Matthews Asia’s Robert Horrocks has dismissed the recent sell-off in Asian equities as a “random fluctuation” that has not derailed the rising sentiment towards the region.
Following a strong rally through the summer that saw Asian equities rise by roughly 15 per cent, the past two weeks have witnessed a sell-off in the region.
But the Matthews Asia chief investment officer said that there was no clear reason for the sell-off, and that structural drivers still pointed to a long-term improvement in Asian stocks.
He said the de-rating seen in Asian markets compared to developed markets in recent years had come from a squeeze on profit margins, which has meant that the high sales growth had not fed through to high earnings per share growth.
But he said there were signs this was starting to turn around, just when earnings growth is slowing in the developed world, and that this had contributed to the rally in Asian stocks this year.
The CIO said he suspected this earnings growth story would be “long lasting”, that the summer re-rating was “not that large”, and that the continued growth in earnings could support a further rally.
However, between September 9 and September 23, the MSCI Asia Pacific ex Japan index fell by 6.5 per cent in sterling terms, falling on 13 out of the 14 days.
Mr Horrocks said such a fall could be a “knee-jerk reaction to monetary tightening” in the developed world but suggested that it looked like “short-term fluctuations”.
He reasoned that client sentiment towards Asian stocks, which had been weak through the start of the year before picking up in July and August, had shown no signs of slowing in September.
And he argued that monetary tightening in the US and UK could actually be positive for Asian markets because it would probably only happen if the countries were showing strong economic growth.
Renewed growth in developed markets would lead to a pick-up in Asia’s export market, which has been struggling since the crisis due to low global growth. Mr Horrocks said if rates were to rise in the US and UK it would go “hand in hand” with a rise in Asian exports and therefore profit growth.
He acknowledged that sentiment on Asia could fluctuate over US and UK tightening, but claimed most of this had already been priced in.
Mr Horrocks also co-manages the £486.6m Matthews Asia Asia Dividend fund. Since launch in February 2011, the fund has significantly outperformed the IMA Asia ex Japan sector, delivering a 27.2 per cent return compared with the peer group average of 12.1 per cent.
