Riding High On Optimism

Strong economic fundamentals and government policies in Q2 fuelled investor sentiments in India and China. The euphoria post the victory of the Congress-led coalition during the recent election seems to be favourable for India’s investment climate, thereby boosting investors’ confidence. India is back on track with its GDP growth forecast at 6.2 per cent for 2009 and this is expected to accelerate to 7.3 per cent in 2010. [INSERT_1]

However, most countries believe that the economic situation has improved in Q2 as compared to Q1 due to a more favourable outlook for the United States financial sector. Factors attributing to high optimism, point largely towards the recent performance of the stock markets and the confidence that the markets will continue to rally in the coming quarter.

Indian investors are positive and strongly believe that the domestic economy is growing. Hence the proportion of investors adopting aggressive strategies for capital appreciation has increased. Indian investors also believe that their personal financial situation has improved compared to last quarter and that the performance of the stock market will influence investment decisions. Asian Investors are also moving away from a conservative investment strategy focusing on capital preservation to a more balanced portfolio that delivers stable returns or a more aggressive strategy focusing on capital appreciation.

We are certainly seeing liquidity flow back into the Asian market, and at ING, we are seeing substantial funds flow from Europe and US into Asia. There will be opportunities for investors in Asia as the markets consolidate. However, fundamentally, there are still no clear signs of an economic recovery and there is still a potential for corporate earnings from companies to disappoint. With this in mind, investors should look at defensive sectors which demonstrate reliable growth or are less dependent on export growth, including pharmaceuticals, non-discretionary consumer and property sectors.

Although investor sentiment across Asia shows a significant upswing for the first half of 2009, Asian investors expect inflation to be a key concern in the longer term and look to move away from holding cash. For India, investors remain confident that the economic situation will further improve in Q3. Given the strong economic growth, investors feel that the stock market will further appreciate, thus reflecting bullishness. Q3 2009 will also see a lot of Indian investors investing in gold and real estate. As a result, real estate prices are expected to further rise. Given this scenario, concern for job security is least in India as compared to the Asia Pacific region. It is encouraging to see this optimism in investor sentiment, which is certainly influenced by the ‘feel good’ of the recent stock market rally.