Allianz Global Investors' annual conference in Berlin saw it deliver an upbeat prognosis for Asia relative to Europe, in absolute terms and across most asset classes.
Allianz Global Investors’ annual conference in Berlin saw it deliver an upbeat prognosis for Asia relative to Europe, in absolute terms and across most asset classes.
Global CIO Andreas Utermann (pictured) told the conference of Asia’s macro advantages over the West: lower private and sovereign debt; greater thrift; stronger currencies; often superior demographics; and dividend yields often higher than debts, with scope for growth. AGI has funds tapping into such themes in Asia, he added.
Raymond Chan, AGI’s Asia Pacific CIO, said it was crucial to have local presence in emerging markets and be “close to policy makers, and understand the economic policies rather than the politics”.
He told delegates: “Whether in China or Thailand or Indonesia, politics will drive volatility, but the key to drive markets is fundamentals.”
Focusing on earnings productivity growth and valuations, not on general economic growth, lies at the heart of EM investing, Chan said. “But one must live with the volatility because Asian markets are still very much exposed to global growth and fund flows. But if you pay close attention to valuations, you will still make money.”
Chan said, in each crisis since 2008, Asian equity falls had become less severe – to 1 times in 1998; but to 1.2 times in 2008; then to about 1.5 times last year, as companies improved profitability and fundamentals.
He added: “With P/E valuations at under ten times, this is a once-in-a-lifetime opportunity in China.”
Utermann expected the renminbi to rival the dollar as global reserve by 2022: “Major exporters like Germany, Korea and Japan all start with significantly undervalued exchange rates, and end significantly overvalued – so there is still tremendous scope for revaluing the renminbi.”
Chan predicted New York could be targeted by Beijing as a next global trading centre for its currency, after Hong Kong and London.
Helen Lam, senior portfolio manager, renminbi and fixed income strategies, said Beijing officials wanted to manage expectations of renminbi appreciation, “to avoid it becoming a speculative currency”. This threatened to happen last year when various ‘Dim Sum’ bond funds were launched from Europe.
Lam predicted 2% to 3% appreciation in 2012, driven by China’s more domestically driven economy and the currency’s globalisation. She said more than 18 global centres had signed bilateral swap agreements with China for cross-border renminbi settlement, “and there is room for expansion, as China is developing the international payment system and allowing banks to be connected to the international clearing system”.
She added: “We are entering a different phase of the appreciation cycle with the pace slower than before.”
David Tan, head of investments at AGI Singapore, pointed to regional strength of $5.3trn of foreign exchange reserves, including $3.3trn in China alone.
Eugen Loeffler, CIO fixed income Asia-Pacific, said Asian bonds deserved greater recognition. East Asia represented 20% of global GDP; almost 80% of the HSBC Asian Local Currency Bond Index is investment grade (S&P ratings); and the region’s governments currently sit on an average of one-year’s worth of foreign currency reserves, compared to three months after the Asian crisis.