AIN’S largest insurer Prudential has sealed a deal to acquire American International Group’s Asian division (AIA) in a takeover that will place it at the heart of the growing Asian insurance market. The £23bn deal will not only give the Pru AIA’s 20m policy holders, but also unparalleled access to young Asian populations that only now are rich enough to think about insurance.
Prudential is not the first company to look east in recent months and nor will it be the last. In a post-recession world where emerging Asian countries are driving global growth, it is no surprise that Western companies are choosing to reposition themselves. “All sectors and all major companies are looking to gain exposure to the faster-growing countries of the Asia-Pacific region and selectively to the economies of the Middle East and North Africa and Latin America,” says Jeremy Batstone-Carr, director of research at Charles Stanley.
Companies choosing to expand operations in emerging markets might be a good prospect for CFD traders because they are thinking about where their revenue will be coming from five years down the line. For example, the Pru might be a tempting long bet right now – although its shares dropped 11.5 per cent in trading yesterday ahead of the announcement, many analysts remain positive about the takeover. KBW’s Greig Paterson maintains his outperform rating on the stock and has a target of 880p – yesterday shares in Prudential closed at 530p.
But while Prudential’s decision to acquire AIA appears complementary to the firm’s existing activities in the region, it would be wrong to assume that all companies stepping up their Asian operations are good bets. A poorly-thought out diversification strategy will prove detrimental.
CFD traders should be looking at firms with serious exposure to emerging markets, but they should research the firm’s activities in the region, acquisitions under consideration and strategy. For example, a rushed acquisition – think RBS and ABN Amro – or one that focuses on increasing volumes rather than raising value (the latter improves margins whereas the former doesn’t necessarily) is worth avoiding.
Batstone-Carr says companies have to be careful about going for flag planting. The most successful companies in the Asian markets, he says, are those that already have a presence in the region and which have forged links with the local community. For example, pharmaceutical firms have been relocating to Asia for a number of years and have grown their business there steadily.
Where Prudential has gone, others will follow. But not all will succeed in Asia.
CFD ANALYST PICKS
My pick: Sell FTSE 100 at 5,340
Expertise: Technical analysis
Average time frame of trades: 5-10 days
The market has found some solid internal resistance at 5,400 and looks to be in the process of rolling over once again after failing to break this psychological barrier. I sold the FTSE 100 for a nice profit a few weeks back, and will once again look to take advantage of any rallies to build a fresh short position in anticipation of a pullback towards 5,100 over the coming days.
Strategy: Sell at 5,340 for a 5,100 objective; with a stop at 5,460.
My pick: Long Hang Seng index at 20,800; remain short oil at $80
Expertise: Fundamental and technical analysis with risk management
Average time frame of trades: 1 day–1 week
Market conditions have been difficult to trade recently. Congestion has replaced trends, and yet the various asset classes and benchmarks are still highly correlated. My short crude oil position at $80 is still valid. To off set any shift back to a risk seeking environment in the markets I also like a limit entry on a bullish Hang Seng break.
Strategy: Long Hang Seng at 20,800 with a 20,300 stop and 21,750 initial target.
My pick: Short oil at $79.93
Expertise: Global macro, classic technical analysis
Average time frame of trades: 1 week-6 months
Last week, oil prices broke out of a rising channel to find support above $77.53, a level that has acted as significant support and resistance since late December. A correction higher took prices upward to re-test the channel bottom, and now a Shooting Star candlestick formation with negative relative strength index (RSI), both point towards a return to bearish momentum for oil.
Strategy: Sell oil at $79.93, targeting $77.53. Stop loss at $80.62.