“What is keeping you up at night?” It's a question that might elicit any number of answers from equity investors right now. With share prices at such extended levels in countries all around the world, it seems that the only way is down.
“I find it very difficult to find a screaming bull anywhere in the world,” noted Chris Lees, senior fund manager at JO Hambro, speaking on a panel at AsianInvestor's Southeast Asia Institutional Investment Forum yesterday. “Everyone's talking about what can go wrong.”
He said his main concern is “how on earth I'm going to outperform the structural bull market that we have now. Because my instinctive process will be to sell too early.”
“I worry about how the longer US 10-year bond yield stays at 2%, that becomes the real 10-year cost of money,” he added.
Another panellist, Lim Say Boon, chief investment officer of DBS Private Bank, pointed to geopolitical risks as something that might be a likely concern for many. But he dismissed such risks as likely to have relatively short-term effects.
Lim was more worried about what he saw as a “sotto voce” currency war, pointing to how Japan's moves to weaken its currency have hurt the Korean economy and currency. He noted that this could spread further to damage the Taiwanese dollar and thence to Southeast Asia.
Insurer AIA Thailand's focus is at a rather earlier stage when it comes to looking at international equities, as it is for several other types of assets, as reported.
CIO Anucha Laokwansatit, speaking on the panel, has only begun relatively recently to explore how the firm will diversify into global stocks, having been restricted in the past to local equities.
“We started in our natural habitat of Asian equities,” he said, given that the firm can benefit from parent AIA Group's equity analysts across the region. Hence it tends to manage Asian equity portfolios internally.
But for ex-Asian stock markets, he is looking at how the firm will go about investing – whether to outsource to specialists in different markets.
One piece of advice offered by Sanjay Natarajan, institutional portfolio manager at MFS, was to focus on multinational names to obtain emerging-market exposure, including in Asia.
Many Asian businesses are family owned, he pointed out, and they are typically listed when the family wants to monetise them at potentially their peak value. “If [Hong Kong tycoon] Li Ka Shing is getting out, you probably don't want to get in.”
This is one of the issues investors face in Asia – a holding company might list one entity but have another entity creating most of the value, noted Natarajan. He cited Alibaba's listed entity versus its private entity as an example of this. “So you have to be very careful.”
Moreover, private equity is not well established as an industry in Asia, he added. Over time there will be opportunities, but today businesses tend to be well funded and not in need of capital.
Hence Natarajan's preference to tap opportunities in Asia through global multinationals. They have better corporate governance, better returns, provide more diversification and usually have a longer history and management track record, he argued.