Jyske Invest Far Eastern Equities

Market Comments, Q1 2012

Far Eastern is up by 13.5% in Q1

Review

A solution to the debt problems of Greece, positive trends from the US economy as well as falling inflation and interest rates in the Far East contributed to the fund’s return of 13.48% in Q1, which is in line with the return in the region.

The quarter was affected by several opposite trends compared with last year’s development. Hence, last year’s winner Indonesia became the poorest performer of the quarter. On the other hand, last year’s loser, India, became one of the best performing markets in the Far East. The same phenomenon was seen at corporate level where investors changed course from earnings-stable equities to cyclical companies – this trend was particularly pronounced in January. Although cyclical equities have caught up on stable equities throughout the quarter, cyclical equities generally keep trading at much lower multiples than stable equities.

The Philippine banking share, Security Bank, turned the star performer of the fund. Overall, Philippine equities have impressed with impressive rises throughout the quarter in the wake of declining interest rate rates, extended opening hours on the stock exchange as well as prospects of reforms and infrastructure investments. The Philippines has been a top performer together with Thailand, which has recovered following the floods suffered last year.

Outlook

Asian equities are in the favourable situation of rising earnings estimates concurrently with declining inflation. The Far Eastern countries have an opportunity to boost the economies and throughout the quarter we have seen currently falling interest rates in the region. At the same time, global liquidity is ample, which supports equity prices.

We expect growth in the Far East to slow down slightly but given a real growth of around 7% in 2012, the region remains the growth engine of the global economy. Growth in the Far East will primarily be propelled by the region itself via the countries' intraregional trade and increased private consumption. In other words, the Far East will be more resistant to fluctuations in exports to the Western countries.

The companies in the Far East are in a good position. They tend to have less debt and they deliver a fair level of return on equity just as they are expected to realise growth rates exceeding the global average. Earnings per share in the Far East is expected to rise by more than 20% in 2012, cf. IBES. Nevertheless, equities in the Far East are trading at lower multiples than global equities in general in terms  of the indicator P/E for 2012.

Investments in the Far East involve risks. The EU and the IMF are tackling the debt crisis in Europe, but it has not been solved. The US must at some point lower its stimulation of the economy and China will gear down in an attempt to generate more balanced growth. One of the major questions for 2012 will be the development in the Chinese housing market which is allowed to be cooled – but housing prices must not decline to such a great extent that the Chinese economy is jeopardised. With respect to risk, investors should also note that the Far Eastern markets tend to fluctuate more than the developed equity markets and that political measures are more unpredictable.

Please note

Past performance is not a reliable indicator of future results. The value of and return on your investment may fall, and you may not get back the full amount invested. Investment in small and emerging markets may prove more volatile than investment in other markets. An initial charge is usually made when you purchase and sell units. The fund may invest in instruments denominated in various currencies. You should be aware that changes in exchange rates may have an adverse effect on your investment. This may also be the case if USD is not your base currency.

Information in this text should not be regarded as investment advice, and investors should consult their own investment and tax advisers before buying or selling.