The expansion of Asian and emerging market debt really can’t come soon enough for the sound functioning of international secondary markets. Being able to achieve a total return, as opposed to merely holding securities to maturity, offers a way to improve investors’ hunt for yield without bingeing on risk in today’s low-rate environment.Indeed, the biggest risk that some Asian investors perceive is not a sudden rise in interest rates, but continuation of the status quo.
Tan Soo-Thiam, group head of fixed income investment at AIA, told AsianInvestor’s recent Insurance Investment Forum that “if [the low-rate environment] persists, that becomes a major risk” – bigger than liquidity or credit concerns (see page 18).The US Federal Reserve determines short-term rates, and strong US jobs data has increased the prospect of a rate hike this year (June has been penciled in). But the Fed must be cautious about hiking too aggressively, with both Europe and Japan in quantitative easing mode. If global growth remains fragile, any Fed hike risks undermining the US recovery. Meanwhile, looser monetary policy in Europe, Japan and China will suppress longer-term rates for years to come. It explains why investors expect rates to stay low – precisely what AIA’s Tan fears.
The irony is that bond-buying programmes such as that by the ECB are meant to instill confidence. Equity markets have responded with a rally. MSCI Europe is up 7.3% since the January 22 ECB statement. Prices for European bonds, including highly rated corporate issuance, have risen, however – not a sign of confidence – and in some cases yields have turned negative.
As we outline on page 34, there are reasons to doubt that quantitative easing will have a sustained positive effect on equity valuations in Europe. Even if the biggest risk – a Greek exit from the eurozone – is averted, it’s hard to discern the growth drivers for European companies. They will remain more dependent on sales into the US (even as Asia slows), and are therefore directly exposed to the fall-out of a rate increase. Financial market rallies mask a lack of economic growth that will, at some point, manifest itself in the prices of stocks and bonds.
Asia gets dismissed with the words ‘slowing’ or ‘decelerating’. Yet in nominal terms, this is the region that still boasts growth. Chinese GDP growth of 6.5% may not be as wonderful as 9%, but today’s Chinese economy is also so much bigger than it was before the 2008 global financial crisis that it remains an attractive market for Western exporters.
This may be why Asia’s institutional investors are increasing their bets on emerging markets (see page 12), particularly via the expansion of local bond issuance. Asia’s contribution to global stability includes deepening the region’s bond markets and making them more accessible to global investors.
On the move
04 Questions remain over Julia Leung’s role at the SFC; Axa IM loses Asia-Pac chief after six months; Julie Koo moves from HSBC to UBS
08 Regulatory Analysis
China is striving to close a loophole that allowed global PE funds some control in sensitive industries
09 Regulatory roundup
CSRC bans five fund firms; HK ETF stamp duty waived; Big Four accounting firms settle in China disclosure case
10 Data Centre
Real estate investment in Asia Pacific boosted by upbeat fundraising scene
12 Asean central banks turn to emerging markets
Southeast Asian reserve managers are showing more faith in emerging markets
18 Insurance Investment Forum: Balancing risk and return
20 News: China Life global mandates; Taiwan’s BLF plans $2bn alts strategy; Thailand warned on equity market risk
22 Indonesia funds market seeks change in direction
Dergulation promises to give its fund industry a boost
24 Q&A: Kelly Chung,
head of managed solutions in Asia, LGT Bank
26 News: Manulife merges AM and wealth; fund redemptions hit HK; LGT plans PE roll-out
28 Islamic asset growth slows After a stellar expansion in 2013, last year saw a shift in fortunes for sharia funds
32 Mark Konyn reflects on Asia’s equity markets as part of AsianInvestor’s 15th anniversary series
34 Assessing the likely impact of the ECB’s decision on quantitative easing
38 Shenzhen opens to foreign alternatives, but quietly
40 News: Opinion split on ARFP; Farallon, PineBridge to acquire Indonesian firm; Samsung lists HSI futures ETFs
42 Can leveraged loans fill the void?
Asset owners are being driven to explore niche fixed income strategies. AsianInvestor weighs up the best on offer.
44 Q&A: Mario Giannini, CEO of Hamilton Lane
46 News: Hedge-fund seeding to surge; Allianz GI eyes alts demand; wave of fund closures expected; Rival QDLP schemes launched
48 AsianInvestor’s Trading and Execution Survey 2014
Access to liquidity is what investors want from brokers
60 Managers sceptical about the reliability of big data for investments
63 News: Multi-family office to open in Dubai; HKEx’s price-control plan slammed; Stock Connect short-selling rules unclear
The Rise and Fall of Australia: How a great nation lost its way, by Nick Bryant