Asia to shine, but US and Europe lack polish

By Ross Kelly

ASIAN markets like Japan, Korea, Singapore and Taiwan will outperform in 2005 as opposed to Europe and the United States, while the Chinese market will grow by 7 per cent and avoid the hard landing many have predicted.

These are some of the insights for the new year of Deutsche Asset Management’s global chief economist Steven Bell, who visited Australia from his post in London last week.

Bell said US equities might not perform as well in 2005 thanks to lower inflation, higher interest rates and decreasing profit growth. Some European stocks will flourish, but on the whole the European economy will stay fairly dull.

Locally, Bell believes the fundamentals for growth in the Australian stock market are strong, but doubts Australian investors will receive returns as high as those seen in 2004.

“You’ve got to remember that in a low inflation world you should expect returns to be low and if long-term returns from markets are at the 8 to 10 per cent mark and you’ve just experienced returns of over 20 per cent for one year, then you’re going to get lower numbers the next time more often than not,” he said.

Bell said commodity prices will stay high in Australia due to demand from China and India.

“[China has] solved its inflation problem and that’s very good news, so I see China as a long-term domestic demand story because it needs to spend a huge amount of money on power stations and all the rest of it, and that’s good for China, and it’s very good for the world economy and, obviously, it’s good for Australia.”

He said Australian investors can best take advantage of Asian growth through domestic investment.

“Generally it’s not a bad thing to play the Asian theme through investing domestically here in Australia in commodity and energy linked stocks,” Bell said.