AsianInvestor Magazine

Issue: February 2016

Power of perception

Amid all the negative news emanating out of China that drove jittery stock markets to suffer their worst start to a year since the Great Depression, investors should have been encouraged to hear not one, but two officials from the mainland’s securities regulator admit to mistakes and the need to learn from them.

Firstly in a speech at the China Securities Regulatory Commission’s annual internal meeting last month, chairman Xiao Gang acknowledged flaws in its regulation of the equity market. It was unusual for a high-ranking public official to be quite so frank. Xiao said the extreme volatility reflected an “immature equity market and participants, an inadequate trading and market system and an inappropriate regulatory system”. He added the CSRC had to learn a lesson from this, although he made no specific mention of the index circuit-breaker mechanism launched on January 1 this year but embarrassingly suspended within a week.

The mechanism was set on the main Shanghai and Shenzhen bourses and the China Financial Futures Exchange to suspend trading for 15 minutes whenever the CSI300 benchmark moved 5% either way. Move 7% and trading was halted for the day. The intention was to stabilise the market. In reality it only accelerated the sell-off. Other than an attack of honesty, it seems likely Xiao’s withering assessment had another aim: to soothe global investor concerns about Chinese decision-making. ‘Bad idea. Sorry. Won’t happen again.’ In that sense it should be welcomed, although it will have stirred more than a few doubts (see opinion on page 8).

In a similar vein, CSRC vice-chairman Fang Xinghai admitted that poor communications had exacerbated global fears about RMB depreciation. Speaking at the annual World Economic Forum in Davos late last month, he conceded, “Our system is not structured in a way to communicate seamlessly with the markets,” before adding: “You bet we can learn.” Fang rubbished accusations that China was engaged in a currency war, saying it would be counterintuitive for Beijing to weaken the renminbi since that would damage domestic consumption. China has, in fact, been eating into its vast foreign exchange reserves to curb RMB weakness (see related story on page 16).

Overall, the sense is of a regulator not just wanting to do the right thing, but be seen to be. It is the power of perception. But the key message is China has admitted to mistakes and said it would learn. That’s the most positive takeaway as it strives to internationalise and negotiate the treacherous rebalancing of its economy. Perhaps a delicious poignancy, IMF managing director Christine Lagarde set the mood music when she said China growth would continue to be robust since all its transitions were manageable “if the right policies are taken”.

Leigh Powell
Editor

This
Month:

04          On the move
Wong joins State Street to head Asia ex-Japan; StanChart hires von Daenicken; Barclays regroups after departures; Credit Suisse names distribution chief; Ng moves to Aberdeen to replace Cheok; Julius Baer adds new division

 08         Regulatory Analysis
Does CSRC backtracking on index circuit- breaker signal an important shift?; Korean managers question new growth measures

10            Data Centre
In a world of low growth and low inflation, history says equities and junk bonds can enhance portfolios. So investors need to assess whether they can stomach the risks

Asset Owners

16           The big freeze
Asian institutions are slowing, halting or culling international investment mandates, heralding a shift in the next generation of asset owners

12            Q&A: Raphael Arndt, CIO, the Future Fund, Australia

20            AsianInvestor’s Southeast Asia Institutional Forum hears emerging markets, energy and Europe cited as opportunities for investors

22            News: BLF raises overseas allocation; NPS appoints CEO, targets CIO; new chief joins KIC; Hong Kong Future Fund to get top-ups; NCSSF issues new global mandates

Distributors

24            Reality bites for MRF
Mutual recognition of funds between HK and China was broadly craved. Now it’s here and last summer’s optimism feels a long time ago

26            Q&A: Chris Blum, head of investments for Asia, JP Morgan Private Bank

28            News: UBS centres China strategy on AM; Julius Baer reshuffles management; UBP to launch post-acquisition hiring drive; P2P lenders seen to harm China WM

Fund Managers

30            Year of the Monkey
Which way will the markets move in the lunar new year? AsianInvestor asks and answers 10 key questions for the coming 12 months

36            Asia Financial Forum: Policymakers seek support for ‘one belt-one road’ and Ben Bernanke discusses the dollar and its effect on Asia

38            China’s second MMF evolution
Money-market funds in China are in a new growth phase, with the advance of institutional investors

42            Survival test
Multi-asset managers may need to pursue complex strategies to stay afloat

46            Q&A: Jean Salata, chief executive, Barings Private Equity Asia

50            News: HKIFA reports on Stock Connect; E Fund targets Europe; Thai managers differ on RQFII; Julius Baer warns on RMB; Natixis to build HK base

52            Bookend
Rise of the Robots: Technology and the threat of a jobless future by Marvin Ford

Quick Poll

Which Asian EM will be most resilient in 2016?






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China
  9%
 
India
  48%
 
Indonesia
  9%
 
Malaysia
  4%
 
South Korea
  26%
 
Thailand
  4%
TOTAL VOTES: 23
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February 2016 Magazine
AsianInvestor Magazine

What's in this issue

Multi-asset - survival test for managers
China's money market funds evolution
Mutual recognition - reality bites for funds
Sovereign wealth mandates are slowing