October 2008
Markets & Economic Overview
Asian equity markets fell sharply in September, following the financial sector upheaval, which
has spread from the US to Europe, and US lawmakers’ initial rejection of the Treasury’s
US$700bn rescue package.
Regional economic growth continued to contract further as demand for exports from the West
weakened. Taiwan launched an economic stimulus package, while Korea and Indonesia cut taxes.
Retreating commodity prices helped inflation moderate across most of the region, although
prices rose in the Philippines and Malaysia. China and Taiwan cut interest rates (the former
for the first time in more than six years), whereas Indonesia, the Philippines and Thailand
raised rates.
In Thailand, Somchai Wongsawat took over as prime minister after Samak Sundaravej was
forced out; Malaysian opposition leader Anwar Ibrahim, having served a five-year ban, was
sworn in to parliament after winning a by-election.
Portfolio news
In September, we pared Hong Kong-listed utility CLP and Malaysia’s Public Bank, following a
period of strong performance. Conversely, we added selectively to holdings that we believe will
emerge from the current turmoil in a stronger position, including Australia’s QBE Insurance,
Malaysia’s Digi.com and Singapore Press Holdings.
Strategy & Outlook
Looking ahead, markets are likely to remain unsettled as the worsening credit crisis takes its toll
on the global financial sector. Global economic growth is expected to slow further, particularly
with the massive job losses from the rapid consolidation in the financial sector worldwide.
Meanwhile, Asia’s dependence on exports makes it susceptible to the slowdown in the West,
even though it remains the fastest-growing region for now. On a brighter note, inflation
appears to be receding, with the retreat in the prices of oil and other commodities. This should
alleviate pressures on corporate margins and wages, and enable policymakers to pursue growth
more freely. Although we expect corporate earnings growth to stall, we are optimistic that Asia,
with its quality companies, will weather the downturn. In addition, any indiscriminate selling
may present opportunities for us to add to our preferred holdings.
Source: Monthly Factsheet Aberdeen Asset Managers Limited