Systemic risk in the superannuation system likely doesn’t stem from funds themselves, but from their service provider relationships. Regulators need to be thinking harder about where and how it arises – something they’re not necessarily well set up to do.
Big asset owners and managers are embracing the private markets as one avenue for growth, but the complexity that brings to portfolios means they also need to get a better view of what might be decades of siloed information.
Debunking some myths about investing in Asia
If you think that Asia de-coupled from the west a few years ago, think again. If you think that Asian intra-regional trade is important enough to overcome slack western demand, think again. And if you think that spoons are better than chop sticks … well, you get the picture.
Simon Ogus, founder and CEO of Hong Kong-based consultancy DSG Asia, says that Asian exports and OECD industrial production have gone largely in tandem since the mid-1980s. This is “except for an early 1990s earnings trajectory at best”. Similarly, Asia ex-Japan exports and earnings per share growth have gone in tandem with US manufacturing price indices.
He was speaking to a range of consensus notions of investing in China and Asia last week at the Martin Currie client seminars in Sydney and Melbourne. He speaks this week also to clients of Martin Currie, the Edinburgh-based global equities manager, in Singapore and Hong Kong.
From an investors’ perspective, share market valuations are probably more important than economic growth statistics. But in this respect, Ogus believes, Asian equity valuations are still relatively attractive if you assume recessions and market “mayhem” are truly behind us.
On the fundamentals he believes that the Chinese and Indian economies are bottoming out as their previous tightening cycles have ended. But we should not expect “massive relaxations”.
Infrastructure investments are particularly important, both for those countries and for investors. Ogus says that, cyclically, China may be over-invested in infrastructure but it remains structurally under-invested. India is even more so, he says. The build-outs of their railways are only just beginning.
But he tempers the enthusiasm, somewhat, for investors. Ogus points out that the “mad scramble” for resources and influence, which has happened before in China in the 19th Century and did not end well, will carry with it certain risks.
Echoing this point, Martin Currie’s investment director, Asia, Paul Danes, told the super fund executives last week that, while Asian equities were a long-term attractive proposition, there were both short-term risks and short-term opportunities.
“Finding growth in Asia is easy. The challenge is finding the best investments to benefit from that growth.We believe the best way to invest is to ignore the noise and focus on those companies with the best and most sustainable businesses,” he said.
Andy Sowerby, the managing director of sales and marketing for Martin Currie, said that the staff-owned firm remained committed to its principles of equity investing.
“Equity specialization has not been an attractive business for the past few years,” he said.” But, with negative real returns from cash and in most safeâ€haven bond markets equities are moving back up the agenda.”
Kimon Kouryialas, the Martin Currie business head for APAC, who is hosting the events, said that the pension fund world was moving back into equities in general, and emerging markets in particular.
He said, however, that investors needed to be cautious about the strategies they adopted for their emerging markets exposures. In the probable environment of the next few years, where beta strategies were likely to be volatile, they should lean towards alpha generation in the Asia region.
And, what was Ogus’s point about the chop sticks? Asked where in Asia he would prefer to invest, he said: “The countries where they use chop sticks rather than spoons”. Whether this was because chop sticks are more difficult to eat with, and therefore suggested a better work ethic, or whether it was just coincidence, this means he would rather invest in countries such as China or Vietnam rather than countries such as Thailand or Malaysia.
