Young bullish on Asia despite Aberdeen sell-offs in region’s banking sector

A shift in focus towards domestic spending could allow Asian economies to emerge in a stronger position when the world economy eventually sees an upturn, according to Hugh Young, managing director of Aberdeen Asset Management Asia.

The continuing fall in markets across Asia in line with the global downturn showed the level of Asian reliance on Western markets – but that could change as Asian governments focused their spending inwards, said Young (pictured).

‘Cash will increasingly be used for domestic purposes rather than big overseas investments,’ he said. ‘When the upturn comes, you will see the Asian economies emerging stronger still. Inevitably, they will increase as a proportion of the world economy.’

Asian banks are well positioned to help pump liquidity back into the markets, argued Young, pointing to their stronger loan-deposit ratios than US and UK counterparts. Asian banks have an average loan-deposit ratio of around 92%, almost 10% less than US commercial banks.

‘Asia is putting in place all the necessary infrastructure to take advantage of the time when the global economy does change. They have that flexibility that we don’t have in this part of the world,’ he said.

But Young conceded that the immediate outlook for earnings was pretty grim. ‘It’s a pretty sorry picture on the earnings front for Asia,’ he said, adding that Aberdeen was typically revising down earning levels from already low levels as it spoke to companies in which it invests.

‘I would caution people not to worry about earnings, but really to focus on balance sheets,’ he argued. ‘In the good times there is the tendency to forget about balance sheet and focus on growth for growth’s sake. At the moment you are seeing that unravelling pretty savagely.’

Despite Young’s bullish stance on the position of Asian banks relative to their Western counterparts, most of the recent changes in the portfolio of the Aberdeen Asia Pacific fund have involved the selling of financials.

Stakes in South Korean Kookmin Bank were sold off due to concern over the bank’s ambition to enlarge its operational scope by applying to convert to a financial holding company.

Young sold Malaysian Maybank after it began to buy up shares in other banks across the region, going beyond the domestic business model to which it had adhered when Aberdeen first invested.

Taiwanese Taipei Fubon Bank, which the fund has held for around 10 years, was also sold off due to concerns about the status of Taiwanese banks in the region.