Super’s biggest problem likely lies within funds themselves, with many using legacy operational infrastructure ill-suited to the needs of the major financial organisations they’ve become.
The race to the bottom on low cost, benchmark aware solutions for a post-YFYS world has pretty much been run. But while the perception of value currently sits on price, that might not be where it ends up, according to Fidelity’s Simon Glazier.
The one thing China has that Japan didn’t
As concerns grow that China’s economy will remain sluggish and that the country will experience “Japan-ification”, counterarguments have focused on the smaller size of the asset price bubble in China and the pre-emptive actions taken to deflate it. But according to Elaine Tse, portfolio manager Total Emerging Markets team at Allspring Global Investments, China has one thing that Japan lacked.
“It’s an authoritarian regime,” Tse says. “It can change on a dime. We saw that with Covid. And so now that they recognise that they’ve been too conservative with their policies and risk going into a multi-year L-shaped recovery they can swing from being restrained to very aggressive very quickly.”
“Japan’s a constitutional monarchy with a democratic system; you always get pushback from opposition parties. Or it take s along time for the banks to say that they’ll recognise non-performing loans and it takes a long time for stimulus bills to be passed. But China can clear the decks immediately.”
And even “traditional China sceptics” – those who have always been suspicious of the economic data that flows from its government, the weak banking system and the ghost cities that were built 8-10 years ago – wonder if the worst case scenario isn’t already built in.
“China banks are trading at 0.3 times book and nine per cent yield,” Tse says. “Alibaba is at under 10 times earnings. So we think much of that negativity is in price; we’re cautiously optimistic on the new policies that are being introduced, and the macro numbers – the PMI, retail sales growth, fixed asset investment – are starting to pace slightly above expectations.”
“And this is before a slew of policies have been introduced. For the full year we’re hopeful that China can achieve five per cent growth. The current environment, with weak expectations, is an opportunity. We’re underweight in China and we’re looking for opportunities to reduce that underweight.”
Allspring anticipates that the wider emerging market set will soon emerge from the decade-long doldrums they’ve found themselves in. And while it hasn’t happened yet, valuation dispersion and institutional underweights give Tse some hope that a different dynamic will reign in the next decade.
We know that discounted valuations alone don’t argue for outperformance going forward; it’s really the valuation differential combined with the fact that we’re now hitting this inflection point for EM growth to DM growth that’s starting to expand,” Tse says.
“Add to that the fact that EM is very under-owned by global institutional investors. The current allocation to ACWI is about six per cent, whereas neutral is about 11.5 per cent – so investors are half-weighted. Ten years ago those figures stood at nine and 10 per cent respectively. That really shows how negative sentiment has been towards EM – so we’re very constructive.”
