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The Asia ex Japan sector has suffered badly since the turn of the year in the face of the US sub-prime crisis, credit crunch, rising inflation and downward revisions in economic growth forecasts and company valuations.
These four horsemen of the economic apocalypse have trampled over markets globally and those in Asia have suffered more than most. In the first five months of 2008, the MSCI AC Asia Pacific ex Japan Index has fallen more than 9%, while MSCI's Emerging Markets equivalent has held up significantly better, dropping just below 3% - outperforming both the MSCI World and MSCI UK indices, which lost 4% and 7.2% respectively.
In the eyes of investors a loss is a loss, but the superior numbers for emerging markets lend some credence to a growing opinion that says these emerging countries no longer follow - nor amplify - the poor performance of developed markets and , in fact, are 'decoupling' from the West in general and US in particular.
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But, based on these numbers, Asia Pacific ex Japan markets are firmly tied to developments on the other side of the globe. The sector was hit particularly hard in the first three months of the year, with the index dropping 14.2% significantly more than the other benchmarks mentioned above.
The Chinese and Indian markets have, in many commentators' analyses been responsible for much of this poor performance. In the first quarter of 2008, the MSCI China Index tumbled nearly 24% and India more than 27%, due to a combination of domestic factors and foreign investors running for cover.
Passing phase
Turning to the performance of funds investing in these markets, the three - year
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numbers for Asia Pacific ex Japan remain strong and it is likely that in a
year or more this period will be nothing but a blip in a long- term growth story.
Dean Cheeseman, head of funds of funds at F&C Asset Management, is bullish. He says:"China is still the driver of sector, or region. Its growth remains pretty robust. GDP slowed down in the first quarter of the year, but it was still 10.6% instead of 11%-plus.
"It is probably down to slightly weaker exports but domestic demand is going a long way to make up for that and, in general, the economy is still going at a fair old lick.
"There is still healthy export growth in South Korea, Taiwan, India and Malaysia and, in general, in a global portfolio I would definitely be overweight this sector," he says.
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2008