TheStar
Most firms will experience tight margins in next few quarters
COMPANIES will still feel margin pressures in the next few quarters, as they cope with higher input costs and waning demand.
“This puts everyone in a difficult position to make headway and is unlikely to change in the next few quarters.
“Companies have to go through this period and work for the long term,” Aberdeen Asset Management senior investment manager of global equities Jeremy Whitley told StarBiz recently.
Whitley was one of the speakers at the recently held Second Institutional Investor Series Seminar: Maximising Returns in Uncertain Times organised by the Securities Industry Development Corp (SIDC).
The global investment company has some 12% to 15% of its portfolio in Asian stocks.
Whitley said the fund invested in “sensible” companies with sustainable cashflow and a strong balance sheet.
“We look for companies that are doing sensible things with their cashflow and we keep monitoring the progress,” he said, adding that investors should stay long term and be patient with their investments.
With commodity prices coming off their highs, inflationary pressures may too be unwinding. Whitley, however, cautions on the risk of deflation.
“Deflation is more worrying because once you have deflation, it’s extremely difficult to get rid of,” he said. Deflation happens when prices go down while demand is weak in the economy.
The de-leveraging and unwinding of commodity, housing and financial positions are deflationary pressures that are pushing prices down.
Whitley said Asia’s demand should be stronger to pick up the slack of any recession risk. Until Asian consumers gain more confidence, the region would be unable to decouple itself from the US and the rest of the world.
Nonetheless, Asia would still see decent growth compared with the Anglo-Saxon countries, he added.
SIDC chief executive officer John Zinkin said Asians had a culture of high savings. “The Chinese, for example, believe in holding to what they have,” he said.
Aberdeen Asset Management Sdn Bhd managing director Gerald Ambrose also noted that Malaysia’s savings rate was 37% of gross domestic product. “The confidence level could still be comfortable if the savings rate fell to 25% and this would release about RM200bil into the system.”
Malaysia has the luxury of crude palm oil exports as well as opportunities from the Middle East in sectors like construction, halal food and Islamic finance.
“The issue with Malaysia is the wage structure, which causes brain drain. Talent is leaving the country for more lucrative salaries. You don’t value labour when you don’t pay for it,” he said.
Meanwhile, China may have been attracting foreign investments, thanks to its low cost of labour but it will take them some 20 years to add value, as this will require scientific expertise and innovations.
“Twenty years is not a long time if you consider that the Americans took 80 years to become an industrialised country, Japan 40 years while the South Koreans 25 years,” Zinkin said.
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