Asia Pacific Monthly Outlook

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					Asia Pacific
Monthly Outlook                                       January 2009



Asian equity markets posted a decent recovery in the last
month of 2008 on foreign fund inflow following massive
redemptions post Lehman bankruptcy in September. The
MSCI Asia ex-Japan index rallied 9.9% in December, mainly led
by strong gains in the Korean equity market after the country’s
currency saw a 10% recovery in the month. The index fell
52.38% in 2008 and India was the worst performing market,
with a 64.63% decline.

Last year, more than half of Asian markets saw their market value
slashed by over 50% when a rising tide of defaults in the sub-prime
mortgage market brought credit markets to a standstill, triggering
the greatest financial crisis since the Great Depression. The year
2008 also marked one of the most volatile years for the currency
market. The JPY had the biggest annual appreciation since 1987,
while the AUD and the NZD recorded the steepest pace of decline
in value against major currencies. Other Asian currencies also
suffered badly, including the KRW which depreciated by more than
34% on the back of both external and domestic macroeconomic
issues.

All ASEAN countries posted positive return in the last month of
2008, with the exception of the Philippines, which dropped 2.2% in
USD terms. The Monetary Authority of Singapore has taken various
steps in recent months to maintain calm in interbank markets as
money market worldwide were under strain. The authority also
injected extra funds into the banking system after the collapse of
Lehman Brothers and set up an USD 30bn swap line with Federal
Reserve in October. Malaysia was not spared from the spillover
effects of global economic turmoil. The 3Q08 GDP grew 4.7%, a
marked slowdown from 6.7% in 2Q08. Seasonally adjusted, the
economy grew a meager 0.4% QoQ, the lowest sequential growth
since 3Q04.
Asian Markets
                                                      property investment by Chinese through
                                                      extending visas to 3 months and allowing
HONG KONG                                             mortgage financing. However, we expect actual
Hong Kong's Hang Seng Index fell 48.3% in local       benefit to property sector to be minimal given the
currency in 2008, one of the worse performing         current state of the economy. Direct chartered
indices in the region, as the deepening global        flights officially took place on 15 December 2008,
recession weighed on earnings. In December, the       with total of 101 flights per week and the routes
Hong Kong Monetary Authority (HKMA) lowered           cross straits increased to 21, which inspired
its base rate to a record-low 0.5% and asked          sentiment for China-concept plays in the month.
lenders to follow suit to help prop up the city’s     We continue to focus on large-cap stocks with
faltering economy. The reduction from 1.5% by         strong balance sheets and cashflow, leading
the HKMA came after the U.S. Federal Reserve          market positions with prudent management that
cut its benchmark interest rate. To prevent the       have the right business models and strategies to
city’s currency from strengthening beyond its         weather through the storm and emerge as a
fixed exchange-rate band, HKMA injected               market consolidator.
HKD1.94 bn (USD250 mn) to the financial system
in New York.                                          MALAYSIA
                                                      Despite the influx of bleak economic data
KOREA                                                 globally, showing that leading economies are
KOSPI staged a small rebound in the month of          sinking deeper into recession, the KLCI eked out
December, after 6 consecutive months of decline.      gains on the back of wild swings in regional
KOSPI ended 2008 down 41% in local currency           markets and on Wall Street. The KLCI ended the
terms, the first annual decline since 2002. Both      month at 10.6points or 1.2% higher at
foreigners and local ITCs bought more than            876.75points in local currency terms. Malaysia
KRW800bn each, while retail investors sold            was not spared from the spill over effects of
almost      KRW2trln.      The      government’s      global economic turmoil. 3Q08 GDP grew 4.7%,
announcement of the final 2009 budget, which          a marked slowdown from 6.7% in 2Q08.
included increased investment in system-on-a-         Seasonally adjusted, the economy grew 0.4%
chips (SOC), and continued monetary easing            QoQ, the lowest sequential growth since 3Q04.
around the world, with US, Japan, China, and          Domestic political risks appeared to have waned.
Korea all cutting the key rates, helped improve       The local political heat shifted to Kuala
sentiment. As the equity market advanced,             Terengganu, where both the ruling and
USD/KRW stabilized from the high of 1514 to           opposition coalitions have been preparing for the
below 1250 level, aided by lower Fed rate and         state’s by-election set on 17 January 2009 while
additional USD26bn and USD20bn FX swap line           the UMNO general election in March will be the
agreement with China and Japan, respectively,         critical test for the support of current government.
announced on 12 December.
                                                      ASIA EX-JAPAN BOND MARKETS
The Bank of Korea cut its key rate by 100bps to       Economic data showed a drastic contraction in
3% on 11 December, but macroecconomic data            both exports and industrial production in 4Q08
released in December were disappointing overall.      with the exception of Asia. This largely reflects
November exports and imports fell by 18.3% YoY        the sudden contraction in demand from G3
and -14.6% YoY, respectively, and 3Q GDP              economies in 4Q08 and has strengthened Asian
came out at a 3-year low of 3.8% YoY. November        policymakers’ resolve to tackle the economic
industrial production released on the last trading    crisis.
day was dismal at -10.7% YoY vs. consensus
expectation of -3.3% YoY. November CPI was            Nevertheless,      credit ratings    downgrade
mostly in line with forecasts at 4.5% YoY.            accelerated in December. Despite these
                                                      downgrades, credit spreads in Asia enjoyed a
SINGAPORE                                             rally late in the month with the JACI index
The STI gained 1.7% MoM in local currency to          tightening 40bps in December 2008. The fund
close at 1762 points but underperformed regional      has suffered through the credit crisis through
peers. Average daily turnover eased 24% to            2008. We look forward to a better 2009 as credit
SGD788mn for December. PMI stood at 44.3 in           spreads are at cheap levels and valuation are at
November, a record low since it was launched in       attractive levels.
1999. Inflation eased in line with expectations to
5.5% in November vs. 6.4% in October, as
housing costs showed signs of moderation and
transport costs contracted. MAS took various
steps in recent months to maintain calm in
interbank markets as money market worldwide
were under strain. The authority also injected
extra funds into the banking system after the
collapse of Lehman Brothers and set up an
USD30 bn swap line with Federal Reserve in
October. Singapore bank loan growth declined
1% MoM, or SGD2.7 bn in November.


TAIWAN
Taiwan Weighted index finished at 4591 points in
December, up 3% MoM. Despite the liquidity
driven rally prior to the year-end window dressing,
the index still slightly underperformed key
regional markets on concern over the
implementation of SFAS No. 10 on 1 January
2009, and continued 4Q guidance cuts by tech
companies. The Mainland Affair Council is on
schedule to further lift restrictions on Taiwan




                                                     Asia-Pacific Monthly Outlook
                                                                               Crédit Agricole Asset Management
CHINA
Greater China equity markets posted a decent             PHILIPPINES
recovery in the last month of the year on mild           The Philippines Stock Exchange (PSE) lost
foreign fund inflow after massive redemptions            another 5% in December in local currency terms,
post Lehman bankruptcy in September as well as           absent in the bear rally seen in Asia ex-Japan
stabilising global equity and credit market              which saw the benchmark rise by over 9%
environment. Major indices in the region rallied         following the Fed’s zero interest rate policy
between 3% and 10%. We expect further                    stance. It was indeed a gruelling year with the
recovery in Greater China equity markets in 1Q09         PSEi falling 48.3% for 2008 and while valuations
on valuation normalisation in stabilising global         are now at their lowest since the mid-1990s (the
financial market environment, significant reduction      market’s PE is now at single-digit levels), bargain
in foreign redemption related selling and the            hunters remain apathetic as the country faces
positive sentiment effect coming from the new            visible macro headwinds going into 2009.
administration in the US on fiscal stimulus
measures. We are currently deploying our risk            Following the Fed’s cut in interest rates, the
budget in financial stocks in China including            central bank reduced policy rates by 50bps (to
insurance, real estates and banks and overweight         5.5%) or double what the market had been
exposure to telecom sector.                              expecting. This failed to excite investors as the
                                                         country looks headed into another below trend
INDIA                                                    year (i.e. lower than 4.5% GDP growth).
                                                         Prospects remain poor for exports, investments,
2008 will always be viewed as a strange year             real estate and worker remittance flows (the main
thanks to the speed in which inflection points were      conduit by which the global slowdown could be
reached and then the ferocity with which things          channelled to the Philippines). The government
unwound from those inflection points. In India,          intends to cushion the slowdown through a
inflation rate zoomed up from around 4% to               combination of fiscal as well as monetary policy
almost 13% and then halved from there to 6.5%.           responses. The expenditure program is set to
With inflation as public enemy number one,               increase 15% for 2009, led by a 25% ramp up in
particularly in a large democracy which faced            the infrastructure budget. Policy rates meanwhile
state elections end of 2008 and the national             are expected to further drop to 4.5%, helped by
election in the first half of 2009, the government       an easing inflation outlook as well as a
and the central bank went on inflation fighting          rebounding Peso. These however may not be
mode by raising rates and choking growth. The            enough to forestall a deceleration in 2009.
MSCI India (USD) gained a meaningful 9.7% over
December. Investor confidence recovered on the
back      of    monetary      and    fiscal   policy     THAILAND
announcements. Materials, telecom and financials         The SET posted positive return in December,
were relative outperformers, while defensive             jumping 12% in local currency on an improved
sectors - IT, healthcare and consumer staples            political environment. The Bank of Thailand (BoT)
underperformed.                                          surprised the markets by lowering the 1-day repo
We are quite convinced that the easing in rates          rate 100 basis points to 2.75%. This move marks
we are witnessing will continue and that should          the first cut of the easing cycle and it comes at a
help valuations. We believe that the January-            time when the economy is facing considerable
March quarter will be the low of the earnings and        domestic and external headwinds. With the BoT
the GDP cycle after which the recovery will be           showing its willingness to move aggressively, and
very visible. The currency, INR, itself could be a       headwinds to growth intensifying at a time when
source of 10%+ gains during the course of the            fiscal policy seems increasingly impaired, there
year. The obvious switch will be to drop exporters       should be more room for easing interest rates.
and move more into domestic names and that’s             Despite maintaining our defensive stance, we
what we will be doing. We will also closely monitor      have started repositioning back into some beta
the political situation since a national election in     stocks very selectively. We overweight contractor
around the corner.                                       stock as the new government’s stimulus package
                                                         in infrastructure will increase their order books.
INDONESIA                                                We expect the rates to pick up as iron ore
                                                         negotiation resumes early this quarter. We remain
The Jakarta Composite Index (JCI) advanced               well represented in the telecoms sector given the
9.2% in local currency terms with theIDR gaining         strong resilience of the earnings in times of
10% over the month. Despite a healthy                    economic weakness. Additionally, we increased
December, the JCI returned an abysmal -50.6% in          our weightings in banks from an underweight
2008, making it one of the worst-performing Asian        position on the back of sizable interest rates cuts
markets. Finance Minister Sri Mulyani said that          this year. We remain weighted in the coal sector
GDP growth in 2009 could slow to 4.5%, revising          on the basis of attractive valuation. The Thai
lower an earlier forecast of 5%. The stability of the    market remains one of the cheapest in terms of
IDR improved the end of the month, in part               price to earnings ratio.
providing more confidence to the market. The
country’s balance sheet remains healthy with
reasonable debt levels. We maintain a defensive
stance in our strategy, taking preference in
weighting in the telecoms and utility sectors. We
remained underweight the banking sector due to
the cautious outlook on the Indonesian economy
going forward as export is expected to weaken
materially due to global headwinds. Loans growth
is expected to moderate in 2009 to 10-20%. We
remain underweight in coal sector as the coal
demand in China continues to be weak, with low
prospects of improving in the near term. China
remains the largest incremental consumer of coal
globally. Indonesia remains one of the cheapest
markets within Asia even after the rebound.




                                                        Asia-Pacific Monthly Outlook
                                                                                  Crédit Agricole Asset Management
Pacific Markets
JAPAN                                                  crude prices despite strong fundamentals in the
                                                       mid to long term.
Tokyo SE Topix climbed 2.93% to 859.24 in local
currency terms this month. Equity market
confusion is likely to continue in the short term.     New Zealand
Japanese equities draw the attention of investors      The NZX50 finished December at 2,715.71, up
as valuations remain at record low (for example in     0.2% for the month in local currency terms. On 4
terms of Topix Market cap to Annual GDP).              December, the RBNZ cut the OCR 150bps to
Moreover, financial institutions have escaped          5.0%, making the cumulative cut in the OCR this
mortgage-related losses (unlike their US and           cycle 3.25%, and taking monetary policy from
European counterparts) and policymakers have           neutral to stimulatory. While significant, the rate
the experience of a deflationary environment.          cut was in line with market expectations, and the
                                                       NZX50 rallied only 0.9% on the day and gave up
The macroeconomic environment remains weak             those gains by the end of the week. New Zealand
in the midst of the global synchronized slowdown       continues to suffer from a mix of continued credit
and JPY strengthening, which occurred as rate          market tightness, a rapidly cooling domestic
cuts by central banks narrowed the interest rate       economy, weaker demand from trading partners
gap among the nations. The current-account             and (recently) a sharp decline in USD soft
surplus continued to shrink in November as             commodity prices. With the RBNZ now expecting
exports fell 26.5% YoY. Political risk remains high    that the recession will continue well into 2009, and
as the approval rating of the Prime Minister Aso       that inflation will ease and remain within the target
dropped to its lowest since 2001 for a prime           band over the medium term, there appears to be
minister. The LDP is facing opposition parties and     great scope for the RBNZ to continue to ease
internal dissensions over stimulus proposals for       interest rates. We expect the OCR to be lowered
the economy. To support corporate financing, the       further over the next few quarters.
Bank of Japan has cut its policy rate to 0.1% and
decided to relax the range of eligible collateral.     We believe attention is now focused on how
                                                       quickly rates could fall and how quickly this will be
AUSTRALIA                                              transmitted through to corporate and household
                                                       borrowing costs. Additionally, we along with the
A late rally in very light trade over the last two     market, continue to worry about the offsetting
weeks of the year (approximately one-third of          impact of rising unemployment on monetary policy,
normal volume) helped the Australian market            leading us to be cautious on the market.
finish the month down just 0.4% in local currency
terms, its best performing month since August
2008. Sector-wise, the resources sector
outperformed the market, driven by the gold
sector, which rallied on the back of a weaker
outlook for the USD.

The RBA cut its cash rate to 4.25% in early
December, which takes total easing to 300bp over
three months. In addition, we have the Bush
administration signalling that some form of a
bailout for the US automakers will be given as an
outright bankruptcy and its associated massive
job losses is not an option. As a result global
equities performed well, in the hope that all these
policy actions would reduce the chance of a
worldwide depression.

We think the dominating theme in the next 6-12
months will continue to be deleveraging. While we
recognize that the market has fallen in line with
the weakening fundamentals, we remain cautious,
especially on the leverage part of the economy or
sectors. Our strategy is to remain defensive and
to avoid sectors such as banks, property and
consumer discretionary. Our preferred sectors are
select healthcare, insurances and infrastructure
companies. In addition, we have added some gold
and energy exposures given attractive valuations.
In our view, there will be a share price correction
in these two sectors due to the excessive fall in




                                                      Asia-Pacific Monthly Outlook
                                                                                 Crédit Agricole Asset Management
                                              Major World Market Performance
                                              Monthly Summary – 31 December 2008
                                                                                Return (excl. dividend) in local currency
  Country                       Index
                                                    Current index in LC     1 Month      3 Months         1 Year        YTD
Australia      Australia All Ordinary                             3659.30      -0.4%          -21.0%       -43.0%             -43.0%
China          Hang Seng China Enterprises                        7891.80       9.5%          -13.0%       -51.1%             -51.1%
Hong Kong      Hang Seng Index                                   14387.48       3.6%          -20.1%       -48.3%             -48.3%
India          India National                                     4988.04       8.4%          -25.5%       -55.3%             -55.3%
Indonesia      Jakarta Composite                                  1355.41       9.2%          -26.0%       -50.6%             -50.6%
Japan          Tokyo SE Topix                                      859.24       2.9%          -21.0%       -41.8%             -41.8%
Korea          Korea Composite                                    1124.47       4.5%          -22.3%       -40.7%             -40.7%
Malaysia       KLSE Composite                                      876.75       1.2%          -13.9%       -39.3%             -39.3%
New Zealand    New Zealand SE 50                                  2715.71       0.2%          -12.1%       -32.8%             -32.8%
Philippines    Philippine SE Composite                            1872.85      -5.0%          -27.1%       -48.3%             -48.3%
Singapore      FTSE Singapore Straits Times                       1761.56       1.7%          -25.3%       -49.2%             -49.2%
Taiwan         Taiwan Weighted                                    4591.22       2.9%          -19.7%       -46.0%             -46.0%
Thailand       Bangkok SET                                         449.96      12.0%          -24.6%       -47.6%             -47.6%
Asia           MSCI EMF Asia ex Japan Free                         373.06       6.0%          -19.8%       -48.6%             -48.6%
Asia/Pacific   MSCI AC Pacific Free                                 76.28       3.1%          -20.7%       -44.8%             -44.8%
Asia/Pacific   MSCI Pacific                                        538.49       2.2%          -21.3%       -43.8%             -43.8%
Asia           MSCI AC FE Free ex Japan                            321.41       5.4%          -19.3%       -48.1%             -48.1%
Asia           MSCI AC FE Free ex Japan ex Taiwan                  359.12       5.9%          -18.5%       -48.0%             -48.0%
USA            Dow Jones Industrial                               8776.39      -0.6%          -19.1%       -33.8%             -33.8%
UK             FTSE 100                                           4434.17       3.4%           -9.6%       -31.3%             -31.3%
World          MSCI EAFE                                           649.15       1.1%          -18.9%       -42.1%             -42.1%
World          MSCI World                                          677.81       0.9%         -21.1%        -40.1%             -40.1%
                                                      Exchange Rate                 Return (excl. dividend) in USD
  Country                       Index
                                                       1 USD to LC          1 Month     3 Months        1 Year              YTD
Australia      Australia All Ordinary
                                                                   1.4343        6.7%         -30.2%      -54.7%              -54.7%
China          Hang Seng China Enterprises
                                                                   7.7502        9.5%         -12.8%      -50.8%              -50.8%
Hong Kong      Hang Seng Index
                                                                   7.7502        3.6%         -20.0%      -48.0%              -48.0%
India          India National
                                                                   48.720       11.5%         -28.1%      -63.8%              -63.8%
Indonesia      Jakarta Composite
                                                                   10,900       20.4%         -36.0%      -57.5%              -57.5%
Japan          Tokyo SE Topix
                                                                    90.65        8.1%          -7.5%      -28.2%              -28.2%
Korea          Korea Composite
                                                                   1259.6       21.9%         -25.6%      -56.0%              -56.0%
Malaysia       KLSE Composite                                      3.4600        6.0%         -14.4%      -42.0%              -42.0%
New Zealand    New Zealand SE 50
                                                                   1.7112         6.8%        -23.1%      -49.0%              -49.0%
Philippines    Philippine SE Composite                             47.550        -2.2%        -27.9%      -55.1%              -55.1%
Singapore      FTSE Singapore Straits Times                        1.4408         6.5%        -26.0%      -49.2%              -49.2%
Taiwan         Taiwan Weighted                                     32.818        4.4%         -21.3%      -46.7%              -46.7%
Thailand       Bangkok SET                                         34.780       14.3%         -26.6%      -49.2%              -49.2%
Asia           MSCI EMF Asia ex Japan Free                                      11.2%         -21.7%      -54.1%              -54.1%
Asia/Pacific   MSCI AC Pacific Free
                                                                                 8.4%         -15.7%      -42.0%              -42.0%
Asia/Pacific   MSCI Pacific                                                      7.4%         -14.1%      -37.9%              -37.9%
Asia           MSCI AC FE Free ex Japan
                                                                                10.0%         -20.8%      -52.0%              -52.0%
Asia           MSCI AC FE Free ex Japan ex Taiwan
                                                                                11.1%         -20.1%      -52.6%              -52.6%
USA            Dow Jones Industrial                                1.0000        -0.6%        -19.1%      -33.8%              -33.8%
UK             FTSE 100                                            1.4378        -3.1%        -27.0%      -50.4%              -50.4%
World          MSCI EAFE                                                         5.9%         -20.3%      -45.1%              -45.1%
World          MSCI World                                                        3.1%         -22.2%      -42.1%              -42.1%




                                                                                Asia-Pacific Monthly Outlook
                                                                                                         Crédit Agricole Asset Management
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                                        Asia-Pacific Monthly Outlook
                                                             Crédit Agricole Asset Management

				
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