China and India still on top for Batterymarch

Ray Prasad joined Batterymarch in 1997 to perform emerging markets research and was promoted to portfolio manager in 2000. In 2005 he was named senior portfolio manager. He focuses primarily on the Asian markets within Batterymarch's emerging markets team, which manages around $3.4 billion in emerging market equities, including $2.1 billion in Asia. He shares his views about Asian equity markets.

Which Asia-Pacific countries are the most attractive one and why?

Prasad: Based on attractive fundamentals, we are currently finding favourable opportunities in the large markets such as China and India, which have fared well in the global slowdown. We also like smaller markets such as Indonesia, which also has strong domestic growth, along with political stability and a positive investment climate.

Which Asian region should be avoided?

At Batterymarch, we look at companies on an individual basis rather than according to where they're located. We don't avoid any country or region where we can find attractive opportunities.

Which sectors in Asia and which companies do you like and why?

Many of the companies that score well in our models are related to domestic consumption and infrastructure development-two areas that should continue to flourish. As economic activity improves at the industrial and consumer levels, this should benefit consumer discretionary and capital goods players as well as financials. We are also starting to increase our exposure to names that benefit from global growth.

Which are the main challenges for the region?

Asia and other emerging markets are positioned to head up the global economic recovery, but this can be expected to take time, and we anticipate some volatility in Asian markets until a positive global environment is firmly in place. Since the trough in October 2008, Asian markets have been re-rated, and we need to see robust corporate earnings growth to put the recovery on a solid foundation.

Is the region already overpriced?

Asia Pacific ex-Japan is currently valued at 14x forward earnings, with an expected earnings growth rate of close to 17%. Given very high liquidity in the global capital markets, incrementally easing credit and the fact that analysts had cut their estimates significantly --upwards of 40% -- for 2009 and are only now beginning to revise numbers up, we believe that earnings growth could be substantially higher than cautious consensus estimates. This leads us to believe that Asian markets are still undervalued looking at the next nine to 12 months.