Analysts' view: Stocks rout continues, growth prospects bleak
Political leaders failed to halt a global stock market rout that gathered steam as investors lost confidence that Europe and the United States can rein in their budgets quickly and as fears spread that the economy could slide back into recession.
Following are analysts' and money managers' views on the reasons for the crisis and prospects for markets.
JANUS CAPITAL FUND MANAGERS
The U.S. Treasury market appears to have anticipated the downgrade and Treasury prices may continue to rise. We believe Treasuries remain a safe haven, especially with Europe in the midst of its own debt crisis. However, if yields continue to decline it may be a reflection of more muted growth prospects rather than an ongoing flight to safety. We have been buying Treasuries in recent weeks to help ensure against negative outcomes. We have also been attempting to reduce risk because we think outcomes are potentially more severe than the market is anticipating. In the near term, we think a more defensive positioning is warranted.
K. H. LIN, FUND MANAGER, YUANTA FINANCIAL'S FUND UNIT, TAIPEI
We are at a moment much worse than the Lehman's in terms of confidence ... Although most global economies are still growing, unlike the recessions most economies went through in 2008, there is a total lack of investor confidence.
Foreign investors continue to dump their holdings today. The U.S. government needs to take concrete action instead of just talking to help boost market confidence.
JAMES HOLT, INVESTMENT STRATEGIST, BLACKROCK INC, SYDNEY
Gold and bonds are doing really, really well and we're making profits on them and putting these into the asset classes that are getting cheaper and cheaper, which are definitely equities.
Our global allocation fund still likes equities on the whole, but we tend to have had those equities that are either exposed to Chinese growth, which is more sustainable, or the big multi-national dividend payers, the ones that have the lowest PEs (price-earnings) and highest dividends, and pretty strong cash flows.
We have been underweight U.S. Treasuries and have virtually no Japanese government bonds.
TAIZO ISHIDA, PORTFOLIO MANAGER AT MATTHEWS INTERNATIONAL CAPITAL MANAGEMENT LLC
It is a knee-jerk reaction from the U.S. and Europe overnight and my thought is that this is simply overdone. I don't see any immediate 'catalyst' to pull out this market from the misery, but valuation is looking very attractive for equity investors. It appears that people are more concerned with future US growth, but I still see growth in East in the long run.
IWAN AZIS, HEAD OF THE ASIAN DEVELOPMENT BANK'S OFFICE OF REGIONAL ECONOMIC INTEGRATION
Emerging Asian markets remain vulnerable to abrupt changes in global investor sentiment. The knock-on effects from events in the U.S. and Europe will go far beyond portfolio returns, as a weakening global economy will hurt our exports.
While emerging Asia's markets have not been immune to these developments, the region's strong fundamentals and interest rate differentials with advanced economies are expected to reignite capital inflows to the region later this year.
ROBERT HOWE, CEO OF GEOMATRIX, HONG KONG-BASED FUND
Scary times these two weeks. We are in Japan near the intra-day lows of the nuclear meltdown scare, and almost to the March-2009 lows. Of course we think it is overdone. After 2007-9, investors have either hard-coded into their on-line brokerage accounts or have soft rules of stop losses, and the whole world is following those.
It will take determined intervention by various authorities to stop the process.
PETER HICKSON, MANAGING DIRECTOR, GLOBAL COMMODITY RESEARCH, UBS
The market is asking whether policy makers have many more bullets to fire. China was the savior of the world in 2009 and people ask the question can they do it again. Or is this the recession we should have had in 2009 and it's now coming. It clearly looks like a global recession and people are pricing that in. I suspect some time during this week things should stabilize and people will come back to the market.
WARREN HOGAN, CHIEF ECONOMIST, ANZ BANKING CORP, AUSTRALIA
We are looking at markets pricing for some sort of financial crisis. I think we are at a critical period now. The declines in the equity market globally are around 15 to 20 percent, that's still an order of magnitude regarded as a correction. If we see another 5-10 percent decline in equities we are in slump territory indicative of some sort of financial seizure.
ALEX HILL, CO-FOUNDER OF SINGAPORE-BASED HEDGE FUND TANTALLON CAPITAL THAT MANAGES MORE THAN $300 MILLION
We have been cautious about the unfolding events in Europe for some time and are concerned about China slowing more than what is priced in to the market. The macroeconomic picture outside of Asia is bleak and Asia's ability to remain immune is doubtful in the extreme.
ANTHONY BOLTON, MANAGER, FIDELITY CHINA SPECIAL SITUATIONS FUND
I believe the recent stock market volatility reflects a familiar pattern during this bull market of short, but often very sharp set backs, within a bull trend. For some time I have argued the outlook for the U.S. and particularly Europe is for growth but well below normal growth rates. In my view this makes the case for exposure to developing markets and particularly those of Asia even more compelling where growth rates by comparison, even though they are slowing, will still be very attractive.
History shows that normally extreme equity market volatility as we are now experiencing should be seen as a time of opportunity rather than a time to become more defensive.
LI-GANG LIU, HEAD OF CHINA ECONOMICS, ANZ
At this moment, the most important policy the U.S. should have is a medium-term fiscal contraction plan, although in the short-term what they need is to have a stimulative fiscal policy to push the economy out of a very anemic recovery.
But the administration and the Congress will have to have a very clear medium-term fiscal contraction plan so there is no doubt the U.S. fiscal conditions will return to a sustainable path.
The European countries need to make a firm stand as to how they will deal with the contagion problem from Greece to other periphery countries. They need to have a stronger policy to calm the market. The response so far has been indecisive, sometimes timid.
ROYAL BANK OF SCOTLAND ASIA PACIFIC EQUITY STRATEGISTS, SINGAPORE:
From a macro, top-down perspective, we expect the relative strength of the region's fundamentals to continue to attract incremental foreign capital.
From a sector standpoint, it still appears that the one sector standing above any other for the delicate trade-off between risk and reward is telecoms. Performance here is already proving increasingly perky, yet,...valuations or expectations cannot be said to be anywhere near excessive levels.
In addition, we still believe the banks of Taiwan, Singapore and Thailand are well positioned to benefit from the upswing in domestic investment, real estate and credit cycles.
OLIVIER D'ASSIER, MD EUROPE AND ASIA WITH AXIOMA
The selling isn't panic selling, the selling is selling for a reason...to protect whatever assets they have.
You've got for the first time ever a credit downgrade of the U.S. and because pretty much the entire global credit system is benchmarked against that, everything else should take a knockdown as well.
This isn't related to bad assets that the banking sector has on its books, it's related to the fact that the economic growth isn't there to support the kind of national debt levels and benefits payout that politicians have promised over the years. So it's a different kind of crisis. It's not systemic, it's more macro economic.
KEITH DUCKER, CHIEF INVESTMENT OFFICER OF TORA, DARK POOL OPERATOR
The majority of buying we are seeing today is short covering as investors pick opportunistic levels to lock in gains on the recent sell off. Beyond short covering, however, there is a significant lack of opportunistic buying as no one is looking to catch the proverbial falling knife.
The breadth and the discipline of the selling is the most troubling factor. Panic selling is generally followed by quick recoveries however the past two days have been driven more from thoughtful risk aversion couple with stop triggering indicating that this downturn may be more cyclical and potentially long term in nature.
(Reporting by Reuters bureaux, compiled by World Desk Asia)
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