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Asia to trump rest of the world, says First State’s Alistair Thompson

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Asia should outperform much of the developed world as investors look towards more fiscally stable and well capitalised markets, according to Alistair Thompson of First State Investment Management (UK), manager of the Skandia Pacific Equity Fund.

Thompson believes that Asian equities are in much better health than the rest of world, with very few of the emerging markets exhibiting the economic and sovereign symptoms currently being witnessed in Western markets.

“Asia on its own will come out of the current Eurozone crisis in good shape,” he says. “Asian consumers are renowned for being scrupulous savers, with many countries exhibiting savings rates of 50 per cent or more even in difficult economic times. This, combined with governments that are in fiscally good shape and experiencing high growth, provides the perfect market for investors looking to diversify out of the crisis stricken Eurozone.”

Thompson believes that the lack of euphoria towards Asia since the crisis in the late 1990s has meant that generally growth is not displaying any characteristics of bubbling over and offers opportunities that investors will struggle to find in other regions.

“Investors had a strong appetite for risk in 2009, but the world is still a very sick place,” he says. “The ‘medicine’ given to Asia during their crisis by the IMF is the antithesis of what is happening now in Europe. Greece’s bail-out package is exacerbating the problems, creating more debt in the long term whilst delaying payments. This could result in a very painful adjustment in the long term for credit and growth across Europe. With all these factors to consider, investors should be looking to spread their risk to economies in better health.

“Unfortunately, Britain has been living outside its means for too long and eventually someone will have to pay. Consumers have already been hard hit by sterling weakness in recent months and real inflation is starting to come through, shrinking household income and purchasing power. Looking to the East however, currencies are appreciating – the Singapore Dollar has already risen in an effort to tackle inflation and the Chinese Renminbi over the long term looks set to appreciate. Currencies look better in Asia.”

Whilst Thompson acknowledges that inflation is on the up in the Pacific, he believes that the portfolio is well insured with a ten per cent weighting towards gold.

“Gold and mining firms are a good hedge against inflation, our highest conviction at the moment is in Newcrest Mining. The firm is expected to see profits treble and production growth increase by 40 per cent over the next three to five years, their balance sheet is structurally sound as they have no outstanding debt. We believe Newcrest is the best managed mining firm in the world and have delivered to performance to prove it.”

Thompson also favours Uni-President Enterprises, a large food and beverages company in Asia, which is expected to grow by 15 per cent compound over the next five years, and Cheung Kong Holdings, one of the largest developers of residential, office, retail, industrial and hotel properties in Hong Kong which he believes is currently trading at a cheap valuation.

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