global economy

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.”

Asian Shares Increase as Eurozone Meetings Continue

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Asian shares saw a dramatic increase following this weekend’s meetings in Europe, which resulted in “good progress.” According to European finance ministers, the Eurozone plans to boost its $610 billion rescue fund in an effort to draw investors and convince markets that it is indeed capable of protecting floundering countries such as Italy and Greece.

Few real details were released after the meetings, though. Investors have continued to focus on the yen, which has reached a record post-war high of 75.78 against the dollar. As a result, Japanese finance minister Jun Azumi has called for “decisive steps” to slow the currency’s dramatic rise, amid concerns that the yen will hinder the country’s export market.

Hong Kong and Shanghai both climbed this week as well, as improved manufacturing data was released from China, but Europe’s crisis does not seem to have slowed. Debates are still common as the Eurozone struggles to find a solution for the economic issue without further provoking its richer nations, such as Germany, who have placed their limit after repeatedly bailing out the region’s weaker members.

“The mood of trading is generally optimistic that Eurozone policy makers will announce significant measures on Wednesday to bolster the bailout fund and resolve Greece’s debt crisis, while also supporting the region’s banks,” explained Stan Shamu of IG Markets.

Asian Stocks Fall as World Concern Heightens

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Asian stocks have dropped, deepening the hole of the regional benchmark index’s biggest quarterly deterioration in over two years.

Sony Corp fell 6.2% in Tokyo, reaching its lowest price in 24 years, while Toyota Motor Corp, the largest carmaker in the world, fell 2% as well. Building materials, suppliers and mining companies have also seen significant losses.

“The U.S. is not falling into recession, but it’s definitely slowing down,” said Diane Lin of Pengana Capital in Sydney. “We might face more risks, particularly in a market that hasn’t had enough of a correction.”

In Tokyo, the MSCI Asia Pacific Index fell 2.8%, hitting 109.99., just before the meeting with the EU finance ministers. Nearly seven stocks fell for each that rose in the measure, and every one of the ten industry groups weakened.

The world’s concern increases as the gauge drops more than 20%, the European debt crisis worsens and the U.S. economic growth recedes.

Yuan Strengthens, But Asian Stocks Plunge

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For the first time in seventeen years the yuan has surpassed 6.4 per dollar, thanks to the Federal Reserve’s efforts to keep interest rates low. According to the International Monetary Fund, the stronger yuan will help governments reduce inflation and rebalance the nation’s development, as well as stabilize the global economy.

“The inflation and trade data, together with the Fed’s policy to maintain extremely low interest rates, have fueled faster appreciation,” explained Banny Lam of CCB International Securities in Hong Kong. “Strong economic growth, supported by the latest export figures, also provides investors with confidence to buy the yuan in these turbulent times.”

However, the European debt crisis has had a negative effect on the positive turns in Asia. In countries such as Japan, stocks have suffered severe losses. Mazda Motor Corp, the Japanese carmaker, is one of many companies highly dependent on Europe. Mazda has slumped 4.3 percent, while Canon Inc., Nikon Corp. and numerous others have met similar fates.

“As Europe’s debt crisis spreads, concern is mounting about damage to the financial system,” explains Mitsushige Akino at Ichiyoshi Investment Management Co. “We may slip back into a global equity slump.”

South Korea ADIA Merger

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In an attempt to escalate investments for the two, the Abu Dhabi Investment Authority (ADIA) is joining up with South Korea, seeking to develop the region’s state-run funds in a global capacity. The latter is known as being “one of the world’s largest sovereign wealth funds.” The National Pension Service (NPS) and Korea Investment Corp (KIC) are set to reap most benefits from this alliance which will enable ADIA to make investments through a South Korean local brokerage.

NPS Credibility

The NPS has some serious credibility. It is the world’s fourth leader in pension funds, standing at over 300 trillion won. But one can always take things further. It is today trying to escalate its overseas investments in the field of resources development.

KIC Financing

Where does the Korea Investment Corporation fit into all this? This organization has only been around for just over five years with the aim of “enhancing sovereign wealth and contribut[ing] to the development of the financial industry by efficiently managing assets entrusted by the Government and the Bank of Korea.” As well, it seeks to keep hold of its long-term purchasing power on its assets and “exceed investment target return” through the investment of “well-diversified, foreign currency denominated assets transacted in the international capital markets.”

ADIA’s Portfolio

ADIA is pretty impressive too. Owned by the Abu Dhabi government, the authority has been in business for over 35 years and is today recognized as a “globally diversified investment institution.” It spans over two-dozen areas, including: fixed income, private equity, infrastructure and equities.

So all in all this merger looks like it’s going to be mutually beneficial to the region and the authority. As soon as there is such a cohesion, it has a much greater possibility of being able to have a much larger and longer-term impact on the global economy.