Asset Managers Flock to Singapore and Asia

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The recent capital flow to Asia is pushing leading asset managers to hire analysts and bond traders in the region.

BlackRock Inc., for example, has made Singapore its home base for trading regional debt and currencies. Manulife Asset Management, Aberdeen Asset Management and Western Asset Management have also made plans to expand their staff and focus in the region.

BlackRock Asia-Pacific chairman Mark McCombe explained:

“Quite recently, our Asian fixed-income capability was quite underdeveloped and so the decision was made to try to build a world-class capability. The regulatory framework, the living and working environment as well as the kind of rich base of investors make Singapore a very attractive place to do business.”

 

Asian Investors Increase Caution as Economies Falter

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Asia’s leading investors are continuing to pull back on their riskier assets as global economic concerns worsen.

Sovereign wealth funds and institutional investors, with control of more than $1 trillion, have minimized investments in both stocks and bonds and begun boosting their cash resources.

According to Barry Bosworth of the Brooklyn Institution, the change “reflects a growing perception that the problems in Europe and the U.S. will not be resolved any time soon. The risks of a large negative event are too large.”

According to MB.com.ph, BlackRock’s Terrence Keeley said “officials at sovereign-wealth funds are nervous about the outcome of the presidential election in November and its impact on future budget negotiations” as well. Other factors boosting investor concerns include the upcoming power change in China and stunted growth.

Ng Kok Song, Chief Investment Officer of GIC added: “Due to heightened uncertainty in global markets, we allowed the cash inflow from investment income and fund injection to accumulate during the year in preparation for better investment opportunities.”

Keeley explained that sovereign wealth funds are under the impression that “there will be a number of strategic opportunities that they would be best prepared to exploit with cash on hand.”

China’s Economy Weakens as Global Crisis Lingers

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China’s slowdown in manufacturing activity and other vulnerabilities throughout Asia have weakened the region in the face of the European crisis. Its position as the stronghold against Europe’s devastating situation and the U.S.’s disappointing recovery is fading away.

Pascal Lamy of the World Trade Organization said Asia is becoming more and more “interconnected with the rest of the planet and I don’t think this relative immunity will be forever.

“I would expect, given what is happening in other parts of the world economy, this region to be more affected than it has been so far,” he continued.

And reality is confirming his suspicions at rapid speeds. Individuals and organizations are calling on the nations’ governments to boost their economies before the global situation worsens.

“China’s economic slowdown is more severe than expected. Export orders are continuing to fall, which is definitely related to Europe’s debt crisis,” said Citic Bank International Hong Kong’s Liao Qun. “Uncertainty in Europe is high. China needs to move faster and more aggressively to speed up loosening of its monetary and fiscal policies.”

 

Lenovo Catches Up to HP

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Lenovo Group has revealed that the gap in market share between Hewlett-Packard and the other Chinese company has been reduced to 2 percent, a significant difference from 2010’s 9 percent.

International Data Corp reports that Lenovo reached record sales in the third quarter of last year, as well as a global market share of 14 percent. These developments make the company one of the greatest PC makers by market share.

Lenovo claims its success is linked to its smartphone market.

“We saw strong progress in our Mobile Internet business. During the (third) quarter, Lenovo sold more than 6.5 million phones, and almost half of those were smartphones. Lenovo’s share of the Chinese smartphone market reached double digits in December,” said Lenovo chairman and CEO Yang Yuanqing.

In 2005, Lenovo acquired the US PC division of IBM, and last year it signed on a joint venture with NEC Corp as well.

“For the first time, Lenovo has become the global number one vendor of commercial PCs and consumer desktops, despite the worldwide shortage of hard drives in the past quarter,” Yang continued.

“Because Lenovo maintains a high volume of PC shipments, it has stronger bargaining power with hard drive providers than other companies,” added Wag Jiping of IDC Asia-Pacific.

Chinese Luxury Consumerism Up

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Although America and Europe are still caught in a recession that has seen a decrease in high-end luxury purchasing, China has seen an increase.  In 2010, the sale of luxury goods in China hit the 212 billion yuan mark, with a growth of approximately 25% on that figure in 2011.  Even more interestingly, new customers accounted for over 60% of the purchases.

Luxury companies from Cartier and Van Cleef to Hermes and Christian Dior all reported significant increases in their sales last year – and the Year of the Dragon should account for even higher sales.

With this information in hand, many luxury buyers are turning their attention to China.  At the moment, they represent 10% of the world’s luxury sales market. And, Chinese buyers aren’t just boosting sales at home; they are also accounting for more of the luxury sale purchases outside of China.

Just during the holiday season this past year, Chinese buyers accounted for $7.2 billion in sales in the US and Europe.  According to a report by the World Luxury Association, this is an increase of over 28% year-on-year.

Businesses See Potential in Chinese Markets

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As markets remain shaky around the world, foreign businesses have begun to see the potentials of China’s market. As a result, foreign firms are launching China-focused products and brands in hopes of wooing the nation. Apple’s “Designed in California, Made in China” T-shirt is a perfect example. When a new store opened in Shanghai, they changed the slogan to “Designed in California, Made for China.”

“This Made-for-China phenomenon is just one of the many sub-trends spawned by the macro trend of economic and consumption power shifting toward emerging markets,” a report from Trendwatching.com said.

Lu Haiqing of Tesco China called China the “last untapped market on Earth.” He added that “any wise and rational enterprise will have no choice but to come to China, no matter if they like it or not.”

Tesco endeavored into the Chinese market in 2004, and has since opened more than one hundred outlets. “More than 4 million Chinese consumers shop at Tesco China every week and the trend of trade-up is obvious,” Lu said.

Still, despite the positive sides to the market, cashing is a real difficulty.

“The Chinese market is vast and unique. It’s so special that merely dumping an existing management scheme, which succeeds elsewhere, is doomed to fail here,’ Lu said.

QIC Talks Up Quantitative Investment in Asian Markets

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According to QIC, the institutional investment manager, “big gains” can be made with quantitative investment strategies in Asian emerging markets.

“Emerging markets have been the focus of plenty of attention in the past few years; however, for a host of reasons investing in them has been a hit-and-miss affair,” explained QIC Quantitative Management managing director Michiel Swaak. “But more recently the situation has changed. Better, more consistent accounting standards mean the quality of data coming out of Asian markets has improved dramatically, providing the raw material required to establish meaningful models and identify opportunities that are most likely to deliver consistent alpha for investors.”

QIC first launched its quantitative Asia Pacific Market Neutral Fund in the summer of 2009, which has since proved especially lucrative.

 “We firmly believe that quant players have the jump on the market for a number of reasons. In our case, in addition to our extensive research and analysis capability, our team has many years of dedicated Asian experience,” Swaak said. “We’ve used that to develop a systematic trading process, which captures the relevant data as the markets continue to evolve, then feeds it into our flexible portfolio management infrastructure.”

QIC’s report states that the fund applies “comprehensive risk controls to all aspects of the portfolio, including net, gross, country, single-stock, currency, beta and risk factor exposures” in order to reach market neutrality.

“We believe our approach forms the blueprint for successful alpha investing in Asia, and we’re pleased to be able to offer an Australian dollar-denominated investment to Australian clients while we still retain the first-mover advantage,” Swaak said.

India Hopes to Grow Despite Europe’s Declining Economy

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An International Monetary Fund official stated that the continuing struggle of Europe’s economy is likely to impact other economies, such as India, just as it affected private investment.

“I think it is also clear that in India, as in other economies, demand for exports would certainly be hit, and certainly for India, we’ve already seen effects on private investment,” said IMF Director of the Asia-Pacific Department Anoop Singh. “My sense so far is that the financial effects on Asia are being contained. We are seeing Asian banks, including Indian banks, stepping in where deleveraging is taking place from European banks.”

Singh continued, explaining that like the rest of Asia, India is focused on attracting private investment. However, this needs additional infrastructure investment in order to raise potential growth.

“So in India, what is planned, for example, is to introduce certain fiscal reforms that would give more space for higher infrastructure investment in India, among other factors,” Singh explained.

According to Masahiko Takeda, also of the IMF, “Reducing the fiscal deficit will create room for private investment to grow.”

He added: “But even more important are all sorts of fiscal reform measures that the Indian government can take to improve investment and business conditions in India, so that the private sector has a bigger incentive to increase their investment. And this has been the major emphasis we have put in our recent mission in India.”

India Hopes to Grow Despite Europe’s Declining Economy

by

An International Monetary Fund official stated that the continuing struggle of Europe’s economy is likely to impact other economies, such as India, just as it affected private investment.

“I think it is also clear that in India, as in other economies, demand for exports would certainly be hit, and certainly for India, we’ve already seen effects on private investment,” said IMF Director of the Asia-Pacific Department Anoop Singh. “My sense so far is that the financial effects on Asia are being contained. We are seeing Asian banks, including Indian banks, stepping in where deleveraging is taking place from European banks.”

Singh continued, explaining that like the rest of Asia, India is focused on attracting private investment. However, this needs additional infrastructure investment in order to raise potential growth.

“So in India, what is planned, for example, is to introduce certain fiscal reforms that would give more space for higher infrastructure investment in India, among other factors,” Singh explained.

According to Masahiko Takeda, also of the IMF, “Reducing the fiscal deficit will create room for private investment to grow.”

He added: “But even more important are all sorts of fiscal reform measures that the Indian government can take to improve investment and business conditions in India, so that the private sector has a bigger incentive to increase their investment. And this has been the major emphasis we have put in our recent mission in India.”