Weaving through flashing thunderstorms, our turbo-prop plane finally bounced onto the tarmac at Yangon International Airport in Myanmar during our research trip there earlier this summer. When constructed more than 60 years ago, the airport was considered among the best in Southeast Asia but it subsequently fell into disrepair and became antiquated. Modernized in 2007 with the design help of a Singaporean firm, the airport today is a bright little building with a faint whiff of antiseptic in the air. After immigration officials in dazzlingly white uniforms processed us and sent us into the steamy night, it struck us that this airport’s makeover seemed to mirror many other aspects of this once-outcast nation.
Over several decades, Myanmar’s brand of socialism had turned a land rich in rice, teak and natural resources into one of the world’s poorest nations that also faced dire political and diplomatic troubles. Only recently have sanctions been lifted following the dissolution of its oppressive military government in 2011. After three decades under this military junta, Myanmar has thrown open its doors to change. Areas such as agriculture, mining, manufacturing and tourism all appear to be bursting with potential.
Once described as the “rice bowl of Asia,” Myanmar had been famed for exports of its Paw San fragrant rice a generation ago. Its rice exports withered considerably since then but just this spring, Japan began making investments in Myanmar’s rice production, and also imported Burmese rice for the first time in more than four decades. Myanmar had also been an early oil producer, and nationalized its oil and gas industry in 1962. The industry is yet another that suffered from decades of isolation. However, just recently, the government has begun opening up to foreign exploration 30 untouched offshore oil and natural gas drilling sites. The country’s oil and gas agency is said to still be plagued by inexperience, mismanagement and cronyism, and Myanmar itself is under increasing pressure to fix its own energy shortages. But in June, the U.S. announced a new partnership with Myanmar to help “strengthen transparency and good governance” in the energy sector. The partnership aims to provide political support and technical assistance toward international best practices as well as improve financial accountability, safety and environmental stewardship.
Myanmar’s lack of infrastructure and the sheer amount of investment needed to boost it to match its regional peers is another obstacle to its success. In our view, the country’s infrastructure, although basic, is fairly solid and relatively well-maintained when compared to what we have seen in other frontier markets. The tens or even hundreds of billions of dollars of investment necessary to raise Myanmar up to a comparative regional level may be available should smooth political transitions continue. Myanmar is also strategically located, causing the need for various countries to nurture favorable relations. Many countries in the region have either maintained or rekindled longstanding relationships with Myanmar in recent years.
Myanmar’s large labor force and availability of land also offer opportunities for large-scale manufacturing activity. This could be additionally supported by the needs of many large corporations to diversify their country exposures. While we are still witnessing the very early days of this economic journey for Myanmar, we will continue to focus on developments there with great interest, including general elections and a planned opening of a stock exchange—both scheduled for 2015.
Opinion column by Emerging Asia Investment Team, Matthews Asia
The views and information discussed represent opinion and an assessment of market conditions at a specific point in time that are subject to change. It should not be relied upon as a recommendation to buy and sell particular securities or markets in general. The subject matter contained herein has been derived from several sources believed to be reliable and accurate at the time of compilation. Matthews International Capital Management, LLC does not accept any liability for losses either direct or consequential caused by the use of this information. Investing in international and emerging markets may involve additional risks, such as social and political instability, market illiquidity, exchange-rate fluctuations, a high level of volatility and limited regulation. In addition, single-country funds may be subject to a higher degree of market risk than diversified funds because of concentration in a specific geographic location. Investing in small- and mid-size companies is more risky than investing in large companies, as they may be more volatile and less liquid than large companies. This document has not been reviewed or approved by any regulatory body.
By Almonroth . The Damage Potential of Rising Rates
The initial goals of the Federal Reserve’s “Great Monetary Experiment”— to keep rates low, create negative real yields, spur consumption and cushion the budgetary consequences of fiscal stimulus — have largely been accomplished. Investors could now face the threat of rising bond yields. Various bull and bear scenarios might ensue. What are they and what could trigger them? What are the risks to portfolios?
Duration Described: The Ugly Math of Long Maturity
Duration is a measure of a fixed income instrument’s sensitivity to rising rates. In general, the longer the instrument’s maturity, the longer its duration, and the more sensitive its price will be to changes in market yields. This is because the instrument’s value is the sum of cash flows received (interest payments and principal payments), discounted at the current rate demanded by investors for that instrument until its maturity.
Time Value of Money
When rates rise, an investor has to implicitly discount all interest and principal payments for bonds at a higher rate. And that rate is compounded by the “time value of money”. Thus, if a bond’s interest and principal payments stretch far off into the future, the discount factor becomes large. The market reacts typically by dropping the value of the longer-dated bond much more dramatically than the shorter-dated bond.
Present Value
Consider two bonds with different maturities: a 2-year and a 30-year Treasury. For a $1,000 2-year Treasury bond yielding 1%, the principal to be paid back in 2 years is a large component of the bond’s present value. The interest payments (4 payments of $5 = $20 vs. $1000 principal) are a small part of the present value. Conversely, for the $1,000 30-year bond yielding 3%, the principal payment, made far in the future, is a smaller component of the present value. The interest payments (60 payments of $15 = $900 vs. $1,000 principal) are a much larger portion of the bond’s present value.
Many Interest Rate Scenarios Could Ensue Over the Next Several Months
One “extreme” scenario that some have suggested is the ultimate duration nightmare – a wholesale rout of the Treasury and Dollar markets. This event could transpire if investors lose faith in U.S. political and monetary authorities resulting from an extreme currency debasement and the simultaneous inability to reign in federal deficits. Those who argue we are going down this path may point to the seemingly never-ending rounds of Quantitative Easing and political paralysis on a long-term budget plan. While we sympathize with these concerns, we don’t find them compelling in the near- to intermediate-term for a number of reasons. We do, however, envision a number of different potential rate scenarios unfolding.
Click here to read Pioneer’s Blue Paper The Damage Potential of Rising Rates, which reviews these interest rate scenarios, and the conditions that could invoke them.
Column by Michael Temple Director of Credit Research, U.S, Pioneer Investments
Wikimedia CommonsNarendra Modi, likely candidate for Prime Minister in the Indian general elections due in May of 2014.
. Tech-Savvy Elections in India
The democratic process in India is famously complex with innumerable caste coalitions and competing interests. With poverty widespread and so many living in remote villages, voter turnout can pose unique challenges.
While growing up in India, I recall politicians ferrying people from the hinterlands to attend political rallies, offering free transportation, lunch and pocket money to those willing to participate—all to ensure a large turnout. But what has changed since then? India’s political parties are now embracing technology to reach out to constituents.
We see a notable difference in an August rally being planned in the southern city of Hyderabad by Narendra Modi, the current chief minister of the western state of Gujarat. Unlike other rallies, this one for Modi, who is expected to be the Bharatiya Janata Party’s nominee for prime minister in upcoming national elections, features online registration, and is seeking voluntary donations of about 8 cents that will go toward charity.
India’s next federal election is expected to highlight the extensive use of the Internet and other electronic media. In a country of 1.2 billion people and approximately 250 million households, it is estimated that 155 million households have television sets. Moreover, the majority of these households have cable TV or satellite connections with access to multiple channels, allowing viewers to hear diverse political viewpoints. In addition, the country has more than 860 million cell phones, which offer politicians more options to reach voters via social media platforms.
Will the winner of India’s next election be the party that can best harness technology to compel voters to action? If so, then Mr. Modi may possibly have an edge. With more than 2 million Twitter followers—the most of any Indian politician—he has been among the early adopters of technology in India’s political arena. (Parliamentary Member Shashi Tharoor is close second with 1.84 million followers.) In recent Gujarat state elections, Mr. Modi also made extensive use of 3D projection, a special audio visual technology, to boost coverage of his rallies.
Whether upcoming elections can be influenced by the strongest online presence remains to be seen. But, hopefully, it can at least help fuel more robust public discourse over India’s most pressing issues.
By Sudarshan Murthy, CFA. Research Analyst, Matthews Asia
The views and information discussed represent opinion and an assessment of market conditions at a specific point in time that are subject to change. It should not be relied upon as a recommendation to buy and sell particular securities or markets in general. The subject matter contained herein has been derived from several sources believed to be reliable and accurate at the time of compilation. Matthews International Capital Management, LLC does not accept any liability for losses either direct or consequential caused by the use of this information. Investing in international and emerging markets may involve additional risks, such as social and political instability, market illiquidity, exchange-rate fluctuations, a high level of volatility and limited regulation. In addition, single-country funds may be subject to a higher degree of market risk than diversified funds because of concentration in a specific geographic location. Investing in small- and mid-size companies is more risky than investing in large companies, as they may be more volatile and less liquid than large companies. This document has not been reviewed or approved by any regulatory body
Wikimedia CommonsFoto: Tom Varco. Novedades sobre compañías farmacéuticas
We adhere to the theory of mean reversion in our management of the portfolio. Three years ago, pharmaceuticals stocks were out of fashion and valuations had fallen to a very low level. The market, however, was overlooking the fact that pharmas had a long-term growth story ahead of them. Peaks and troughs are part of the natural rhythm in any industry and it is the fallow period from 1998 to 2006 – when fewer new drugs were reaching the market – that wrongly shaped current opinions.
Since then, companies have diversified into broader, more sustainable revenue streams through non-core pharmaceutical treatments, low-cost generics and emerging markets opportunities that are less dependent on patent protection or research and development. Technological progress has enabled firms to launch new medications for widespread diseases such as cancer and Alzheimer’s. At the same time, demographic developments and growing demand in emerging economies has fuelled demand for treatments.
Sanofi and Roche are two examples of companies we favour in the industry:
Sanofi:
French healthcare company Sanofi’s risk/reward profile remains attractive, given the positive outlook for the firm’s diabetes franchise, particularly Lantus, the insulin product, consumer health products and opportunities for growth in the emerging markets. Around 35% of Sanofi’s business comes from emerging markets where more medically immature markets are leading to strong uptake of healthcare products. The company’s broad earnings base could be a benchmark for any industry, with sales diversified by geography (US: 35% / EU: 24% / EM 32%/ ROW13%, 2012 figures) and division. The company’s sales are also well-balanced amongst government expenditure and private consumer expenditure. Net debt is significantly below target of €10 billion, so the balance sheet is strong and the company enjoys positive net cash flow. Investors can look to a healthy dividend yield, currently 3.7%, which is expected to rise next year by around 10% and there may even be potential for share buybacks. The company currently trades on a 1-year forward price/earnings ratio of around 13.5.
Roche:
Swiss pharmaceuticals and diagnostics company Roche is a core long-term holding for us, reflecting our belief that the company is only partway through a multi-year re-rating. Sales have continued to grow at an impressive rate, driven by Roche’s headline cancer treatments Heceptin and Avastin, amongst others. The firm’s strong pipeline of potential new drugs, continued expansion of its diagnostics operations, and growing emerging markets presence should help Roche to grow earnings. Roche trades at a premium to some of the other pharmaceutcials but this reflects the quality of its products. A dividend yield currently of more than 3%, trading on a price/earnings ratio of 15 does not seem unreasonable for a company that is forecast to grow earnings by 7-10% per annum over the next few years.
Other investors have begun to discover this trend and the valuations among pharmaceuticals have risen but not to the extent that they are overvalued. In fact, we believe the sector is in the midst of a long-term upwards re-rating.
By John Bennett, Director of European Equities at Henderson Global Investors
By Agência Brasil (Department of Press and Media). Is Brazil’s Economy Operating Below its Potential?
The Brazilian stock market, as measured by the MSCI Brazil Total Return Index, is down just under 25% in US dollar terms year-to-date (10 July 2013), with about 10% of that loss being due to weakness in the exchange rate of the Brazilian real versus the dollar. Losses at two large companies in Brazil; energy company Petrobras, and mining company Vale have also contributed significantly. We believe that much of Brazil’s current economic problems stem from domestic economic mis-management and an urgent need for increased incentives for private capital investment. We do not believe that one factor alone, such as lower Chinese growth, falling commodity prices, or changes in Federal Reserve policies are the main sources of blame; after all, Indonesia and Australia also export to China and are exposed to the same global forces, yet their economies and stock markets are generally perceived to be in better shape.
Arguably Brazil’s investment unpopularity stems largely from local and foreign investor mistrust of the Dilma administration and its economic policies.
For example, Brazilian exports to China actually rose to a historic high in May 2013, reaching US$5.6 billion, a 5.6% increase versus the same period last year and up over five times since 2007 (according to Bloomberg). Brazil’s economic relationship with China is actually one of the bright spots in the economy, as China has broadened its mix of goods that it buys from Brazil. Arguably Brazil’s investment unpopularity stems largely from local and foreign investor mistrust of the Dilma administration and its economic policies. The banking, utilities, mining, transport, beverages and energy industries have witnessed increasing government intervention in pricing and taxation, often through manipulation by huge state-owned companies, which have harmed the interests of private stock exchange listed companies. Some industries, such as construction, with close ties to the government have done well, but they are not listed and often rely on large loans from state banks.
The recent street protests in Brazil were a largely middle class expression of much of what local and foreign stock market investors already knew
Corruption has also become more evident in the relationship between the government and key industries. It is unclear whether the present Brazilian government has the will or the discipline to repair the damage it has created – this is the biggest source of potential surprise, both positive and negative, that the Brazilian investment climate faces in the near term. The recent street protests in Brazil were a largely middle class expression of much of what local and foreign stock market investors already knew; that the government was failing to invest its new-found commodity wealth wisely, corruption in Dilma’s previously clean Workers Party was rising quickly, and that big projects, such as World Cup stadiums or Petrobras, did little to address shortages in education and healthcare. Many Brazilians are painfully aware that the government’s huge unproven gamble on Petrobras is directing vast sums of money away from much-needed social investment.
Such a discount can be justified considering the immediate headwinds facing Brazil but offers longer-tem investors a good opportunity to invest in an economy operating well below its potential.
However, over the past decade, investing in Brazil has made sense. The stock market has done very well (MSCI Brazil Total Return Index +538.4% versus MSCI World Total Return Index +112.4% in US dollar terms, between 30 June 2003 and 30 June 2013), Brazilians are much better off, and the country has opened itself up to foreign trade. However, the recent weakness has also pointed out that in emerging markets government policy, good or bad, still has an enormous impact on the economy. Trade is a bright spot for Brazil going into 2014 as exports to the US, Europe, and Japan could accelerate. There are further developments, which could help the Brazilian financial markets in the coming months; first, the decision to raise interest rates should help with inflation expectations and reduce wage inflation in 2014; second, the weaker currency has improved Brazil’s trade competitiveness; third, the government has promised to review its fiscal position and there is some evidence that excessive or wasteful vanity projects will be cut; fourth, the street protests provided a vital wake-up call to a government, which had wrongly believed that President Dilma was universally popular; finally, we believe that Petrobras will begin showing some qualified success in its deep water oil fields – perhaps not as much oil or soon enough for many critics, but enough to ease investors’ deeper concerns. At present levels the Brazilian stock market is trading at a price-to-earnings ratio of 14x, a price-to-book ratio of 1.3x and offers earning growth of about 14% over the next twelve months – however, currency volatility and the outlook for commodity prices often lead to wide ranges in estimates. In historical terms the price-to-earnings ratio in 2008 was about 8.5x and the price-to-book ratio was about 1.6x. Our conclusion is that the market offers relative value on a historical basis but that earnings are at depressed levels. Such a discount can be justified considering the immediate headwinds facing Brazil but offers longer-tem investors a good opportunity to invest in an economy operating well below its potential.
Opinion column by Christopher Palmer, Director of Global Emerging Markets at Henderson Global Investors.
By Brocken Inaglory. How to Catch an Investment ‘Wave’? Get in the Water!
At the beginning of the summer, I always start singing (or humming) some Beach Boys song as my own personal soundtrack to this glorious and seemingly carefree season. The song “Catch a Wave” has particular significance – not because I’m a surfer, but because one of my investing mentors once used surfing as analogy for me.
As he liked to explain, surfing requires a good measure of patience, perseverance, skill and luck. It also requires action – you can’t decide which wave to catch while you’re standing on the beach, holding your board. By the time you make your choice and race into the water, that wave will have either crashed down upon you or passed on to shore. In order to catch a wave, you have to pursue it. You must already be in the water, paddling, watching for opportunities. You might miss a couple before you catch the perfect wave to find yourself “sitting on top of the world,” as the Beach Boys ditty goes.
Investing also Requires Action
Like surfing, investing is a dynamic activity. If you try to time your entry from the sidelines, you run the risk of either missing the wave, chasing it endlessly or perhaps worse – being crushed by it.
Allow Me Some Latitude with this Analogy . . .
Your board is your ballast, the investment ‘core’ or foundation that you hold onto while you await a good wave. It should contain a diversified mix of instruments that are in line with your risk parameters to help generate, grow and sustain income over time.* A professional financial advisor can help you make those choices.
Your buoyancy is assisted by the mild paddling you do to float atop the water. This represents the monies you either add or reinvest as part of your ongoing investing activity.
The waves are the outside forces that drive the valuations of these instruments – and your ‘core’ – higher and lower, depending on the moods of the economy and the markets.
Oceans, like investing markets, have changing moods and tides. As the saying goes, ‘a rising tide lifts all boats.’ The same has been said about good financial markets. But if you are in the water long enough with the proper ‘board’ (diversified ballast), you have the opportunity to catch a wave!
So, remember to take action. Take yourself – your “Little Deuce Coupe” – to the beach and try to “Catch a Wave!”
Wikimedia CommonsBy Arend Vermazeren. China Property: A Tough "Bubble" to Pop
I recently came across an old newspaper article from February 1989 that described Beijing’s residential property “bubble,” with average selling prices then of about US$430 to US$510 per square meter. The article went on to say that, given that the average college-educated worker typically saved less than approximately US$13 per month, at those prices, it would take a century or so to be able to buy a two-bedroom apartment. The writer concluded that a housing bubble was underway.
These days, the official average Beijing home price has reached a new high of approximately US$3,800 per square meter (or about US$246,000 for a small one-bedroom apartment) despite strict home purchase restrictions. In terms of affordability, consider that last year, China’s average annual take home pay per person for urban households was approximately US$3,900. China’s property bubble has been a hot topic probably ever since the beginning of the country’s commodity housing development. But despite some compelling arguments and striking examples that a bubble does exist, China’s property market has generally remained robust. So, is its property market really in a bubble? If so, why has the bubble lasted so long?
Real estate in the country’s urban areas is expensive by traditional metrics. But the average income has also more than tripled over the past decade. While true wages may not continue to grow at double-digit rates, by the same token, it may be too soon to jump to the conclusion that there is a real estate bubble while incomes continue to shift upward.
No doubt that China has some poorly planned large-scale projects developed. Like the U.S., China is a vast country filled with many contradicting examples. Observers could reach opposing conclusions about the U.S. property market by narrowing in on areas such as San Francisco or Detroit. To generalize about China’s market can be equally misleading.
In previous commentaries on China’s housing market, we have noted that the typical down payment requirement for first time home buyers is a hefty 30%, and usually 60% for a second home. Unlike in the U.S., mortgage loans in China are recourse loans. As a result, a homeowner cannot expect that any remaining debt can be forgiven should he or she not be able to continue payments. So the systemic risks are very different than those the U.S. faced in recent years.
So what factors have underpinned the property bull market over the years? The main driving force for the development of property market has been actual demand for urbanization and home upgrades. Some investors are really concerned over the rate at which people in China may be buying multiple properties for investment. Chinese are famous for having high savings rate—as high as about 50%. However, the country’s investment alternatives are currently limited, and low bank rates have meant that keeping money in the bank has been a sure way to lose purchasing power. China’s domestic equity markets are also notoriously volatile. In addition, given the steady appreciation of China’s currency, the renminbi (RMB), over the past decade, the incentive for investing in RMB assets has become more appealing. Buying real estate, therefore, has been one of the few alternatives available for people to preserve wealth and purchasing power, especially in light of the typically low costs incurred for housing investments, or carrying costs. In China, so far only two cities, Shanghai and Chongqing, have implemented experimental property tax programs. The low carrying costs also help explain why some flats sit vacant—the need to find rental income is much less pressing than it might be in the U.S. where you have to cover higher mortgage costs and property taxes.
Although China’s property market certainly exhibits some bubble symptoms on the surface, the root cause seems deeply embedded in China’s economic growth and financial system. The government has proposed different measures over the years to tackle property inflation, but the efforts have been largely unsuccessful as they only temporarily suppress the symptoms. With continued wage growth and urbanization, China’s property market may be a tough “bubble” to pop.
Henry Zhang, Portfolio Manager at Matthews Asia
The views and information discussed represent opinion and an assessment of market conditions at a specific point in time that are subject to change. It should not be relied upon as a recommendation to buy and sell particular securities or markets in general. The subject matter contained herein has been derived from several sources believed to be reliable and accurate at the time of compilation. Matthews International Capital Management, LLC does not accept any liability for losses either direct or consequential caused by the use of this information. Investing in international and emerging markets may involve additional risks, such as social and political instability, market illiquidity, exchange-rate fluctuations, a high level of volatility and limited regulation. In addition, single-country funds may be subject to a higher degree of market risk than diversified funds because of concentration in a specific geographic location. Investing in small- and mid-size companies is more risky than investing in large companies, as they may be more volatile and less liquid than large companies. This document has not been reviewed or approved by any regulatory body.
Wikimedia CommonsManuel García Ospina. Are Emerging Markets Vulnerable?
It sounds harsh to say that emerging markets can be highly vulnerable. Especially since they have experienced a big boom in recent years, which has led to the suggestion that we are in a world in which emerging markets are of a different kind to those we knew years ago. Such terms such as BRIC, CIVETS, etc., allowed the “developed world” to look at them with different eyes. But today, at the prospect of a reduction of monetary stimulus, some weaknesses have been laid bare.
During the past 10 years, the total government debt in local currency of all the emerging markets combined, went from about 1.5 trillion dollars to almost $ 6 trillion, representing an average growth of 30% per annum which, compared with the economic growth over the same period which averaged 5% annually, shows a marked imbalance between how emerging markets got into debt, and the positive impact such indebtedness may have generated.
We might think that this increase in local government debt went hand in hand with an effective reduction of other forms of indebtedness, which, unfortunately, did not. Both public and private debt, boomed during the last 10 years, fueled by low global interest rates and excess liquidity. Proof of this is that between the period 2008-2013, the emerging markets have received about USD 300 billion, while the debt issued, has been of USD $ 292 billion.
The above sounds like finding oil in Arabia, which means, that wherever funding was seeked, there it was. However, the last few years may show a blurred picture of what happened in real emerging market crises. Let’s put it bluntly: after the Asian crisis, emerging markets have not had any deep crises. They may have had strong distortions, as in the period 2001-2003, which included Argentina’s default, but acute, never. So, that is why it becomes so important for financial sector analysts to start looking into a science that very few people like: economic history.
History will tell us that before July 2, 1997(the day in which the Asian crisis officially began),Thailand’s picture was very similar to the following: higher cash flows from Japan and Europe, which financed anything, including local financing institutions, real estate speculation as a whole, a stock market which had been highly dynamic in previous years, a highly overvalued currency, and the ‘allegations’ of its authorities that the capital flows which were entering were the result of direct investment , which reduced their vulnerability, because they were not portfolio flows.
At the same time, Thailand began to increase its imports, and due to external factors, its industry, especially its technology industry which was the bastion of its economic prosperity, experienced a fall in the price of the products it sold, almost overnight. Clearly, that led to a situation in which the dollars that entered Thailand ended up paying for its imports, and widening the current account deficit.
Would it sound similar if we said, that instead of a fall in the price of technology there was a fall in the price of basic goods? Actually, although market analysts prefer to talk about VIX, CDS and Ebitda multiples, they should watch the level of certain variables such as the current account deficit, which is extremely boring. And they should establish whether Thailand’s indicators in many variables, such as in the level of savings, among other things, are similar to those of some emerging countries today. They may be surprised at what they find. Hedge funds are familiar with this, as they were in 1997, but with one big difference: the leverage which may be achieved today may be much larger than that of 15 years ago.
Wikimedia CommonsKyleAndMelissa22. Incubadoras asiáticas de "startups"
As some of our readers may already know, Matthews Asia is headquartered in San Francisco and just north of Silicon Valley, home to some of the world’s largest technology corporations as well as a hotbed for tech startups. The rise of Silicon Valley has been bolstered by its connections to nearby Stanford University as well as to the emergence of the area’s venture capital industry on Sand Hill Road since the 1970s. This energy and entrepreneurial culture has helped create many innovative ventures that have disrupted traditional businesses.
In my conversations with government officials at various science parks throughout Asia, Silicon Valley is still the main reference for the creative environment they wish to build. Nations have tried to replicate its success by following a recipe that fosters partnerships between universities and industries. They have built science parks for specific industries near a research university and provided financial incentives for companies to relocate there. Today, according to UNESCO (the United Nations Educational, Scientific and Cultural Organization), there are more than 400 science parks worldwide. The U.S. tops the list with more than 150 parks, followed by Japan with 111. China, which began developing science parks in the mid-1980s, now has approximately 100.
Billions of dollars have been spent worldwide to build science parks but perhaps none can claim to have the same robust, unique and multi-faceted ecosystem that Silicon Valley has built. History has also shown that attempts to recreate the Silicon Valley phenomenon have met with little success. To be successful, I believe innovative firms need an ecosystem with their own local flavor. One of the critical ingredients to achieving this is the development of venture capital for earlier stages of enterprises, also known as incubators. Over the past decade, we have seen incubators sprouting up across Asia. More recently, in an interesting turn of events, many Silicon Valley incubators have been setting their sights on Asia as low-cost smartphones are creating a mobile generation in which many users are accessing the Internet for the first time through handsets rather than personal computers.
While the trend is exciting, it is too soon to assess the impact of these new ecosystems for startups. But over the long term, having a vibrant startup community is critical for the development of innovative sectors within Asia. If successful, this development may bode well for countries that are moving toward service-oriented economies as well as for Asia’s technology investors.
Jerry Shih, CFA is a Research Analyst at Matthews Asia
The views and information discussed represent opinion and an assessment of market conditions at a specific point in time that are subject to change. It should not be relied upon as a recommendation to buy and sell particular securities or markets in general. The subject matter contained herein has been derived from several sources believed to be reliable and accurate at the time of compilation. Matthews International Capital Management, LLC does not accept any liability for losses either direct or consequential caused by the use of this information. Investing in international and emerging markets may involve additional risks, such as social and political instability, market illiquidity, exchange-rate fluctuations, a high level of volatility and limited regulation. In addition, single-country funds may be subject to a higher degree of market risk than diversified funds because of concentration in a specific geographic location. Investing in small- and mid-size companies is more risky than investing in large companies, as they may be more volatile and less liquid than large companies. This document has not been reviewed or approved by any regulatory body.
Photo: BenAveling . ¿A Sunny Summer or an Overcast One?
We have enjoyed a sunny stock market climate so far, but we may probably see some clouds within the next few days. The question is whether these will be just passing clouds or will remain throughout the summer.
Stock indices continue to show strength, especially in the USA where they’ve once again set new highs. In Europe, led by the German Dax, indices bounce back trying to reach yearly highs. Following the rises recorded in July, a “small, healthy” correction would be logical, but what levels should indices maintain in order to stay bullish? From a technical point of view, to maintain the bullish structure which began on the summer solstice, we believe that rates should not fall below the 8,000 point levels for the German DAX30, 2,630 points for the EUROSTOXX50, and 1,640 points in the case of SP500. If they don’t fall below these levels, the summer is likely to be hot with widespread temperature rises. Should there be sharper falls, however, it would announce the arrival of considerable storm.
In 1998 we had a bumpy summer. The stock market had been bullish for several consecutive months, until there was an abrupt halt in April. Until a small correction was made which ended in mid-June, coinciding with the expiration of futures (just like this year!) The markets once again recovered until late July, setting new highs by a few points. Further down, you may see the DJ Industrial Average in the summer of ‘98 on the left, and next to it the same American index today. The green line is the 200 session average. The fall of 1998 began on Monday, July 20th, and its equivalent would be today Monday 22nd! Will history repeat itself?
