Asian markets need to come to terms with the realisation that tight credit, fund outflows, stagnant exports and falling aggregate foreign direct investment are here to stay, said Seres Asset Management chief investment officer Evan Erlanson.
“For at least the next 12 months, we do not anticipate a return to highly correlated Asian markets driven by shifts in top-down market sentiment,” Mr Erlanson said.
“Investors will therefore need to seek particular themes that take advantage of the changing dynamics and opportunities in the region,” he said.
Seres is currently interested in online advertising and the south east Asian automotive supply chain, which it believes presents attractive longer-term upside.
A number of markets, particularly those in emerging economies, may find the next few years challenging, Mr Erlanson said.
“Many Asian market commentators are basing their relatively positive outlooks for 2014 on three main beliefs – that global trade will recover; that there will be a managed credit contraction in China; and that developed market currencies will continue to outperform emerging market currencies (except for China and Japan),” he said.
“However, these three beliefs do not take into account the fact that trends experienced in 2013, such as tight credit and stagnant exports, are not temporary aberrations but part of a broader shift in emerging market growth models.”
The boutique asset manager – which specialises in Asian equities through hedged funds – believes faith in a recovery in global trade is misplaced, while any outperformance in developed market currencies will have little bearing on stock prices in emerging Asia or China.
“In addition, regardless of how well managed or gradual the credit contraction is in China, it will not necessarily help China-related stocks,” Mr Erlanson said.
Seres is instead focusing on three emerging trends that could lead to a rapid change for Asian markets and stocks: the Trans-Atlantic Free Trade Agreement (TAFTA), Japan’s political engagement in the region, and Asian credit contraction.
