Precy Dumlao, Opalesque Asia
The ASEAN markets have been showing signs that the region's economy are recovering from the June market sell-off, said Singapore-based research firm GFIA. The majority of Asia-ex Japan fund managers with an ASEAN-concentrated portfolio generated subdued returns last month.
GFIA founder Peter Douglas said in his monthly commentary, "Firth's (1.0%) portfolio was well cushioned by its position in Korea, Hong Kong and China which also happened to be the main drivers of performance for Flowering Tree's Ashoka fund (4.8%).The fund's short book has shrunk to a historic low level of 38% which is expected to normalize over the next few months as new interesting short positions are initiated."
Concerns over a slowdown in China outweighed the stabilizing effect of the July election in Japan that also resulted with Japanese fund managers outperforming their market benchmarks during the period.
The average fund in the Eurekahedge Japan Index gained 0.9%. The small-cap index TSE Mothers performed well, gaining 12.4%. Accordingly, small cap specialists such as Hayate Long-Short (4.5%) took advantage of the easing of market momentum as fundamentals came back into focus, increasing their net exposure in firms with potential growth stories, GFIA said.
It added that managers who had previously expressed a bearish view through low or neutral net exposure were impacted by the trend reversal in equities last month. An example of the trend was Monterey which gave up 0.4% of returns due to their risk-averse positioning, but the manager continues to have negligible net exposure amid the market uncertainty.
The monthly commentary added that quant funds continued to navigate market movements well and had another good month as Terra Grove saw technical factors such as short-term reversal and long-term momentum work well, posting a 1.9% gain. MNJ Japan had a great month with 2.9%, as their value and buyback strategies did well. Their basket of stocks to be added into Topix as a result of the Osaka-Tokyo stock exchange merger also contributed to performance.
Both China A shares and the Hang Seng index rebounded in July, as Premier Li's speech attempted to calm a rattled market and US tapering talks lost some immediacy. The landmark approval of the Shanghai free trade zone also spurred hopes for speedier financial liberalization and put the city on track to becoming an international financial centre.
China equity managers posted gains this month as their market recovered; managers such as CSV China Opportunities (5.4%) were able to propel YTD returns into the black with portfolio companies reporting strong Q2 earnings. The fund pared back net exposure slightly to end the month long 56%. Orchid China (2.7%) also did well with 18% of the portfolio in fast-growing internet/media stocks. Orchid is positioned for the upcoming earnings season in August.
According to GFIA, India's decision to tighten liquidity in July to stem speculation in the currency was a drain on markets poised for easing to help drive economic recovery and set the stage for further uncertainty and loss of investor confidence. In response, Alchemy India (-3.6%) have hedged out 15% of their portfolio via index puts, and upped their cash level.
"It remains to be seen how long the RBI will tighten, and whether the currency will stabilize, allowing the regulator to ease monetary policy. Investors will also take the country's budget deficit into account when forming their views and will closely monitor the level of imports of commodities such as gold and oil," Douglas explained.
Amidst volatility in emerging markets, July saw lackluster performance in Latin America, where select country indices outperformed behemoth Brazil and correspondingly fund managers diversifying to Chile and Peru found better opportunities. In contrast, Russia benefited from
the bounce back and was one of the better performing emerging markets; Micex reversed
Russian managers found some respite from the gloom, as did African managers during the frontier markets rally in July. Kenya and Nigeria overweights generated good returns for funds.
Middle Eastern funds had a strong showing as well despite anticipated low volumes during the fasting month which had been an erroneous prediction. Key markets such as Saudi Arabia, the UAE and Qatar were up 5-8% during the month.
Month to date, US and European markets have been roiled as tensions over Syria cast a pall over stocks in developed regions. Asia Pacific has not been spared the negativity, although numbers there are looking slightly better, buoyed by China's resurgence. Eastern Europe is also outperforming among EM. Preliminary estimates from managers are looking flat to positive despite the market, with strong performance in the peripheral EMs.
This piece first appeared in Opalesque on 3rd September.
This article was published in Opalesque's Asia Pacific Intelligence our monthly research update on alternative investments in the Asia-Pacific region.