Asia heading for slowdown in 2014, says bearish Tim Dickson

Invesco Perpetual’s Tim Dickson has issued a bearish outlook on Asia, saying the structural case for investing is not as strong as it was pre-crisis.

The manager, who runs the group’s £18.6m Asian Equity Income fund with Stuart Parks, said adverse trends had emerged in the region and that investors should expect a slower rate of economic growth.

“Structurally the case for Asia is not as strong as it was four or five years ago and debt levels are a fair bit higher,” he said.

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“The outlook for growth is not as strong as it was. In almost all cases the expectation is that growth will be slower in 2013 than the average of the past 10 years and I don’t think this is a one-off. I don’t think we’ll see a re-bound in growth in 2014 and we so we have to get used to a slightly slower growth rate.”

Mr Dickson said Asian countries relying on external capital, notably Thailand, India and Indonesia, needed to repair their current account deficits. This means they are importing more goods than exporting – because when liquidity from the west begins to be withdrawn, those countries will be negatively affected.

The manager added that debt levels in the region had also “picked up quite dramatically” since the financial crisis and levels were not far off the rest of the world.

He did, however, add a caveat by saying China was responsible for large amounts of growth in debt and therefore skewed the aggregate Asia figure.

He said lacklustre growth in developed nations and reduced levels of global trade would also have an impact on Asia.

“I don’t expect robust growth from the developed world to return, so global trade will be slower,” he said.

“The competitiveness of manufacturing in Asia is not as strong as it was. The amount of exports from Asia won’t be growing as strongly as it was. The result of that is that it will bring down potential growth we see across the region.”

However, Mr Dickson said growth in Asia would still look “robust” next to the “anaemic” levels in the western world.

Mr Dickson said while earnings growth had also disappointed in the region, he said the positives were that countries had larger foreign exchange reserves and so would have a “greater buffer” if external investors withdrew capital.

He added that countries and companies also had “significantly lower” levels of debt denominated in dollars, which spurred the Asian crisis in the late 1990s.

The manager said valuations of stockmarkets in the region also looked “reasonably attractive”.

The manager said in spite of the effects of typhoon Haiyan, he was still bullish on the prospects for the Philippines, which he said had started to see a boost in credit creation and boasted a current account surplus.

“Investment opportunities are really limited because the stockmarket is significantly smaller than the rest in the region,” he said.