Promise of more keeps investors hooked on Asia's frothy markets

Mon Aug 18, 2014 12:51am EDT
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By Vidya Ranganathan and Umesh Desai

SINGAPORE (Reuters) - Calling the top in financial markets is never easy. Asian stock and bond markets may appear frothy at their near-record levels after a multi-year rally, but global investors are still betting on a mix of healthy returns and history to juice up their profits.

Six years since the global financial crisis spurred a relentless pursuit of yields, Asian stock markets are at record highs, bond yields have tumbled to pre-crisis lows and companies are raising huge amounts of cheap equity and debt.

Brisk corporate earnings growth, fed by a global thirst for the region's exports of cars and electronics goods and robust domestic consumption, has further burnished Asia's appeal and kept funds focused on ripe pickings.

"I would not at all subscribe to the idea that markets are expensive and now's the time to get out," said Julie Dickson, a portfolio manager at Ashmore Investment Management in London, a fund with $75 billion in assets worldwide.

"And if you do that, you are going to be potentially losing out on some very compelling opportunities for growth in the next 3 to 5 years and possibly longer, particularly in China and Korea."

Indeed, triggers for a correction, which seems overdue, have come and gone - ranging from geopolitics such as the Ukraine-Russia tensions or economic ones such as an Argentine debt default or periodic threats of a rise in U.S. yields.

Other regions have cooled off in the past two months. There were outflows from U.S. high-yielding bonds and equity funds, European equities have fallen sharply, and foreign cash has moved away from Latin American and European equity markets.

Asia has remained the exception, almost caught in a virtuous cycle where company earnings are surpassing expectations and bond yields offer a decent cushion for risk.   Continued...

A man rides an escalator near Shanghai Tower (R, under construction), Jin Mao Tower (C) and the Shanghai World Financial Center (L) at the Pudong financial district in Shanghai July 4, 2013.  REUTERS/Carlos Barria