South East Asia Update
by alistair Milne 27/04/2006

A lot of discussion recently has centred on the continued strength in South East Asia. So this week I thought a quick re-cap of the current market and economic conditions would be appropriate particularly given many members exposure to China, India and Japan.

China's economy is still looking strong and is expected to continue growing at a blistering pace. While the Peoples Congress would like to see a slow down to more sustainable growth, there is little they can do in a free market economy, outside of direct government intervention that would be seen as a huge blow to foreign investment. Which is exactly what they are trying to encourage - moving from investment in net exports toward consumption. It is therefore good news that the People's Congress wants to promote health and education spending, and build social safety nets—all measures that should increase consumption and sustainable growth in the medium term.

India, too, is growing rapidly and important steps are being taken to improve the infrastructure. Reform of the labour laws is urgently needed if jobs are to be created in skill-intensive sectors, and I note the Prime Minister supported this today. Opportunities for higher education also need to be expanded if India is to maintain its competitiveness in skill-intensive sectors. But, we see this a sustained period of prosperity for India as they continue to expand their opportunities into the global service industry.

In Japan, the economic tide continues to rise, lifting inflation, land prices, and bank lending. Improving labour market conditions are likely to support consumption growth. For Japan, the challenge is how to normalize monetary and fiscal policies without setting back the ongoing recovery even while coming to terms with a rapidly aging population.

The rest of emerging Asia has benefited from China and Japan's good performance, and from the recovery of the information technology sector. The outlook remains positive and hence Hudson’s approval of the Aberdeen Asian Opportunities Fund and Asian Emerging Markets Fund for investment.