Asia back in favour among fund managers

Asia back in favour among fund managers
The Straits Times
06 May 2009

FUND managers have been steadily putting their money back into Asian equities, helping to ignite a rally in regional stock markets in the process.

The influx of new money - in the wake of subsiding redemptions - started as early as the end of last year.

It was interrupted by massive redemptions when sentiment soured in March but investors resumed their buying last month to fuel a rally that has lasted eight weeks - the longest winning streak in more than a year.

The local benchmark Straits Times Index (STI) has risen 42.4 per cent from its March low and is up 17.8 per cent since the start of the year.

Markets in Hong Kong and Shanghai are up 27.3 per cent and 41 per cent, respectively, since January.

The improved investor sentiment is due to 'the tentative early signs of stabilisation in the economic data', said Mr Andrew Hua, director for investment and strategy at Deutsche Bank Private Wealth Management.

In mid-March, the private wealth management arm became a little less defensive and shifted some of its cash into shares, he said.

'Although most statistics are still showing weakness or negative growth, the pace of decline has somewhat lessened,' added Mr Hua.

Foreign funds invested about US$224 million (S$329 million) in Asia ex-Japan regional funds in March, according to data compiled by EPFR Global. This surged to over US$920 million last month.

Fund managers say it was a combination of short-covering and funds with long positions investing spare cash in the market. They also said the very low yields on cash and bonds made equities a more attractive investment.

Cash weights at Asian funds are as low as the levels seen prior to Lehman Brothers' bankruptcy, said Citigroup strategist Elaine Chu.

Generally, Asian funds have been overweight on China, Hong Kong, Singapore and Thailand, while underweight on India, Taiwan and South Korea.

'Investors are low in equities holdings, having sold off in March,' said Mr Wong Kok Hoi, chairman of APS Asset Management. 'The market rebounded from an oversold position.'

Mr Hugh Young, chief executive of the Asia-Pacific arm of Aberdeen Asset Management, said: 'We did add to some hard-hit stocks earlier in the year... stocks have rebounded strongly. We've been pretty fully exposed to Asia in our global funds and run our funds fully invested.'

Mr David Lee, managing director of Ferrell Asset Management, a Singapore- based hedge fund, said he started to put in money in January and February.

'It was the best time to increase Asian allocation in risky assets such as property. Sentiment was very bearish; valuations of some stocks became very attractive,' he said.

But fund managers are turning cautious again in the face of the recent run-up in stock prices, saying that a correction may be on the cards.

'Capital inflow may still continue but not in such a rapid way that we've seen,' said Ferrell's Mr Lee.

This is because funds may have accumulated their positions and have enough cash in equities.

'While the worst of redemptions may be over, there should be some pullback along the way. A bottom has been reached but it does not mean there will not be a correction,' said Mr Lee.

'It's certainly riskier (to invest now) than eight weeks ago.'

Aberdeen's Mr Young said: 'Markets should pull back, given economies and earnings are under pressure still.'

Inflows to Asian funds fell 16 per cent to US$794 million last week from the week earlier, said Ms Chu in a report. 'From a short-term perspective, inflows are peaking out.'

But she added that there could be further liquidity flowing into Asia when global funds start to turn bullish on it.

OPPORTUNITY KNOCKS

'It was the best time to increase Asian allocation in risky assets, such as property. Sentiment was very bearish; valuations of some stocks became very attractive.'

Mr David Lee, managing director of Ferrell Asset Management, a Singapore-based hedge fund