The phenomenal popularity of 'Asia Pacific' focussed funds over recent years is primarily accountable to the growth derived from the emergence of economies such as China and India.

 

However, not all of the outperformance from such funds can be attributed to the contributions of the so-called 'boom' economies. Anybody that invests in an Asia-Pacific fund will, albeit possibly unknowingly, have a proportion of their investment pinned to the fortunes of the Australian stock market, which, in partnership with its Asia Pacific neighbours has assisted in making the sector the best performing fund sector over the past three years (source: Trustnet).

 

Fortified by an expanding resources sector and energy-hungry trading partners in Asia (Australia is the fourth largest producer of coal and gold in the world), unlike many others, the Australian economy has emerged from the global recession and the government's stimulus program is now being phased out.

 

"Australia has emerged from the global recession with one of the strongest economies in the developed world," Prime Minister Kevin Rudd announced recently. "We must now work hard to capitalize on that position as we move through the economic recovery phase and return to economic growth."

 

The IMf's praise of the way Australia has handled the recession was summed up by its Deputy Managing Director, Murilo Portugal, who said Australia was "remarkably resilient" to the global downturn. He said Australia's resilience amid global turmoil was the result of robust demand for commodities, a flexible exchange rate, and a healthy banking sector. Australia's economy grew at its fastest pace in almost two years in the fourth quarter of 2009, boosted by government spending and surging business investment.

 

The Reserve Bank of Australia raised borrowing costs for the fourth time in five meetings this month. Home to a Western style economy, Australia is capitalist in nature, but with what is considered to be a far greater balance between corporate interests and citizen interests than its Western counterparts.

 

The government is not run at massive deficits year in and year out, and the country while relatively small in population (53rd in the world) and has a good sized economy (14th in the world). Its housing and consumer markets are buoyed by steady population growth and relatively strong employment. This stable base has been reflected in recent returns from Australia-focussed funds. In the year ending February 2010, it was not uncommon for such a fund to have achieved 95+ percent one year growth.

 

On the international stage, the Australian stock market represents approximately 3 percent of the global share market capitalisation. It's reliance on commodities is reflected in the fact that sectors such as technology, telecommunications, healthcare, consumer staples and media are all under-represented in the Australian stock market.

 

Soo Hai-Lim, manager of the Barings Australia Fund is optimistic about the year ahead, particularly in relation to stock picking of value shares, commenting

 

"The reporting season has led to a reassessment of last year's stock price rallies against fundamental improvement and in the process, stock price corrections to match the underlying fundamentals. In some cases, this has led to opportunities to pick up some names that have been left behind as a result of either conservative guidance or timing of the recovery. We continue to favour the secular growth sectors like Materials and the domestic cyclicals that we believe will benefit from the recovery in the domestic economy."