The world in 2D
Investors have been living in a world reliant on quantitative easing and suppression of volatility for so long that they now see global securities markets in 2D: divergence and distortion. It makes uncomfortable viewing.
One contrast is striking. The US Fed is now very conscious about transparency, seeking to give the market clear indications of its thinking and decision-making ahead of time. The minutes of its July Federal Open Market Committee meeting must have been some of the most pored-over documents it has published. The commentator verdict: dovish, with observers inferring a rate rise wasn’t imminent. October, December or even into next year are now consensus.
Subsequently on August 11, the People’s Bank of China shocked the market by devaluing the renminbi, announcing a higher fixing rate against the dollar. It set a new central parity of the CNY-dollar rate that saw the RMB weaken by 3% in three days, with the prospect of more to come. So here we can see two central banks working in opposites, one striving for transparency, the other’s opacity giving markets a jolt. No wonder investors are fretting.
As things stand, China, Japan and Europe are in easing mode, even as the US and UK consider tightening. The investment picture is clouded, and emerging markets have been suffering. Money has been flooding out due to factors including fears over future earnings and US dollar strength. I find myself agreeing with Jan Dehn of Ashmore. The prolonged underpinning of developed markets by central bankers has meant investors are now saddled with overpriced assets, indebted economies and no obvious way forward. Emerging markets are being punished as a bloc, even though they are in far better shape than they were in 2013 and are now cheap (see story on page 38).
But what are investors supposed to do? They have been overweighting developed markets due to the fall in commodity prices, and with demand lower in the West, they are not expecting an earnings pick-up in EM anytime soon.
Of course, there is a need for independent thinking because there are pockets of opportunity, including commodity-importer India. (You can read my interview with U.K. Sinha, chairman of India’s securities regulator, on page 48.) Yet the downward spiral in commodity prices makes it tricky to raise exposure to EM, even if you are convinced that some EM currencies such as the rupee, South African rand and Brazilian real will represent good value.
Clearly scarred investors are focusing more on downside risk than upside potential. But divergent monetary policies are clouding the picture. August’s market ructions are a reminder volatility has been kept too low for too long.
04 On the move
Konyn succeeds Chu at AIA; Falcon moves to Asia chief at JP Morgan AM; Manulife adds role for Bruno Lee; Tan gets ultra-wealthy job at StanChart; BMO hires private bank head; Lima to oversee wealth at HSBC
06 Regulatory Analysis
Why are Hong Kong and Singapore being overshadowed in the fintech revolution?
07 Regulatory Roundup
China urged to synchronise rules; Japan targets stewardship progress: Indonesia adds flexibility for pension funds, insurers; Thailand to update rules on risky products
08 Data Centre
An Asian passport represents the biggest threat to global domination of Ucits
10 Asset Owners
Hedge fund incubators
Family offices are growing in importance as a source of capital for hedge funds in Asia
14 Asset owners feel benefit of equity diversification
Shift in allocation has had profound effect on returns
20 Q&A: Arj Seriniyom, head of investments, Thai Life
22 News: NCSSF tipped for expansion; Malaysia’s EPF to grow foreign exposure; SWF plan still in play for Taiwan; RBI weighs investment options
Direct distribution on Asia’s radar
Banks remain the key channel, but regulators and fund houses are alert to the rise of direct-to-consumer platforms
26 Q&A: Paul Hodes, Asia head of consumer bank wealth management, Citi
28 News: HK-domiciled funds get MRF boost; UBP-Noah venture eyes wealthy Chinese; Tencent launches WeBank app; Deutsche targets HNWIs, retail distribution
30 Fund Managers
We identify the top 10 stock-pickers in China with proven skills to navigate the nation’s difficult economic transition
38 Investors are fleeing emerging markets over growth fears and dollar strength. But is it justified?
44 How smart beta ETFs are having an identity crisis in Asia
48 India: Sebi chairman U.K. Sinha talks about striking a balance between industry rules and healthy growth
54 Korea: Reforms to create a level playing field on tax should be positive for fund groups, but doubts remain
56 Q&A: Christoph Rubeli, partner and co-CEO, Partners Group
58 Australia: The nation that invented infrastructure as an asset class now finds its institutions’ appetites cool
61 News: Yuan devaluation tremors felt; Taiwan to act after rout; Deutsche exits India funds market; Asiya onboards new team for Asia launch; first RQFII licence in North America
Gauge the sage: Confucius and the World he Created by Michael Schuman