Investment in Asia has not experienced much growth in the last few years, with most of the interest in the region coming from US and European investors. Australians, in contrast, have preferred more global mandates.
Nonetheless, both short and long-term prospects for Asia are positive. Plus, the level at which you can now get into this market has lowered, beaten down by SARS and doubt over world growth.
Looking further ahead, the region is set to lead world growth and has huge potential for an escalating GDP, especially in Korea, Malaysia, Thailand, India and China.
Credit Suisse head of distribution Brian Thomas says it won’t be long before China becomes the world’s second largest economy, after the US.
BT director of Australian business Dirk Morris adds: “There is a broadening of economic performance across these regions, which will continue as low interest rates elsewhere in the world lead to capital going to Asia.”
The global economy may still be very fragile, but as Asia was not involved in the US/European bubble, its market is regarded as being fundamentally better ground for investment.
Perennial managing director Ian Maccoun says Asia, excluding Japan, also benefits from having a younger population than the rest of the world. And it’s a good prospect because it is relatively uncorrelated to other investments.
These bright prospects have attracted growing investor demand to the region, but Maccoun says previous hype about superior returns, which never eventuated, have tarnished the sentiment towards the region over the last few years.
“The challenge is in knowing when to re-enter the market. Investment in Asia is building in popularity. It’s just a shame that we can’t convince people to invest earlier.”
When it comes to super, few funds actually take a region-specific approach to Asia. Most will have a global mandate but, because of the associated risk, emerging markets may only comprise around two per cent of a portfolio.
Maccoun says: “Funds obviously look for diversity in their portfolio, though Asia has traditionally represented a very small percentage. It is seen as offering high returns, but with high volatility, which is true.”
Morris adds: “We have a sector fund but there is not major demand for that. Most investors have a balanced fund and then break it down by domestic or international allocations.”
Asset consultant Frontier Investment Consulting also favours this global approach. Managing director Fiona Trafford-Walker says: “We tend not to think of a specific region but look at the broader emerging markets, rather than Asia in its own right. We have previously not been successful with the regional specific approach.”
There are few Australian-based fund managers active in the Asian market and the sector is dominated by European or US groups with local offices.
Those that do participate include Perennial, which has been in the market six years, recent entrant Maple-Brown Abbott, Platinum, Boston-based Putnam, which manages the international equities that BT outsourced after the Westpac takeover, and Credit Suisse, which entered the market one year ago and has just released an Asia ex-Japan fund to Australian investors.
The Credit Suisse team relocated to Sydney from New York. Thomas says some US and European managers have hubs in Asia while others try and do it remotely, although these tend to be managers that do not focus on the region.
Managers that operate in the Asia-pacific region have the advantage of being in the same time zone, though with most clients being miles away, that benefit is questionable.
Perennial has investment offices in the US and Europe and is about to launch a huge marketing campaign for its Asian equities capability.
Thomas is assured that Credit Suisse has the strength needed to succeed in the market. He says: “There has been a lot of change in managers’ offerings. Our team also manages the company’s $500 million in global group Asian assets.”
He does not believe there will be many new managers entering the market, predicting there will be three or four competitors in the long-term.
In contrast, Morris has picked up rumours about two more competitors entering the market in the next year or two, as markets pick up. Watch this space!
