Given the state of the US and Europe, anyone for Asia?
Now Europe and the US markets have been put in the ‘too-difficult’ basket, managers and allocators have turned attention to Asia, a region some might feel is the world’s ‘last man standing’.
Although also hit by this week’s share market turbulence – with indices in Hong Kong, Japan and South Korea down between 1.7% and 6% overnight – asset managers and some fund buyers expect growth from the region more exciting than that from developed markets over coming years.
Richard Wohanka (pictured), chief executive of the asset management unit of Swiss bank Union Bank Privee, said: “Asia is increasingly the focus of global growth and of global investing”.
Allan Liu of Fidelity Funds’ South East Asia fund, said: “Asian markets remain correlated to the West, however, the region’s economic fundamentals and growth prospects remain very healthy.
“It is certainly not immune to a slowdown in the West, but I believe that the region’s economy is significantly less reliant on the West than in the past.”
UBP, which runs $72.1bn, announced last week two joint ventures in the region, to give its global clients access, and to sell its own expertise to the region’s wealthy.
Along with Chung Wei Yi Co, UBP jointly controls both UBP Asset Management Asia, which operates from the Swiss bank’s Hong Kong office covering Asia ex-Japan, and TransGlobe Securities Investment Consulting Company, focused on the Taiwan market.
Investors seem to want, and arguably also will need, exposure to Asia assets.
Data from Hedge Fund Research show Asia’s hedge funds attracted net flows of $2.6bn last quarter, despite performance-based falls of between 0.42% (Japan hedge funds) and 1.95% (China funds). Asia-focused funds now run nearly $90bn.
The number of funds grew as assets did, and there are now 1,067 portfolios – nearly 15% of the global industry. One third all Asia’s hedge funds focus on China, while 17% invest in India and 4.2% in South Korea.
Kenneth Heinz, HFR president, said: “Powerful and pervasive trends dominated both the Asian hedge fund industry and global financial markets in the second quarter. Large disparities between developed and emerging markets, including inflationary pressures, commodity demand dynamics, and currency risk, impacted investors during the quarter.
“Global investors are allocating to the Asian hedge fund industry not only as a means to insulate themselves from the volatility of these trends, but also to position their portfolios to benefit from for uncorrelated opportunities in coming quarters.”
Such optimism about the region is shared by traditional managers there.
John Ford, Fidelity International’s Asia Pacific chief investment officer, said: “Asian stock valuations – already at multi-year lows – have become cheaper still.
“At these levels there are many stocks which look attractive on any valuation measure, even allowing for the prospect of slower-than-previously-hoped-for economic growth in Asia as developed economies are forced to tighten their fiscal belts.”
He conceded some investors’ concerns over July’s expectation-beating Chinese CPI of 6.5%, however Chinese inflation should fall over coming months due to falling food and other commodity prices, and slowing global economic growth.
Skandia Investment Group strongly recommends emerging Asia in equities, and emerging currencies generally. In Asia it is only negative on Japan’s yen, but it adds that data suggests Japan’s economy keeps recovering strongly from March’s natural disasters, and the strong rebound should contribute to more rapid global growth this half.
Fidelity’s Liu noted most Asian central banks have tightened monetary policies over the last few quarters, so have room to relax rates and credit policy if cuts are made to OECD growth forecasts.
With rates near zero already, this tool is largely unavailable to western governments.
“I continue to believe that Asia’s healthy financial system, robust domestic demand, low debt levels and high savings rates will continue to support a multi-year growth cycle,” said Liu.
Teera Chanpongsang, of Fidelity Funds’ Emerging Asia fund, added the recent falls in emerging Asia stocks were led by industrials, materials and oil and gas sectors – suggesting more concerns about economic recovery in the West.
“The prospects of a slower recovery in the West should make emerging Asian growth rates look even more attractive to investors,” Chanpongsang said.