First State's Tulloch questions pace of Asia recovery

(Jakarta - Indonésie)

Veteran Asia investor Angus Tulloch says the rally in Asian equities will be hit by dampening enthusiasm caused by excessive capacity, rising long term interest rates and the weak financial position of governments.

Over five years, Tulloch is ranked second out of 64 managers in the Asian equity sector in Europe. But he has lagged his peers during the rally of the past quarter, finding himself ranked 138/163 for the three months up to the end of May with his First State Asia Pacific and First State Asia Pacific Leaders funds.
Tulloch marginally increased his exposure to cyclicals in March but is not taking a bullish stance on the markets.

"The danger is excessive capacity has not been taken out, for example the steel industry," he said, adding that the weaker financial positions of governments and the prospect of high long term interest rates were also dampening his enthusiasm.
Further growth in the economy, he added, was unlikely to mirror to progress at the rates seen until recently.

Tulloch, who has a long term track record superior to nearly all his rivals in the sector, said the rally was concentrated in areas of the market he has traditionally shirked.

"What has moved has been the heavily cyclical stocks – a lot of the stuff that we find too heavily geared, and areas where we tend to be a bit light anyway," he said.
This has largely been a correction to the sense of "doom" that reigned at the turn of the year, he added.

"There was too much gloom around and the markets were oversold, especially some cyclical stocks," he said.
"There was an extensive period of de-stocking in the economy that came to an end in January and February, and then some very extreme activity by governments to stimulate the economy, and in the short term, it’s been pretty effective."

In the long term, Tulloch said the outlook for Asian economies was healthier than that for the Western world.

"I don’t believe in short term decoupling. But long term, the developed world will tax more and spend less," he said.
He added that the response of Asian firms to the global economic crisis had contrasted markedly with some of their Western counterparts.

"In a way, the whole attitude has been more realistic. With a number of companies, the senior executives have taken cuts to their salaries," he said.

(Daniel Grote - Citywire - 17/06/09)