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Investors Eye Asia as U.S. Growth Slows

8 February 2013 in Trading Ideas

There was an unpleasant surprise in the U.S. Gross Domestic Product numbers released last month. After growing for much of 2012, including a healthy 3.1% increase in the third quarter, the GDP suffered a 0.1% fourth-quarter decline, according to the U.S. Bureau of Economic Analysis1.

The fourth-quarter performance was the worst since the depths of the 2008-09 fiscal crisis, and was blamed on lower federal military spending, declining exports and diminishing business stockpiles. The estimate is preliminary; a revision is due later this month. But analysts said it was a bad sign for 2013, which could see even more cutbacks in federal spending due to budget disagreements in Washington.

The prospect of continued slow – or no – growth in the U.S. economy has investors looking for alternatives. Many are considering investments in Asia, a region with hefty foreign reserves, positive economic fundamentals and banking system rated to be in excellent health2.

Over the last two decades, a huge manufacturing boom has made Asia something of a factory to the world — it’s now responsible for 60% of global exports. As the Asian manufacturing sector has grown, so too has the Asian middle class, creating even more of a demand for goods from sources both in Asia and beyond3.

Despite concerns that Asia might see its own slowdown, it is still expected to handily outperform the American economy. For example, the World Bank has predicted that China’s annual growth rate will be 7.7% this year, and rise to 8.1% next year.

The Asian Fusion motif tracks these economic developments. Roughly 75% of the companies represented in it are from China and Japan, and are spread across many sectors, including banking, telecommunications, financial services and energy. All of the companies in the motif generate more than 75% of their sales from the Asian market, which means they will likely prosper as the region’s middle classes flex their growing purchasing power.

1http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm

2http://www.nytimes.com/2013/01/31/business/economy/us-economy-unexpectedly-contracted-in-fourth-quarter.html?_r=0

3http://www.reuters.com/article/2012/10/08/us-worldbank-asia-outlook-idUSBRE89701420121008

Tags: asia, China, Japan

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