To select global "stars", fund managers will focus on two key factors. The first is country valuation, which is based on economic outlook, political risk, stock market outlook, and stocks valuation. For the next two years, the main stock markets forecast to generate good returns with cheap valuation are those of developed countries' (including US and Japan), due to their large market capitalisation with cheap valuation coupled with a high international growth potential of multinational companies. Although Japan is now recovering from natural disasters, this should only be a short-term phase. Given an investment period of approximately two years, the Japanese stock market still looks attractive.
The second key factor in stock selection is sector valuation - selecting sectors that have high potential growth and whose stock valuations are lower than the companies' fundamentals. Attractive sectors currently include technology, financial institutions, retail, and multinational companies with global revenues.
_ Technology: The growth of industrial production will drive more investment in technology as well as consumer purchasing power of high-tech gadgets. The technology business covers industrial technology and computer technology, software, hardware, server tech, telecommunication equipment and information technology services, networks, and online services and media. In addition, biotechnology and medical technology offer life-enhancing and life-saving forms of medical treatment.
_ Financial institutions will benefit from the growth of investment and the expansion of industrial production capacity, and the rising interest rates due to economic growth in Asia.
_ The retail sector will benefit from the growth of consumption in Asia and emerging-market countries, where density of population is driving up purchasing power and consumer demand.
_ Multinational companies receive revenues from business operations internationally and are seeing the benefit of global economic recovery and growth in each region. Although the European and US economies are still fragile, these companies are operating successfully in other regions. Generally, there are some constraints for individual investors wishing to invest in leading international stocks. For example, a large investment minimum is required. Access to information such as investment analyses and recommendations is limited. Investors must know how to manage foreign exchange risk by themselves. Given these issues, I would recommend investing in global star stocks through mutual funds, which will have a fund management team expert in selecting securities and the practise of risk management. Retail investors will get the most benefit from this alternative.
Win Udomrachtavanich is senior executive vice president/chief investment officer for Asset Plus Fund Management.
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