Singapore: The troubles in the euro zone are a cause for concern, but they won’t influence Asian markets significantly, Adrian Lim, investment manager-Asian equities, Aberdeen Asset Management, said in an interview. Edited excerpts:
How will the euro zone confusion affect Asian markets?
Today’s (Monday) trading session looks relatively soft across the region... I think you will continue to expect this level of volatility going forward. For us, as we pick stocks for the long-term, we are relatively calm. In an environment like this, we have been selectively buying things across the region, even in India, which has had a good rally. But I think you do need to be very cautious about what your exposures are throughout the region.
Weighing risks: Adrian Lim.
Are you picking up any sign of panic from your investors or peers?
I think there is (a) decent level of caution and in some pockets there are some levels of anxiety. But you don’t see wholesale panic among our investor base or our client base at this point in time.
If you look at the fundamentals of the euro zone, very few of the Asian companies would be influenced in a very big way. I think it is a cause for caution and concern, but if you look at balance sheets, even in banks, which are quite happy to participate overseas. They have been relatively mute about their Greek or euro zone exposure at this point in time. So we don’t see fundamental cash flows being affected by the current situation in Europe.
How accentuated is the downside risk?
I think there is greater bias towards a downside movement for the market than an upside movement. I think upside here is relatively capped compared with downside. We would not be surprised, if we saw a further 10% relative fall. But we need to take a few steps back and compare what is going on in Europe against what is going (on) in North America as well as the Asian markets. When you look at the Asian markets and if you have a long-term time horizon, you cannot be anything but bullish on the Asian markets.
If you make a relative risk-return profile, quite a lot of the regions, economies are doing relatively well. The export sector is probably softer than we would like, but most of the domestic stories and domestic plays remain quite resilient.
How much of risk is China right now to what is happening in Asia?
I think you cannot avoid China, if you look at Asia. One of the reasons for that is that the Chinese have been such strong communicators in media of their plans and their policies. Now, given the stress points in quite a few of the sectors in China, you will also get some overflow of cash, if people that were long-term bullish on China move aside. So, it is very difficult to call outside China, in Asia, how pessimism for China would result.
You could see, for example, liquidity moving into India as a result of the relatively higher risk profile of China, so it is not necessarily a bad thing. And when you look at the fundamentals, China still consumes a lot; it is now a large consumer market for quite a few of the Asian markets. Although the large pockets have been quite muted, big chunks of the middle income continue to spend quite aggressively in China. So, it’s difficult to say everything is negative coming out from China.
Investors appear confident about India’s fundamentals right now. But do you think the problems in the euro zone could trigger a panic and pull down the Indian market—as in 2008, when global factors hurt India?
I think that is relatively less likely, but you do see some stress points that affect the region and that is independent of what happens in Europe and in the US. The most direct impact that you see is that the export markets to the Western world will continue to be soft. But something that does apply to the Asian region has been that you will continue to see stimulus plans being unwound. Basically, the governments would seek now to shore up their own balance, reduce their deficit levels and try and get the private sector to make up for the ground that it has been taking on till now...