Investors were on edge Tuesday as Greece missed another deadline to respond to terms for a new EU-IMF bailout that would grant it $170 billion. But, Robert Horrocks, Chief Investment Officer, Matthews Asia, says investors should treat Greece as a “sideshow”, as a default would not have a large material impact on the global economy.
“We all accept that Greece will have to reschedule its debt, it may default at some time, but it’s 0.4 percent of the global economy. It’s not a big economy like Italy or Spain – it’s not that important,” Horrocks told CNBC on Tuesday.
He adds that Europe’s “moment of crisis” was when Italian bond yields surged to 7-7.5 percent. But that has passed and Horrocks thinks the European Central Bank will intervene again should another crisis arise. “It's inconceivable that the ECB wouldn’t apply the same solution again if Europe got into trouble again. So I think the worst has passed,” Horrocks said.
Asia Shielded From Crisis
Horrocks says worries over Europe have ignited too much pessimism among investors, particularly in Asia, which he believes is largely shielded from the debt woes.
“There’s an awful lot of pessimism out there, there is a lot of focus on unemployment in the U.S., on debt problems in Europe and I think we’re missing the point that Asian markets look cheap,” Horrocks said, adding that fundamentals in Asia’s leading trading partner - the U.S. - in fact look “solid” right now.
Asian markets have fallen to a level where investors with a one year or longer view have a good chance of making money, he said, adding that the stocks are seldom “this cheap” for very long.
“With valuations where they are, you don’t want to be too pessimistic that you miss out on an opportunity.”
In terms of opportunities in the region, Horrocks points to Indian and Chinese equities, which fell 25 and 22 percent respectively in 2011.
India, traditionally regarded as one of the most expensive markets in the region, is now priced at the “middle of the pack”, he said. The benchmark Sensex has gotten off to a positive start this year, up 15 percent and Horrocks believes the market will see further upside.
In China, Horrocks favors small and mid-cap stocks, which he says is yet to recover from a wave of accounting scandals last year.
He adds that investors need not be alarmed by the slowdown in the mainland, including the weakening in exports, and should focus their attention on rising domestic demand.
“When you talk about exporters, you are talking about the Asia of the past. The Asia of the future is in domestic demand.”
Matthews Asia, a division of Matthew International Capital Management headquartered in San Francisco, runs 13 funds. Its Asia Dividend Fund delivered negative returns of 5 percent in the 11 months to November 30 2011, according to the Financial Times, outperforming the MSCI All Country Asia Pacific index, which declined over 9 percent over the same period.