Optimism still high among Asian investors

Asian investors remain upbeat for the first quarter of 2010, despite their reduced confidence in the US economy. That may be reflected in increased risk appetite among investors globally.

Asian investor sentiment improved slightly from the third to the fourth quarter of last year, according to the ING Investor Dashboard Sentiment Index survey. The index registered 147 for Q4 2009, a 3.5% rise from 142 in Q3, but a smaller increase than in the previous two quarters.

Investor sentiment -- at its highest level for the region since Q3 2007 -- remained fairly flat quarter-on-quarter in most countries. Only Thailand showed a substantial index gain, to 150 from 113. Japan and South Korea posted by far the biggest falls in sentiment, from 91 to 71 and from 145 to 128, respectively.

As for the outlook on the current domestic situation, Indian investors are the most positive, with 87% saying the economic climate had improved compared to the third quarter (63% had said the same in Q3). And 89% of Indian respondents feel their economy will improve this quarter, against 70% for pan-Asia (ex-Japan) investors.

Meanwhile, the number of Asian investors predicting that the US economy will improve in the upcoming quarter fell in most countries, with 61% taking the view that it will improve, as compared to 62% saying the same in Q3. By contrast, 77% of Indian investors believe the US economy will improve in Q1 2010, compared to 52% who were similarly optimistic in Q3.

Indians are also particularly upbeat on the stock market, with 93% saying it will stay flat or rise in the current quarter, as against 83% of pan-Asia (ex-Japan) investors taking that view. The Chinese are slightly more optimistic than Indians on their view of their local residential property market, with 92% of Chinese investors saying it will remain at the same level or rise this quarter. That figure was 86% for pan-Asia (ex-Japan).

Paul Klug, regional general manager at ING IM in Hong Kong, suggests the particularly positive outlook of Indians may be down to them basing their optimism largely on the strong balance of trade between India and the US. 

In terms of inflation, Asian investors see it as a risk for 2010 and most expect interest rate hikes this year. Currently, 59% of Asian investors (ex-Japan) expect inflation to rise as early as the first quarter, while 77% expect to see an increase some time in 2010. Half (51%) of Asian investors also expect domestic interest rates to rise this quarter, while 58% anticipate a rise in domestic interest rates during this year.

"This doesn't necessary mean investors are fearful of inflation, simply that they expect there to be a small rise, but not necessarily to problematic levels," says Klug.

Interest rate hikes across Asia are likely in the second half of 2010, he adds, although markets such as China and India may raise them within the first half. "While rising inflation and subsequent interest rate hikes will become an increasing concern for investors, they will not likely have a detrimental effect in Asia, particularly in the high-growth markets, as consumption remains strong," says Klug.

This reflects the widespread view that inflation is likely to be an issue in emerging markets significantly earlier than it will be in developed ones, such as the US.

The ING Investor Dashboard survey tracks the sentiment of mass-affluent investors each quarter from 12 Asia-Pacific markets (including China, Hong Kong, India, Indonesia, Korea, Malaysia, the Philippines, Singapore, Taiwan, Thailand, Japan and Australia). It also provides a specific industry benchmark for pan-Asia (ex-Japan and Australia) investor sentiment.

The Q4 2009 survey was conducted in December and polled 3,730 mass-affluent investors across the 12 markets. The respondents are aged 30 years and above, and have disposable assets or investments of $100,000 and above, with the exception of Indonesia (disposable assets or investments of $60,000 and above) and the Philippines (disposable assets or investments of $60,000 or monthly income of 200,000 pesos and above).