Developing Asian economies have outperformed G3 (U.S., EU, and Japan) economies by an average of five percentage points from 2000 to 2006, according to Western Asset, a leading global fixed-income manager.
In the post financial crisis world, that difference has widened to nearly eight percentage points.
Given this economic growth advantage, it makes sense for Western investors to consider diversifying to Asian financial assets.
Moreover, many Asian countries are in great fiscal shape, which is in stark contrast to Western governments that are bloated with debt.
The huge cash reserves of many Asian countries should also protect them against the threat of global financial and economic turmoil.
Ratings agencies seem to confirm the bullish view on Asian economies and financial assets.
Year to date, seven developed countries (Greece, Ireland, Italy, Japan, Portugal, Spain and the U.S.) have been downgraded while three developing Asian countries have been upgraded (Indonesia, the Philippines, and Sri Lanka).
Western Asset recommends the following four Asian currencies as attractive buys:
Chinese Yuan and Singapore Dollar (long-term constructive) – low-beta (attractive in light of the ongoing environment of risk aversion) and the countries’ economic shift from exports to consumption
South Korean won (medium-term constructive) – sharp gains in manufacturing competitiveness against Japan
Indonesian rupiah (medium-term constructive) – Indonesia’s efforts to strengthen the rupiah (in response to inflation) and the possibility of further ratings upgrades