The Hindu Business Line : ‘Confidence running high in Asia ’

“As things have started to slow in the West, people have started to look at Asia and see that the attractions that are here in terms of growth remain,” says Mr Michael Gordon of Fidelity International

Shanthi Venkataraman

Chennai, Oct. 12 Indian and Chinese stocks may be expensive. But confidence in Asia and these two economies will probably ensure that these markets continue to do well, says Mr Michael Gordon, Head of Investment Strategy of Fidelity International.

In a media roundtable conference held in Mumbai earlier this week, Mr Gordon along with Mr Andrew Wells, Fidelity’s Chief Investment Officer, Asian Fixed Income, shared their perspective on global markets in the aftermath of the sub-prime problems and the global market volatility that followed.

The sudden rush of inflows following the Fed’s rate cut into the Indian market did not seem to strike them as altogether surprising. According to Mr Gordon, the recent spike in inflows was not necessarily related to the rate cut and probably had more to do with a revised outlook on developed equity markets. “As things have started to slow in the West, people have started to look at Asia and see that the attractions that are here in terms of growth remain.”

High valuations

He went on to say that the high valuations ruling in India and particularly China might not be entirely justified on a purely fundamentals basis. But that did not mean the rally in these markets would not continue.

“Personally I would have thought there were better places to invest than the domestic Chinese markets. It all depends upon who the marginal investor or the new investor is, who might have a different way of looking at things.”

Echoing his views, Mr Andrew Wells said that it was all a matter of perspective. “Sometimes when confidence is high, you tend to win on both sides of the equation,” says he.

A rate hike by the Fed, he says, would probably be seen as a sign that the US economy is not slowing down, which would benefit Asia. On the other hand, sections of the market believe that outsourcing from India would pick up if the US economy slows down, as there would be pressures on cost saving.

Indian rally

It’s probably this increasing confidence that is fuelling the Indian rally, even though the prospect of mid-term polls looms large. The team cited the Thailand military coup that took place earlier this year and talked of how it appeared to have had little impact on that market’s returns several months down the line.

The team said that political stability in developed markets was no longer a given and it was probably why foreign investors do not seem to be taking too adverse a view towards political uncertainty in emerging markets.

Market bubble?

But too much confidence cannot be good and so do we have the makings of an emerging market bubble? Mr Gordon responded that it could well be a bubble. “But sometimes it is better to ride a bubble than sit back on the side and say it (a rally) is not going to happen”.

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