HONG KONG, 2 June 2003 — Progress in controlling SARS in Hong Kong, Singapore and Taiwan has caused international funds to upgrade their average recommended weightings for those equity markets to neutral from slightly underweight, the latest monthly Dow Jones Newswires poll of fund managers shows.
In the case of Taiwan, that’s the most positive recommendation by fund managers since they suggested a slight overweight last July. It’s the strongest pitch for Singapore since managers on average recommended a neutral weighting for that market last November. They were neutral in Hong Kong in February, just before the SARS outbreak became publicly known.
Fund managers say recent good news on SARS — including the lifting of the World Health Organization’s travel advisory for Hong Kong and China’s Guangdong province at the end of last week — has reduced risk in the Hong Kong and Singapore markets. Taiwan hasn’t so far brought its SARS outbreak under control, but optimism has grown that it may do so during the next few months, given the apparent success of Hong Kong and Guangdong.
“I suspect that because these markets fell in response to SARS, the resultant improvement in valuation made them more attractive. Hence, we have seen a reweighting toward them,” says Shane Oliver, Sydney-based head of investment strategy at AMP Henderson Global Investors, which manages around $149 billion globally.
However, fund managers say the euphoria may fade quickly once investors realize Asian economies hurt by SARS won’t recover overnight — and that SARS may retain its potential to inflict serious damage for some time.
“It may be too soon to call a victory over SARS,” says JF Asset Management, which manages around $493 billion globally.
“SARS’s negative impact on business, especially retail and tourism, may continue for a few more months. However, sooner or later, things will return to normal,” says Cheah Cheng Hye, chief investment officer at Value Partners, which specializes in China-related shares and has around $678 million under management.
Each month, Dow Jones Newswires surveys fund managers on portfolio weighting recommendations for the succeeding months, with some looking at a 12-month horizon. May’s survey was taken over the past 10 days.
The respondents were Allianz Dresdner Asset Management, AMP Henderson Global Investors, Citigroup Asset Management, Credit Agricole Asset Management, Franklin Templeton Investments, JF Asset Management, Kingsway-HIA Investment Products, Morley Asset Management, Schroder Investment Management, UBS Asset Management, UOB Asset Management, and Value Partners.
Within Asia, international fund managers are most positive on equity markets in China, Indonesia, Thailand and India. They like these markets because of relatively strong domestic economic growth, positive corporate earnings outlooks, and attractive stock valuations. They recommend only a slight overweight in these markets, however, reflecting their overall cautious stance.
The managers’ outlook for China wasn’t hurt too badly by SARS, even at the height of the uncertainty over the outbreak. That’s because China, which has the highest number of SARS cases globally, is less affected by a drop in tourism than its Asian neighbors. Annual visitor spending in China makes up only 1.6 percent of gross domestic product, compared with 7.1 percent in Malaysia, 6.1 percent in Hong Kong, 6.1 percent in Thailand and 5 percent in Singapore, according to Citigroup Asset Management, which manages around $500 billion globally.
Fund managers now recommend only a neutral in South Korea, which enjoyed an 18-month run as their favorite equity market until December. Credit Agricole Asset Management, which manages around $174 billion globally, says geopolitical tensions over North Korea, market volatility and corporate scandals have weighed on sentiment for South Korea.
Managers are still most bearish on the Philippines, where they believe stocks are overvalued relative to the region.
Although the average weighting for Japan’s stock market rose last month to slightly overweight in a global equities portfolio, it gave up most of that gain this month, slipping to slightly underweight.