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Asia Pacific Intelligence

Asian market sell-off stabilizes in July

Thursday, September 05, 2013

Precy Dumlao, Opalesque Asia

The Asian market sell-off in June that saw most of the region's currencies falling, has stabilized in July as most of the regional funds reported modest gains, said Singapore-based data provider GFIA.

Peter Douglas

In its latest monthly commentary, GFIA reported that the MSCI AC Asia Pacific ex Japan and MSCI AC Asia Pacific were up 1.8 and 1.3% respectively, weighed down by India and Indonesia where current account imbalances continue to grow. Most fund managers saw limited upside, with a few stellar performers who are mainly directional and model driven.

Peter Douglas, GFIA founder, writes "The credit space remained subdued with new issuance mainly limited to investment grade issuers with only a total of $3.7bn of issuances. Most other credit managers ended the month flat and have very much focused on investment grade names that had been overly penalized during the June sell-off. AHP Asia Credit Opportunities rose by 0.9% as they managed to rotate the portfolio swiftly out of high yield issues and into investment grade bonds."

He added that the fund benefited from reducing its exposure in Thai/Malaysia banks and into Korea quasi sovereign bonds.

The Saka Capital Liquid Fund posted its strong performance in the Korean quasi sovereign bonds, that was also its largest position after gaining 1.2% profits last month, GFIA said. The bond is Saka Capital's defensive portfolio with net risk close to zero was constructed to withstand the impacts of the Fed's tapering on Treasury yields and the continuing underperformance in the emerging markets.

Douglas went on to say, "Multi-asset and relative value managers experienced a drag on performance this month as a result of underperformance in equities and convertible bonds. Factorial retreated 0.5% as their arbitrage plays in the dual-listed strategy went down across the board. Omnix (-2.1%) also suffered from the pullback in equities, erasing most gains in Japan convertibles. RV Capital   stood out as the positive outlier in this category with its 1.8% return; they took advantage of the relative play in Asia investment grade papers and weakening in Asia currencies as a result of the Fed's QE tapering plan."

BIA Pacific Macro ended the month marginally down as the manager underestimated the extent of the rally in JGBs. Their short positions in commodities such as Gold, Copper and Oil (that rallied in the face of still-sluggish activity in China) were also one of the main performance detractors.

The research firm also reported that quant managers saw a mixed bag of performance with more skew towards the positive side. Even within a fund, performance was mixed among different models with more funds gaining from short-term momentum trading in Japan. MNJ's (2.6%) buyback strategy also played out handsomely in Japan from a portfolio of stocks that will be added to the Topix Index later in the year. Octagon (0.6%) and Monsoon (0.2%) managed to navigate the whipsawing markets in Asia this month with portfolios lightly tilted towards the developed markets such as Japan and Australia. Arda Capital (-2.9%) had a difficult month as their typically consistent factors such as sentimental signals were overridden by strong macro conditions this month.

Directional equity funds generally had a good run this month driven by the rebound in the Hong Kong/China market. Dalton Asia fund reported 1.2% and ended the month with 26.8% net exposure, down from 36.4% at the beginning of the month as a short position was initiated in a state-owned Asian airline. Ward Ferry (1.5%) is seeing a win-win situation from both long and short books; their largest short position, a Japanese mobile game developer, saw a 25% correction after its share price appreciated 1,300% YTD through end-June. SPARX OneAsia Long Short Fund (-0.6%) had another down month as their long positions in Thailand property names continued to hurt the portfolio amid heightened Thailand market and political volatility, GFIA said.

(This piece first appeared in Opalesque on 2nd September.)

This article was published in Opalesque's Asia Pacific Intelligence our monthly research update on alternative investments in the Asia-Pacific region.
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