With the way fund managers are cautiously positioning their portfolios, there is no doubt about it: the lessons from the global financial crisis have been learned. Fund managers are starting the year defensively positioned against potential losses, and it looks like thatÆs how the rest of the year will pan out.

AsianInvestor sought out 12 fund managers of Asian portfolios for a 2009 Investment Outlook Series. Participants in the series were fund managers from Aberdeen Asset Management, AMP Capital Investors, Batterymarch Financial Management, BlackRock, Credit Agricole Asset Management, Fidelity International, Fortis Investments, Halbis, Invesco, JF Asset Management, MFC Global Investment Management, and Templeton Asset Management.

Combined, these fund houses manage more than $4.6 trillion worldwide and more than $250 billion in Asian equities [some of the respondents declined to reveal their assets under management in Asia].

The fund managers surveyed by AsianInvestor have been defensively positioned since the start of last year. They generally expect a prolonged economic recession, which some say could be deeper than initially expected. They expect share price volatility to remain and are not counting on investors regaining the confidence they once had in financial markets during the previous bull years.

ôWe are obviously more cautious,ö says Tahnoon Pasha, Hong Kong-based head of investments for equities at MFC Global Investment Management. ôHigher volatility is giving us more opportunities to buy cheap, but more risks of error too. We focus on cash cycles and short-term funding more in our analysis, and typically spend more time reviewing balance sheets and contingencies than in the past.ö

The main challenge, according to Paul Chan, CIO for Asia ex-Japan at Invesco Hong Kong, is to avoid the value traps that exist in the markets.

ôAsian equities are most attractive during the earnings trough where a pickup in earnings will warrant a momentum driven, cyclical market rally,ö Chan says. ôWe believe that we have not reached that stage yet as the market is still over optimistic in forward earnings.ö

Fund managers favour companies with a leading edge in their respective sectors in terms of market share and pricing power, solid balance sheets, healthy cash flow, and attractive dividend yields. They now tend to avoid companies that are highly geared or heavily dependent on exports.

ôAsian companies only began to seriously feel the effects of the economic crisis in the fourth quarter of 2008,ö says Karma Wilson, Sydney-based head of Asian equities at AMP Capital Investors. ôThe full impact of the crisis is expected to hit during 2009 so defensive stocks in sectors such as consumer staples, telecoms and utilities are best placed to ride through the storm during the coming year.ö

The industrial, technology, and financial sectors, meanwhile, are cyclically exposed to the global economic slowdown and are expected to have a rough year ahead.

Most fund managers surveyed by AsianInvestor favour China within the region. China stands out from other equity markets in Asia because the countryÆs domestic economy is among the strongest in the region, long-term growth is expected to remain relatively robust, and the government is armed with hefty foreign exchange reserves that can help support the economy.

They are most bearish over Taiwan and Korea, which are cyclically exposed to the global financial turmoil largely because of their heavy dependence on exports.

The February issue of AsianInvestor magazine will contain a feature on the fund managersÆ investment outlook for 2009.