Asian economies have shown remarkable resilience in the wake of the global financial crisis that has wounded the developed world. The Far East region is charging full steam ahead, with superior growth rates expected for 2010.

“The long-term picture is bright for Asia, and much more attractive than [for] developed markets,” says Francis Chung, director of Asian equities with HSBC Halbis Capital Partners Ltd. in Hong Kong. “What happens in the rest of the world still matters, and Asia is vulnerable to any slowdown, but it matters less and less as consumer spending increases in Asia.”

The economies of China, India and Indonesia had continued to expand through the economic downturn. China is the engine driving the Asian tigers, with its continuing modernization, urbanization and massive infrastructure projects providing stimulus for the entire region and ensuring vora-cious consumption of resource commodities.

“Asia has emerged from the crisis; and China is leading the world, in terms of growth,” says Tim Leung, head of Asian equities with I.G. Investment Management (Hong Kong) Ltd. “The region is on a stable growth path, and economies are fundamentally sound. There are opportunities to invest in globally competitive companies with strong balance sheets and superior growth rates, and the banking system is also strong.”

The rebound is being fuelled by many factors. Manufacturing accounts for a large share of several Asian economies, and industries such as autos and electronics are seeing strong demand within the region. Infrastructure projects, including railways, roads and power grids, have created employment and gotten cash circulating. China’s US$586-billion, two-year government spending spree, which began in 2009, has helped counteract the malaise in developed economies by stimulating inter-Asian trade in machinery and raw materials.

With the exception of India, many Asian governments are enjoying strong budget surpluses, which are allowing them to provide economic stimulus without increasing debt. And they are spending generously on infrastructure projects. South Korea, Singapore, Malaysia, Taiwan and Thailand benefited in 2009 from government infrastructure stimulus equivalent to at least 4% of GDP in 2009.

India is expecting to spend a massive 24% of GDP on infrastructure in the next several years. The country plans to increase airport capacity by 60% in Mumbai and New Delhi; double its port capacity from 2007 levels; and increase its highway network by 30% by 2012.

Low household debt and strong corporate balance sheets mean Asia’s people and companies are not afraid to spend and invest their government handouts. And because Asian banks went into the global downturn in better shape than many of their counterparts in the developed world, they have been able to increase their lending and energize the economies.

While Asian countries are benefiting from strong domestic demand and interregional activity, their export businesses are still hurting from the impact of the global slowdown. Eng Hock Ong, managing director of AGF Asset Management Asia Ltd. in Singapore and manager of AGF Asian Growth Fund, says the more export-oriented countries, such as Taiwan and South Korea, saw exports decline by 10%-15% in 2009. While the pace of the decline has moderated, exports have a long way to go to get back to previous levels. If there is another dip for the global recession, Asia will again feel the pain in its export businesses.

“Exports are still sluggish,” says Ong. “Even though we are now seeing a global recovery, Asian exports will not be robust as before, with the developed world still facing the problems of an overleveraged consumer and high budget deficits.”

Another worry is that favourable sentiment has bid up the valuations of many Asian stock markets to reflect the rosy prospects. But any cloud in the sunny forecast, such as a relapse into recession, could lead to disappointment and a possible price correction.

Rapidly growing Asian countries are also vulnerable to inflation, and tightening in monetary and fiscal policies to counteract upward price pressure could put the brakes on growth. The challenge for governments will be to sustain strong domestic activity without creating inflation or asset-price bubbles.

“Overall, Asia is moving in the right direction and is growing much faster than the rest of the world,” says Mark Grammer, vice president of investment with Mackenzie Financial Corp. in Toronto. “The region has been surprising on the upside with its resilience. On the margin, it is providing some stimulation to the rest of the world. It’s not enough to drive the global economy, but it can absorb some of the excess capacity.”

@page_break@Following is a look at some of the Asian markets, with the exception of China, which is covered in a separate article. (See page B6.)

> India. Although India is the second-most populous country in the world after China, with about one billion people, and its economic growth is chugging along at an annual rate in excess of 7%, money managers are less enthralled with India than with China. Inflation is rising, and India could be one of the first countries to see interest rates pick up, says Chuk Wong, manager of Dynamic Far East Value Fund, sponsored by Dynamic Mutual Funds Ltd. of Toronto. Stock valuations are higher than those in many other countries, which makes bargains harder to find.

Ajay Argal, manager of Excel India Fund, sponsored by Excel Funds Management Inc. of Toronto, says he is underweighted in the banking and software sectors and overweighted in automobiles, pharmaceuticals, capital goods and construction. Argal describes pharmaceuticals as a defensive sector, experiencing growth as people move toward generic drugs and away from established brands. He particularly likes Dr. Reddy’s Laboratories Ltd., a fast-growing manufacturer providing affordable medicine around the globe.

Mark Lin, vice president of international equities for CIBC Global Asset Management (Asia) Ltd. in Montreal and manager of CIBC Asia Pacific Fund, on the other hand, likes Indian banks, such as ICICI Bank Ltd. and HDFC Bank Ltd., as he expects they will grow along with the domestic economy. The CIBC fund also owns shares in technology companies — such as Wipro Technologies Ltd. — that are benefiting from outsourcing, as a growing number of North American and European companies take advantage of India’s low-cost technology services.

> Hong Kong. The Hong Kong stock market is dominated by financial and real estate companies. With property values soaring, there is concern that speculation in the market could lead to a correction.

Wong likes Value Partners Group Ltd., an investment-management company that serves overseas institutions and specializes in Chinese stocks with small and medium capitalizations. About 9% of Value Partners is owned by Ping An Insurance (Group) Co. of China Ltd., a leading Chinese insurer, and Wong expects there could be benefits as the two companies work together to tap the underpenetrated wealth-management market in China.

Lin and Ong both like Hong Kong Exchanges & Clearing Ltd., which basically has a monopoly on stock trading in Hong Kong and will benefit from the maturation of capital markets in China.

Grammer likes apparel manufacturer Esprit Holdings Ltd., which is benefiting from growing affluence and brand-name recognition in China. “We’re focusing on companies that are catering to the domestic market and avoiding exporters,” Grammer says. “There’s a move to brand recognition and ‘aspirational purchases’ as the middle class develops.”

> Indonesia. Wong says Indonesia is his favorite Asian country. With a population of 230 million, it is the largest Islamic democracy in the world, and its economic growth per capita is second only to China. Overall, economic growth was about 4% in 2009.

Although Indonesia was almost bankrupt and plagued by social unrest 10 years ago, the government has since straightened out its fiscal situation. The country is rich in resources, including tin, nickel, copper, coal, natural gas and timber, as well as in soft commodities such as palm oil and rubber.

Grammer likes Bank Bukopin, which makes small loans in rural areas and stands to benefit from rising agricultural prices and wealthier farmers.

One of Wong’s favourites is PT Bank Rakyat Indonesia (Persero) Tbk., which engages in micro-banking in rural Indonesia and has a strong presence in the countryside.

Wong and Leung both favour PT Bumi Resources Tbk., a leading thermal-coal provider with low production costs.

Ong likes PT Astra International Tbk., a well-diversified conglomerate with broad exposure to a variety of commodities, from mining to palm oil.

> Thailand. Because of continuing political uncertainty, Thailand is one of the least expensive markets in Asia and is seen as a contrarian choice.

Wong favours Siam Commercial Bank; Ong favours Kasikorn Bank PCL; and Leung favours Bangkok Bank PCL.

> South Korea. Although South Korea has been hurt by the global economic slowdown due to its reliance on exports, it is gradually improving.

One company that has thrived is Hyundai Motor Co., which continues to increase sales in the U.S. and China. Its Genesis luxury model was named the Car of the Year in the U.S. in 2009. Wong favours Hyundai Mobis Co. Ltd., which is Korea’s largest autoparts supplier, and is a play on the success of Hyundai.

Ong likes South Korean banks, particularly Shinhan Financial Group Co. Ltd.

Electronics companies will be beneficiaries as exports improve, and Leung likes LG Electronics and Samsung Group.

> Taiwan. Also export-driven, Taiwan is improving as growth in the U.S. and Europe improves. The island nation’s new government is more pro-China than the previous regime, which was pro-independence; a deepening relationship with China bodes well for Taiwan’s economy.

Wong likes Hon Hai Precision Industry Co. Ltd., a manufacturer of computer, communication and consumer electronics goods that is aggressively building factories in inner China, where wages are lower than in the coastal regions.

> Pakistan. Political turmoil has driven down valuations in Pakistan and made it a “dream market” for investors, says Wong, due to very low valuations. He likes the MCB Bank Ltd., which is seeing rapid growth in what is currently an “underbanked” country and will ride the wave as economic conditions improve. IE