and are tilting more towards building portfolios with much greater Asian market exposure than in the past because the benefits are relatively attractive compared to risk, said Urquhart.