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S'pore property, Asia looking up: Fidelity
SINGAPORE property is starting on a long uptrend, said a top executive at Fidelity International.
"This current down cycle seems to me to have been going on for a long time," said Tim Orchard, who is chief investment officer equities, Asia Pacific ex-Japan.
A weaker currency helps, he said. "Singapore also has a small, open economy, which can be a catalyst."
He was speaking at a media briefing on Tuesday, where he also argued that this year's earnings recovery in Asia could be sustainable.
Asian stocks, excluding Japan, have rallied over 20 per cent year-to-date as of end-May, significantly ahead of developed countries like the US, the UK and Japan.
In Singapore, property counters like UOL Group and City Developments have led the charge, with both up over 30 per cent this year.
Improving sentiment and strong condo sales numbers have led to brokers turning positive on local developers.
In Asia, corporate valuations have recovered significantly from a trough last year. However, price-to-book ratios are still not far from historic lows due to weak profitability among companies.
Yet earnings estimates for this year are being revised upwards, the best showing since 2010.
Mr Orchard said if one were to be contrarian, the fact that most global funds are under-invested in the region makes markets here interesting.
The current recovery might be sustainable despite upcoming US interest rate hikes, he said. The US Federal Reserve is expected to raise overnight interest rates today to the 1 to 1.25 per cent range.
Asian stocks usually do well in the 24 months after the first US rate hike, he said, citing data going back to 1988. The US began its current hiking cycle in December 2015.
Another reason for the region to do well is stable politics.
"In the West, there's instability: we don't know what we're really getting, whether it's surprises at the ballot box, Brexit, (Donald) Trump's election, there's some confusion over policies," he said.
"Turn around and look at Asia, you see (prime minister Narendra) Modi making a lot of progress in India, there are Indonesian reforms, and China in a relative sense looks quite stable."
Mr Orchard highlighted tech stocks as companies which can display high profitability.
Stocks he is interested in go beyond the largest counters such as Alibaba and Tencent, which he says have a structural story, or cyclical plays like Taiwan Semiconductor Manufacturing Company.
Tech can permeate through sectors previously not considered part of it, such as the travel industry. In the small- and mid-cap space in China, there are hundreds of companies, he said.
Good corporate governance is also important in order for earnings to improve, he said.
"We're looking for companies using their cash properly, with good reinvestment rates, driving returns on equity higher, with the right balance between debt and equity, and in the right growth industries."
Meanwhile, the two Asian giants of China and India have strong long-term domestic stories which can play out undeterred by global developments, he said.