Japan's disaster will not be significant economically for Asia: Manager

Friday 18th March 2011

Andrew Beal, who manages the Henderson TR Pacific investment provides some views on what the events unfolding in Japan mean for investors.

Although Japan is not part of our investment brief, as a key global and regional economy, we are closely monitoring the unfolding human tragedy, particularly the nuclear situation.

At present, on the assumption that the nuclear situation in particular stabilises, we remain positive on the overall outlook for emerging Asia.

Whilst we would expect some level of reappraisal of the existing nuclear build out programme in the region following on from events at Fukushima, our current view is that the issue is unlikely to significantly curtail activity in either China or the rest of emerging Asia.

The rest of the world could potentially be more inclined to turn its back on nuclear energy, which would see increased demand for oil, gas and alternative energy sources. Nevertheless, this is a highly changeable situation and it will be important to follow events closely.

The current situation has not led to any significant changes to the Henderson TR Pacific Investment Trust plc portfolio. Knee-jerk reactions are probably the best way to lose money.

Take Hanatours, for example. This is a Korean tour company that derives about 20% of its revenues from Koreans flying to Japan at present. Once events started unfolding, the price of Hanatours was impacted by about 15%, but we don’t currently see these events from discouraging Korean overseas travel, so this appears to be the market over-reacting, and we believe the medium-term outlook remains good for this company. There are plenty of people ready to promote opportunities on the back of the crisis, but often it pays to be contrarian.

The world is not dependent on Japanese growth, and at the same time we anticipate that there will be an economic reconstruction programme led by the Japanese government. Japan remains a fairly cash-rich economy.

In the rest of Asia the long-term story remains positive, the big themes and trends – such as burgeoning Asian middle classes – remain intact. The Chinese government, for example, remains committed to raising living standards for the lowest earners.

Elsewhere in the region, the trust is fairly bullish on the developments in the ASEAN markets. The creation of an ASEAN common market will lead to freedom of movement for capital, people and goods in an area populated by 600 million people. The infrastructure to develop this is being funded largely by the Chinese.

Thailand as one of the favoured ASEAN countries, as it looks attractively valued, the political situation is gradually improving and, as a manufacturing hub, it will be a major beneficiary of the ASEAN developments.

Clearly, the tragic events that have occurred in Japan are far from over, but we continue to watch developments carefully, and will take action as required. Nevertheless, at this stage, we believe that once the situation stabilises, the impact on the region will not be significant economically.

Andrew Beal manages the Henderson TR Pacific investment trust.

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