Just in case some of you may have missed my earlier blogs - I am still bullish on Asian stocks, and not just in 2006 but for the next couple of years at least. The main factors for my saying so:
1) Currency Realignment (Wealth Re-creation) - Bulk of Asia-Pacific have recovered from the financial crisis, and are being rerated by investors. Led by the yuan, other undervalued currencies such as the ringgit, Indon rupiah and baht are being brought up at the same time. Only this time around, there is a bit more room on the upside. The yuan can appreciate another 30% from here over the next 3 years without much dent to its competitive edge. Malaysia's ringgit can easily gain another 10% over the next 2 years without losing steam. An appreciating currency means assets denominated in that currency will see demand as well. Better purchasing power will stifle inflationary pressures, which will further boost stock and property prices. The wealth re-creation process will translate into better purchasing power, domestic demand and higher velocity of money in the region.
2) Japan To Rise (Really This Time) - Readers of my blog will be familar with my conviction that Japan's economic and prices recovery are genuine this time around. Last year was good for stock and property prices in Japan, but 2006 and 2007 should even be better. A more open financial market with more restructuring, buyouts, private equity and foreign investment will drive the cobwebs away. The fact that Bank of Japan is increasing interest rates from ZERO is not a sign to be feared but to be welcomed, because it shows that liquidity is more than ample in the system and that prices finally are rising. A genuine recovery in Japan will translate into great multiplier effects for the rest of Asia. A good rule of thumb is every 1% growth in GDP for Japan will have the effect of raising Asia's GDP by 0.7%. You do the math, this is good math.
3) The Really Big Picture - Please read my blog on "Asian Equity Markets Have A Lot Of Ground To Make Up" dated 8 February 2006. Basic argument is that Asia's GDP will account for 22%-24% of total global GDP by 2008-2010. Meanwhile Asian stock markets only account for 12% of total global market capitalisation. Structural changes in the competitive landscape have been witnessed over the last 5 years. Creativity, technology, globalisation and competition have all converged and brought Asia higher up the global playing field. We shoud see a very positive next 5 years for Asian equity markets as I forsee Asia's share of market cap to rise from 12% to a more respectable 16% (or one-third in size).