Taiwan to benefit from political change, says Barings

Baring Asset Management (Barings) believes that secular growth in Asian markets will continue to be driven by domestic demand and asset reflation, and that Asian equities currently offer attractive valuations following the recent market correction. At the recent Baring Spring Investment Conference Henry Chan, Head of Asian Equities at Barings, identified Taiwan as a market offering particularly interesting investment opportunities in the region.

Henry Chan said: "Taiwan's recent presidential changes and the resulting improved relations with China will open up some very interesting opportunities for investors in the region. For example, up to now it has not been possible to fly to Shanghai directly from Taiwan, but new airline routes should begin to open up soon and this will be of great benefit to Taiwan's growing business community. Indeed, Taipei's office rental is lower than that of Shanghai and Ho Chi Minh City."

Asia's contribution to the world economy has increased hugely in the last 10 years, but Barings believes that the region remains under-represented in global indices. Asia's world share of GDP has grown from 10.83% in 1998 to 16.24% in 2008 according to IMF figures.* However, in December 1998 the MSCI Pacific index (excluding Japan) accounted for just 2.60% of the MSCI World Index Free, and at the end of last year this had risen to just 4.94%. Barings believes that the outperformance seen in the region since 2001 is set to continue.

Henry Chan continued: "Rising corporate profitability and strong balance sheets signify that fundamentals in the region are very positive. The current financial crisis has not been driven by Asia and we believe that the recent market correction represents a window of opportunity to buy into the world's fastest growing region. Sustainable growth in China and consumption growth in the rest of Asia are key themes we are playing in our portfolios, as well as asset reflation as a result of undervalued exchange rates and low real interest rates."

Post-crisis restructuring of Asia is now moving into infrastructure rebuilding, according to Barings. The Chinese government has committed to spend US$300 billion per annum until 2010 at a central government level, and Asia's combined infrastructure spending plans for this year amount to a total of US$700 billion - the equivalent of the U.S. current account deficit.

Elsewhere in Asia, Barings is overweight Hong Kong as it believes that the HK Dollar's peg to the U.S. Dollar, and the fact that the government is cutting rates, means that economy is well positioned to experience an explosion in growth, in particular in the property market. Japan also offers good value, according to Barings, as 50% of the Topix is currently trading below book value.