Investors stay calm and take stock

Despite slight rebound, regional players seem to have learned lessons, writesJohn Cremer

PUBLISHED : Monday, 17 September, 2012, 12:00am
UPDATED : Monday, 17 September, 2012, 8:49am

Asian investors who have struggled to keep pace with news about Brazil, Russia, India, China and South Africa, fiscal cliffs, a possible euro break-up - and what it means for their money - can at least breathe easier for a while.

The summer holidays have shown once again that economic life carries on when the politicians and policy makers are out of town. And, without the summits, speculation and scare tactics, investors can put distractions to one side and focus on the fundamentals.

"The current relatively benign risk environment should continue in the short term," says Olivier d'Assier, Asia-Pacific managing director for Axioma, whose products help fund managers analyse risk and rebalance investment portfolios. "Volatility across all style factors, as well as in the defensive sectors, is at a low."

His observations are based on comparative findings from the firm's latest "Asia market insight" report.

This shows that, despite a slight rebound in August, trading volumes remain well below their six-month average. The interpretation is that investors have learned the lessons of the past few years.

Now, they are looking for the surer returns of high-yield bonds and Exchange Traded Funds (ETFs). They are more likely to take cues from regional news rather than overseas market action. And they are content to seek safety on the sidelines when lacking a compelling reason to plough money into stocks. "In general, people have a lot less at stake right now [in equity markets], so they are calmer about news coming out of the United States and Europe," d'Assier says. "People are comfortable leaving what they have in the market because they have rebalanced into other assets like bonds, fixed-income ETFs and hedge funds."

On average, he says, investor portfolios have 18 per cent in cash, waiting for opportunities. As always, there is a broad expectation that, at some point, markets will see a sustained rally, even those already near historic highs.

In part, that optimism stems from the view that Europe's governments and bankers are now focused on finding lasting solutions to the euro-zone crisis. There are, also, clear signs that Asian investors are prepared to take "rational" risks, cherry-picking stocks with mid- to long-term potential.

"That is just what you expect from a more rational environment," d'Assier says. "Stock-picking will continue to be a profitable strategy."

Consumer cycles are expected to remain out of favour until macro forecasts paint a brighter picture, and the banking, financial and technology sectors are still seen among the biggest contributors to market risk. "In the next three months, investors should be able to focus on positives more than negatives," d'Assier says. "But leadership transitions in both China and the US, plus heightened debate about the US fiscal cliff, could weigh on investor sentiment."