Recent strong economic data from Europe and the US lead us to be more positive on China’s growth prospects. Hence, in the short term, we are positive on cyclical sectors such as industrials. Within industrials, we are exposed to the building materials and building machinery sector. We are also positive on the domestic construction sector with exposure to domestic building materials.

For Korea, the Lunar New Year festival should improve Chinese consumption at a minimum of a 10 per cent-level. Recently, Chinese retail sales and disposable income has grown and the Chinese holiday spirit should stimulate consumer related exports from Korea. The Korean government made itself clear that it will put more focus on domestic market and service industry than the export market and manufacturing industry. In addition, it expresses strong willingness to stimulate the economy by putting more priority on the normalisation of housing market. Hence, we should be more balanced in terms of sector allocation.

South East Asian markets likely impacted by US tapering

We expect a difficult period for South East Asia in general on the back of its unfolding balance of payment crisis and large fiscal deficits. The high level of foreign ownership of debt and equity makes them vulnerable to outflows. Election in Indonesia will inevitably bring some uncertainty to its economy. Furthermore, with the commencement of the Fed’s tapering, South East Asian countries will remain vulnerable. Within ASEAN countries, we prefer Thailand and the Philippines as they have more attractive valuation.