Global fund managers are committing more money to Asia,
shrugging off concerns that high valuations and European
contagion could derail Asian asset performance.
Given the uncertainties about the ratings and
fiscal positions of many OECD countries, there is a strong case
to be made that the debt of emerging economies is an extremely
attractive proposition, Oliver Bolitho, head of Goldman
Sachs Asset Management Asia, said Monday in response to a
question from Emerging Markets.
Japanese private investors alone had put more than $40
billion into emerging debt, Bolitho said. There is a very
significant positive flow in the search for yield.
Nevertheless, Asian markets sold off yesterday on news
the Chinese central bank hiked bank reserve ratios on Sunday
for the third time this year. Hong Kongs Hang Seng Index
slid 1.4%, South Koreas Kospi 1.2%, Taiwans Taiex
lost 0.7%, while Indias Sensex finished down 1%. And the
Asia ex-Japan iTraxx investment-grade index for regional bonds
widened by 3 basis points.
Mark Mobius, chairman of Templeton Asset Management, said
investors benchmarked to Indian and Chinese stocks in JP
Morgans benchmark Emerging Markets MSCI index would fail
to deliver market-beating returns this due to tight valuations.
We prefer frontier markets in the region, he told
Antoine von Agtmael, chairman of Emerging Markets
Management, said that investors benchmarked to the MSCI would
underperform developed equity markets this year.
Credit Suisse, which dumped much of its listed equity
exposure to emerging Asia in November, has instead focused on
what it calls an EM exposed index developed world
companies which get more than 50% of their revenues and profits
from emerging markets.
But Robert Parker, senior advisor for Credit Suisse Asset
Management, which manages Sfr1.3 trillion worldwide, said
valuations were starting to look more reasonable.
He added: After the next two to three months we will want
to go back into emerging market equity. He favours Korea
and Taiwan, as IT plays, and Indonesia, though he said there
valuations are looking stretched.
We are long emerging debt, Parker said, noting
that the asset managers move out of G3 sovereign debt to
emerging markets dated from the fourth quarter of 2008 and
remained firmly in place.
But Parker also said that despite his positive view, he was
disappointed that [emerging] corporate bond markets have
not developed satisfactorily, though he hoped capital
flows would act as a catalyst.
Managers seem less worried about capital flows and bubbles
in the debt markets. Clearly there are long term concerns
if the money is hot, said Bolitho.
But, with markets like Japan likely to keep rates extremely
low in the near term, and Brazil expected to raise its own
rates by as much as 3.75%, thats going to create an
additional cushion for those investors who are already in the
market to protect their investment in the event there is some
short term volatility in exchange rates.
The momentum of that trade is likely to remain strong
not just in the short term, Bolitho added. This is
a long term trend.