Stocks to maintain edge over bonds

NSTPress: THE recent wobbly stretch in both stocks and bonds may persist for the short term if the United States Federal Reserve (Fed) this week lives up to expectations and signals the days of near-zero interest rates are numbered, but it is unlikely to tip valuation scales in favour of bonds any time soon.

Anxiety over the two-day Fed policy meeting, centred on expectations the central bank will likely drop its pledge to keep interest rates low for a “considerable time”, was a primary driver behind stocks snapping a five-week winning streak last week and bonds absorbing their steepest losses in at least two months.

Top economists at several firms say they see at least even odds the Fed will nix the phrase from its forward guidance, which some traders may interpret as meaning that rate hikes could come as early as next March.

“If investors feel the Fed is becoming more hawkish, that’s actually a negative for all asset classes with the exception of the dollar,” said Chris Gaffney, senior market strategist at EverBank Wealth Management in St Louis, Missouri.

Still, few expect such a move would translate immediately into a long-term change in investors’ bullish view of stocks, especially relative to bonds.

To be sure, signs of sooner-than-expected interest rate hikes could chip away at investors’ optimistic view of stocks, which scaled to new heights in no small part thanks to the Fed’s quantitative easing programme and decision to hold interest rates near zero per cent for nearly six years now.

But with bond yields still extraordinarily low by historic standards, and unlikely to rise drastically, many investors see equities as one of their few prospects for long-term growth.

Market watchers say it is unlikely the prospect of interest rate hikes will significantly dampen investors’ taste for stocks or prompt a large-scale reallocation of funds into bonds.

“There’s no doubt that there will be some volatility in the short term, but at some point equilibrium will come into the market,” said Quincy Krosby, market strategist at Prudential Financial in Newark, New Jersey.

While measures such as the forward price-to-earnings ratio on the S&P 500 suggest stocks are their priciest in nearly a decade, other measures of relative valuation to bonds remain skewed in favour of equities.

The S&P’s so-called earnings yield, the inverse of the price/earnings ratio and a common yard stick for comparing equity valuations against bonds, is roughly 6.3 per cent. That is 3.7 percentage points higher than the 10-year Treasury yield, currently 2.6 per cent, whereas the long-term spread between the two is about 1.5 percentage points.

When measured against corporate junk bonds, the bond market’s biggest competitor to stocks for asset flow, valuation math is tilted even more heavily in favour of equities. The average yield to maturity on junk bonds is just 6.3 per cent, according to Bank of America/Merrill Lynch fixed income index data, but the long-term average junk yield is 9.4 per cent.

Moreover, US corporate earnings are projected to resume double-digit growth in coming quarters, according to Thomson Reuters data, which would keep a lid on P/E multiple expansion, perhaps even compress it if profit growth outpaces stock price increases.

That suggests stocks remain the better bet for returns, at least until interest rates rise significantly enough to return relative valuation measures between the two to historic norms.

In the current market environment, “there’s not really a better alternative to stocks right now”, says Gaffney. Reuters

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Asset managers: Further upheavals expected within next decade

TheEdge

KUALA LUMPUR: The worst of the current economic crisis may be over in 2010 but asset managers have not ruled out further upheavals within the next decade.

According to a survey on 225 asset managers in 30 countries carried out by Principal Global Investors, most respondents do not rule out more systemic crises in the next decade. It said the scale of recent economic stimulus in G20 countries was expected to stoke inflation.

“We are not completely out of the credit crunch yet. Getting credit going is the key initiative for central banks for the next year. They have been flooding the market with liquidity in hope of getting credit moving again.

“But a lot of times, this is just simply liquidity. It is not generating new credit. And there is recognition that credit is a necessary evil in the economy,” COO of Principal Global Investors Barbara McKenzie said at a CIMB Principal Asset Management Bhd media briefing yesterday.

She added that until the market could get back on its feet again, it would continue to need access to credit and thus more government aid.

NEW CREDIT NEEDED TO FUEL ECONOMY... Markets need access to credit until they get back on their feet again, says Principal Global Investors COO Barbara McKenzie (right) at CIMB-Principal Asset Management Bhd media briefing in Kuala Lumpur yesterday. Also present were CIMB-Principal Asset Management chief executive Datuk Noripah Kamso (left) and Principal Global Investors (S) Ltd MD for Asia ex Japan Kirk West. Photo by Suhaimi Yusuf

The survey also found that 45% of its respondents did not expect the worst of the crisis to be over till the first half of next year while 25% expected it to be even later.

The 225 asset managers and pension funds surveyed were responsible for collective assets worth US$18.2 trillion (RM63.9 trillion) as at April 2009.

“We are now primarily driven by retail industries locally, significant fiscal stimulus and low interest rates. All these will naturally fade.

“However, the stimulus will eventually have to be removed and the key timing to withdraw this stimulus and how it is removed are important to consider as we are juggling between growth and potential inflation.

“But that will be in the second half of 2010,” Principal Global Investors (S) Ltd managing director for Asia ex Japan, Kirk West said.

On the survey findings, West added that although it was carried out during “the eye of the storm”, the results could be used to study investor behaviour moving forward.

“People have lost confidence in a lot of the longer-term growth assets. The whole concept of equity risk premium has made people feel uncomfortable. They will now be looking at increased liquidity.

“Several things eroded investor confidence during the crisis, especially the fact that diversification of assets hasn’t worked in the short term because of deleveraging. Going forward, however, we still believe in diversification,” said West.

He added that asset managers also expected further regulatory pressures to intensify over the next three years which may result in fee compression.

Consequently, West said a majority of firms had shown a significant revenue decline of 35%.

“One of the key issues we’ve seen in the last 12 months is compensation within the finance industry. We expect one outcome will be greater alignment in terms of compensation. So, maybe people will have lower fixed compensation, and a higher component of variable compensation and this will be more aligned with the performance of the underlying funds,” he said.

McKenzie said there was already a movement of money away from some of the traditional hedge funds centre that had light regulations to other offshore jurisdictions with higher regulatory standard as investors started understanding a need for greater regulation post crisis.

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Singapore's UOB Asset, India's UTI in funds tie-up

BusinessTimes

SINGAPORE: Singapore's United Overseas Bank (UOB) said yesterday its fund management arm has formed an alliance with a unit of India's UTI Asset Management to jointly launch and distribute mutual funds.

"The first initiative of the alliance is an equity fund that both parties have jointly developed," UOB Asset Management (UOBAM) said in a statement.

"The features of the fund will be announced at a later date."

UOBAM manages about S$13.5 billion (S$1 = RM2.44) in assets and has business operations in Singapore, Brunei, Japan, Malaysia, Taiwan and Thailand.

Its partner UTI International (Singapore) is a joint venture involving India's largest mutual fund company UTI, Shinsei Investments and another company.

UTI manages around US$15 billion (US$1 = RM3.51) and its funds are distributed in 450 of India's 620 districts, UOBAM said. - Reuters

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Global fund managers sees recovery this year: Survey

BusinessTimes

GLOBAL fund managers are optimistic that markets in most regions will begin to recover this year, according to a survey by consulting firm Watson Wyatt.

The fund managers, who collectively have assets under management of over US$10 trillion (US$1 = RM3.57), indicate that the period of recovery in most markets will be protracted.

They believe that the influence of hedge funds and investment banks will decline significantly while that of pension and sovereign funds will rise.

The respondents also expect to see their institutional clients opting for more conservative investment strategies as well as prioritising greater risk control.

"The views expressed by this influential group give us some valuable insights and should inform how, why and when key investment decisions are made," Carl Hess, Watson Wyatt global head of investment consulting, said in a press statement released in Washington.

According to the survey, which was conducted at the end of 2008, managers have overall bullish views of returns on public equities, investment grade bonds, high yield bonds and emerging markets over the next five years.

However, they hold fairly bearish views of returns on hedge funds, government bonds, money market and real estate during the same period. They remain generally neutral on private equities and currencies.

On equities, respondents expect stock markets to revert to historical return levels by 2012, while projections about returns in 2009 vary significantly by region.

According to the median view of respondents, the anticipated returns on global equities in 2009 is 6.7 per cent, with the US, the UK, eurozone, Australian, Japanese and other Asian equity markets are expected to deliver 8.8 per cent, five per cent, 5.5 per cent, eight per cent, 5 per cent and 10 per cent, respectively.

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Crisis offsets Islamic fund management 2008 gains

TheEdge

LONDON: Market volatility wiped out all the asset gains made by the Islamic fund management industry in the year to September 2008, research and data provider Cerulli Associates said on Wednesday.

Islamic or syariah-compliant funds posted an 8% increase in the year to September 2008, due to new investments and returns on assets, Cerulli said. But assets were likely to have fallen to 2007 levels or even further by the end of last year, its report based on a sample of global asset managers said.

Syariah-compliant fund managers had assets of US$65 billion (RM227.5 billion) at the end of the third quarter 2008, including assets managed via discretionary mandates for institutions and high net-worth individuals and mutual funds.

The Boston-based company said Islamic-compliant equity investments performed like their conventional counterparts, while sukuk or Islamic bonds remained “rare” due to the illiquidity and scarcity of the underlying securities.

Once markets stabilised this industry could potentially expand at a rate of above 10% a year, driven by the large amount of Islamic bank deposits and increased regulatory support from governments, the report said.

Islamic mutual funds alone accounted for US$35 billion — up from US$23.2 billion gathered in 2005. — Reuters

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Hedge funds lose US$100b on investor withdrawals

TheEdge

TOKYO: The global hedge fund industry lost US$100 billion (RM360 billion) of assets in October, according to an estimate from Eurekahedge Pte, as firms including Sparx Group Co and Man Group plc were hammered by investor redemptions.

Funds fell an average 3.3%, based on preliminary figures from the Singapore-based data provider, as measured by the Eurekahedge Hedge Fund Index, which tracks the performance of more than 2,000 funds that invest globally. That compares with a 19% slide in the MSCI World Index last month.

The biggest market losses since the Great Depression and investor withdrawals hurt the US$1.7 trillion hedge funds industry that manages largely unregulated pools of capital. The index of global funds has lost 11% this year, set for the worst performance since 2000 when Eurekahedge began tracking the data.

“This wave of redemption in the hedge fund industry is going to last for at least another six months,” said Toyomi Kusano, president of Kusano Global Frontier, a hedge fund research firm here. “There are some funds that halted withdrawals, but those funds would eventually have to defreeze, and that means another wave of redemptions.”

Earlier this week, Sparx Group Co, Asia’s biggest hedge-fund manager with US$8.5 billion in assets, posted a first-half loss on redemptions and falling stock prices. Its assets under management on a preliminary basis were 839.1 billion yen (US$8.8 billion or RM31.68 billion) as of Oct 31, compared with a peak of 2 trillion yen in August 2006.

London-based Man Group, the largest publicly traded hedge-fund manager, reported assets under management, which stood at US$70.3 billion as of Sept 30, fell to US$61 billion at the beginning of November, the least since March 2007.

“As both hedge fund managers and fund of funds scramble to meet client redemptions, one thing is clear: the industry is going to shrink substantially over the coming months, perhaps as much as 50% in terms of both assets under management and number of funds,” said Kostas Iordanidis, head of hedge funds at Geneva-based Unigestion Holding SA, which invests US$3.2 billion in hedge funds worldwide.

Unigestion is investing in macro and commodity trading advisers, or CTA, funds, avoiding equity long-short portfolios, Iordanidis said.

Assets in Singapore-based Tantallon Capital’s flagship Tantallon Fund shrank to US$284 million at the end of October, according to data compiled by Bloomberg. The fund, managed by Nicholas Harbinson, a Tantallon co-founder and former Merrill Lynch & Co. head of sales, stood at US$877 million at the end of August, from as much as US$1.5 billion at the start of the year.

Still, hedge funds have outperformed relative to the MSCI World Index that has lost 46% this year. In October, managers who trade futures, or CTAs, and those who invest in Japan helped offset declines, Eurekahedge said.

In terms of regional mandates, the Eurekahedge Japan Hedge Fund Index was the best performer, declining 0.8% last month, even as the benchmark Topix index slid 20%, the firm said. Trades that involved selling regional stocks and took advantage of currency moves helped stem losses, Eurekahedge said. The yen strengthened more than 7% against the dollar in October, the biggest gain since October 1998.

Among Japan funds, the 2.7 billion yen Sparx Japan Stocks Long Short Fund, also known as “Best Alpha,” declined 2.2%t in October, according to monthly data posted on the company’s Web site.

The Eurekahedge Asian Hedge Fund Index lost 4.3%. Singapore-based Tantallon’s long-short fund, which seeks to profit from both gains and declines in stock prices, fell 28.6% this year through October. It was up 0.59% last month, Bloomberg data show.

“Although we are seeing and we will see attrition amongst Asian funds, it is unlikely to be as bad as the more developed markets,” said Peter Douglas, principal of Singapore-based hedge-fund consulting firm GFIA Pte, citing the cost of running a hedge fund in the region.

US hedge-fund managers may lose 15% of assets to withdrawals by year-end while their European rivals shed as much as 25%, Huw van Steenis, a Morgan Stanley analyst in London, wrote last month in a report to clients. Combined with investment losses, industry assets may shrink to US$1.3 trillion, a 32% drop from the peak in June.

The Eurekahedge North American Hedge Fund Index fell 4 percent, the firm said, while the index tracking Eastern Europe and Russia was the worst performer with a slide of 16%. The Eurekahedge European Hedge Fund Index slid 6.8%, while the measure tracking Latin American funds declined 4%, the data provider said.

Millennium Global Investments Ltd., the $14 billion firm founded by former Goldman Sachs Group Inc executive Michael Huttman, is planning to limit withdrawals from its US$600 million high-yield bond hedge fund after investors asked to pull more than a quarter of their money.

By strategy, CTA funds outperformed, with average gains of 6.2% as managers exploited directional trends in the commodity and currency markets, the firm said. Similar trades also helped boost the performance of so-called macro-fund managers, who wager on trends in stocks, bonds and currencies worldwide, Eurekahedge said.

Among macro funds, Astmax Commodity Global Macro Fund, run by former Sumitomo Corp. copper trader Tetsu Emori, rose 2.6% last month. The 1.4 billion yen fund takes long and short positions in global commodity markets.

The preliminary figures were based on 41.5% of the funds reporting their October 2008 returns as of Nov 12, Eurekahedge said. For CTA managers, the performance figures were based on 60% of the funds reporting, it said. - Bloomberg

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Fund buys Shangri-La shares

BusinessTimes

ABERDEEN Asset Management has emerged as a substantial shareholder of Shangri-La Hotels (Malaysia) Bhd.

The Scottish fund manager bought 22 million shares or five per cent of the hotel operator on November 5, a filing to Bursa Malaysia said.


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Asian markets fragile, but worst may be over for now

TheEdge

HONG KONG: Concerted action by governments globally to shore up the financial system may have signalled the worst is over for emerging Asia's most battered markets for now, but they are likely to remain volatile given still fragile investor sentiment, a Reuters poll shows.

The poll forecasts gains for South Korean and Indian equities by the end of the year, but it sees little upside for their currencies as weaker trade flows and the countries' respective current account deficits will weigh.

India's benchmark stock index, which has plunged more than 43% so far this year, is poised to recover more than 15% by the end of 2008 from Tuesday's closing level to reach 13,250, according to the poll.

"The valuations are extremely compelling at this point of time," said Rajen Shah, chief investment officer of Angel Broking in Mumbai.

"We see Sensex scaling to 21,000 over three years. Our exports to GDP ratio is relatively lower than countries like China, which implies the global turmoil could impact it less in relative terms," Shah said.

Analysts forecast a 10% gain for South Korea's stock market between Tuesday's close and the end of the year, taking the benchmark Kospi to 1,500 points.

That's well off last year's all-time high of 2,085 points.

Asian equities have picked up this week after European governments pledged bank guarantees and equity stakes in banks at the weekend and the United States followed suit on Tuesday.

While heavy selling in recent weeks offers the chance to scoop up Asian blue chips at reasonable prices, investors will continue to fret about the broader economic impact of the US-led global credit crisis, and a possible global recession, analysts said. "Slower global growth will impact exports across the region," said Patrick Bennett, foreign exchange strategist at Societe Generale in Hong Kong.

The prospect of weakening economic growth next year means there won't be much of a recovery in Asian currencies, if any. The poll forecast the Indian rupee - which hit a record low of 49.3 last week - would be at 47.63 by the end of December. That would be within Tuesday's trading range of 48.09 to 47.59.

The South Korean won, which was trading at 1,233 to the dollar early on Wednesday, is forecast at 1,200 by year-end.

Weakening demand in Western markets for Asian goods is already destroying the idea that Asia can "decouple" from an economic downturn in Europe and the United States. Goldman Sachs this week slashed its forecasts for GDP growth in Asia ex-Japan to 7.6% for this year and 6.7% in 2009, from 7.8% and 7.2% respectively.

While those are growth rates Western nations can only dream of, Asia's financial markets, and fund flows, will be influenced by reduced American and European spending and earning power, analysts say.

Indonesia's large domestic sector offers its economy some protection from a possible global economic slump but it will not be immune. Analysts said their forecasts for Indonesia's equity market had gone out the window as the outlook was too uncertain given the markets large foreign shareholdings and highly volatile foreign fund flows.

"We are concerned that earnings forecasts are way too high, so that raises some concerns," said Tim Rocks, equity strategist at Macquarie in Hong Kong. "Indonesia is not one of our favourite markets." - Reuters

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Hong Kong to tighten rules on fund managers

TheStar

HONG KONG: Hong Kong said yesterday it would tighten regulation on fund managers to better protect investors and is considering a protection fund for insurance policy holders in the wake of the global financial crisis.

Chief executive Donald Tsang, in his annual policy address, said the territory would review the code on unit trusts and the disclosure of information by mutual fund distributors to investors.

The government was also considering establishing a protection fund for insurance policyholders and intends to set up an independent insurance authority to promote stability in the insurance industry.

“Risk management has become more important than ever to our financial system,” Tsang said in his speech to legislators, referring to the global financial crisis which he said would have a much bigger impact than the Asian financial crisis a decade ago.

Hong Kong’s financial infrastructure was more robust than 10 years ago, he said.

Thousands of Hong Kong investors, however, recently suffered losses on credit-linked notes, known as mini-bonds, issued by collapsed US investment bank Lehman Brothers. They are seeking compensation from banks that sold the bonds, but the government has said the investors are unlikely to get back all their money.

Guy Ellis, a partner at accountancy PricewaterhouseCoopers, said he welcomed Tsang’s announcement to tighten regulation on mutual fund sales and protect insurance policyholders.

“These are good things to do at this time,” Ellis said. “Whether they will indeed protect investors remains to be seen. We don’t have the details of what he is proposing. But any measures to protect investors against inappropriate products is a concept one would support.”

The Hong Kong Monetary Authority has eased credit conditions for local banks as a result of the global credit crisis. On Tuesday, it also announced it would guarantee all customer bank deposits for two years and set up a fund to provide standby capital to local banks, if necessary. €” Reuters

Tsang said the HKMA would strengthen supervision of liquidity risk management for authorised institutions, and revise the methodology for calculating capital adequacy ratios in accordance with the Bank for International Settlements’ latest guidelines.

The central bank would also strengthen stress tests, capital planning and management of off-balance sheet exposures, he said.

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Manulife to enter Japan mutual fund market

TheEdge

TOKYO: Manulife Financial Corp, North America's No 2 life insurer, said it would enter the Japanese mutual fund business next month to tap the country's US$14 trillion (RM48.02 trillion) in household assets.

Manulife executives told an investor conference in Tokyo that it had obtained a licence for investment trusts, which are similar to mutual funds, and planned to launch global asset allocation products in October.

There is room for growth in Japan's mutual fund industry given that more than half of the country's household financial assets are in deposits earning close to no interest, compared with just 14% in the United States, Manulife said.

Mutual funds also make up a much larger portion of invested assets in the US than in Japan.

"That discrepancy doesn't really make sense and that difference is worth in a Japanese context hundreds of billions of dollars. So we would like to have a piece of that," Craig Bromley, executive vice president and general manager Japan, told the conference. -- Reuters

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Global funds opt for cash, bonds: Survey

BusinessTimes

HONG KONG: Fund houses managing US$4.2 trillion (US$1 = RM3.45) of investments turned negative on global stock markets heading into the third quarter, opting for higher exposure to safe-haven cash and bonds, according to a survey by HSBC released yesterday.

The survey of 12 international fund managers taken in early August, including the bank's own HSBC Global Asset Management unit, found the firms were hit by US$28.5 billion in net outflows in the second quarter, with investors yanking an estimated US$50 billion out of equity funds.

The outflows from equity funds were partly offset by net inflows of US$15 billion into balanced funds and US$11 billion into money funds, the survey found.

Asked what asset allocation strategy they would adopt in the third quarter, 44 per cent of managers said they were underweight equities, up from 10 per cent in the previous quarter. Just 22 per cent were overweight and 33 per cent were neutral.

By comparison, no managers surveyed were underweight cash or bonds. Some 44 per cent were overweight bonds, up from 20 per cent in the previous quarter, and 38 per cent were overweight cash, up from 30 per cent.

Funds investing in Asia-Pacific markets outside of Japan were hit particularly hard by redemptions in the second quarter, posting an estimated net outflow equivalent to 20 per cent of sector funds under management. This compared with net inflows in the previous quarter.

Fund managers participating in the survey included AllianceBernstein, Allianz SE, Baring Asset Management, Deutsche Bank, Fidelity Investment Management and Franklin Resources Inc.

Invesco, Investec Asset Management, JPMorgan Chase & Co's JF Asset Management, Schroders plc and Societe Generale also participated. - Reuters

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Malaysia 'attractive' but fund managers wary

BusinessTimes

Although Malaysia market valuations are very reasonable now, the outlook remains uncertain given the political uncertainties, says a Hong Kong fund manager

FOREIGN fund managers are continuing to cut their exposure in Malaysia, with most saying that while the economic fundamentals remain relatively sound, the political outlook is a big concern.

"Malaysia actually remains a pretty attractive market, but the recent political uncertainties make people like us hesitant to invest," said a fund manager from Hong Kong whose company manages some US$5 billion (RM16 billion) in the region, of which about "several hundred million" has been invested in Malaysia.

Although market valuations are very reasonable now, the outlook remains uncertain, he added.

"It doesn't help that investors are not really going for emerging markets these days, so Malaysia is not necessarily a place people need to be in right now. There's a lot of money sitting on the sidelines," he said.

The market's key benchmark index, the Kuala Lumpur Composite Index (KLCI), has shed 20.5 per cent this year, making it the fourth worst-performing market in Southeast Asia, after Vietnam (-52.6 per cent), the Philippines (-28.2 per cent) and Thailand (-21.4 per cent).

The KLCI closed at 1,148.68 points yesterday.

Political stability has always been one of the reasons foreign investors had bought into Malaysia, and, with that now being questioned, there is bound to be some marginalisation, analysts said.

Several other foreign fund managers contacted by Business Times voiced concern that the government may be too distracted by recent political developments to carry out its job effectively, especially in the implementation of development projects.

"I would say politics is the single biggest thing weighing on the market. We have been a net seller since the general election (in March)," said another foreign fund manager, based in Malaysia.

Political concerns intensified months after the general election when former Deputy Prime Minister Datuk Seri Anwar Ibrahim, now the de facto opposition leader, voiced plans to topple the government by mid-September through parliamentary defections.

The loose opposition coalition, Pakatan Rakyat, currently has 82 of the 222 seats in Parliament.

Anwar is also set to contest a by-election in Permatang Pauh, Penang, after his wife, Datuk Seri Dr Wan Azizah Wan Ismail, stepped down from her parliamentary seat.

Fund managers were quick to add that in addition to political concerns, the market's poor performance was also caused by factors such as the expectations of slower economic and corporate earnings growth in the second half of the year.

Many, however, believed that were it not for the political developments, the stock market would do much better and could possibly outperform the region.

A recent Merrill Lynch fund manager survey on global emerging markets found that more fund managers had an "underweight" stance on Malaysia last month (56) compared to April (44).

In the same period, the number of those holding "overweight" positions fell to 13 from 22.

According to stock exchange operator Bursa Malaysia Bhd, foreign investors accounted for about 42 per cent of trading value in the market in the first half of the year, compared with 37 per cent in the whole of 2007.

But in terms of foreign ownership, it was in the "low 20s per cent", compared to the "mid to high 20s per cent" last year, Bursa Malaysia chief executive officer Datuk Yusli Mohamed Yusoff had said.

Analysts said they did not expect political noise in the country to die down anytime soon. They believed the "last milestone" would probably be the Umno party elections in December.

"We see no quick resolution to the increasingly fragile political backdrop in the near term," Deutsche Bank said in a report early last month. It expects the KLCI to fall to 1,060 by the end of the year.

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RM1bil water fund launched

TheStar

KUALA LUMPUR: AmInvestment Bank Group and Singapore-based Konzen Group have jointly launched a RM1bil pioneering water fund.

The fund, AmKonzen Asia Water Fund (AmKonzen AWF), is to capitalise on the booming water sector, primarily in China and South-East Asia. It will be managed by Singapore-based AmKonzen Water Investments Management Pte Ltd.

AmKonzen Water is a 50:50 joint-venture private equity fund management company between AmInvestment’s and Konzen Group’s unit Malaysian Ventures Management Inc Sdn Bhd and Konzen Capital Pte Ltd, respectively. – Bernama

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Asian economies in store for 'bleak time': Aberdeen

BusinessTimes

ASIAN economies are in store for a "bleak time" in the next 18 months as surging inflation erodes corporate earnings, Aberdeen Asset Management Asia Ltd said.

"The majority of companies are facing rising costs: rising property costs, rising wage costs, rising raw material or energy costs," said Aberdeen's Hugh Young, who helps manage US$47.8 billion in Asia from Singapore. "So margins are facing quite a squeeze this year."

Economies across the region are under threat as spiraling food and energy bills sap household and business budgets, and stoke inflation. China last week joined India, Malaysia, Indonesia and Pakistan in increasing fuel prices and reducing subsidies, touching US$139.89 a barrel on June 16.

"Our fear is this year you'll be seeing more and more of the term that we started to use at the beginning of the year, which is 'stagflation'," Young told reporters in Hong Kong.

"We're going to go through a period of far slower growth in Asia with a combination of far higher inflation."

Aberdeen forecasts "a tough year" for earnings growth in Asia, which will decline to about 7 per cent to 8 per cent, compared with an average of about 14 per cent in the past five to six years, Young said.

"Earnings will be coming down as the year progresses, rather than going up,'' he said. Inflation "is one of the major reasons that we're fairly cautious in our earnings estimates."

China Mobile Ltd and PetroChina Co have fallen out of Aberdeen's top 10 regional holdings, according to Young.

Stock Declines

China Mobile's 105 per cent jump in 2007 made it the fifth-biggest percentage gainer on Hong Kong's benchmark Hang Seng Index. The world's largest mobile-phone operator by users, has retreated 22 per cent this year. PetroChina, the nation's largest oil producer, has lost 26 per cent this year.

"We were progressively top-slicing them," Young said. "Now, looking back, we are rather comfortable that we did take money out of China as prices soared."

The MSCI China Index has slumped 26 per cent this year on concerns the government will step up measures to curb consumer prices. The nation's inflation climbed to 8.1 per cent in the first five months of 2008 from 4.8 per cent for all of 2007.

To counter rising prices, the central bank has required lenders to set aside a record amount of money for reserves this year after raising interest rates six times in 2007.

Some companies stand to benefit, such as Rio Tinto Group, the world's second-biggest iron-ore exporter. Rio is the "purest beneficiary" from rising inflation, he added.

China yesterday agreed to pay Rio at least 80 per cent more for iron-ore supplies. - Bloomberg

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German fund to invest more in Asia

TheStar

HONG KONG: German fund manager Union Investment Real Estate plans to invest up to four billion euros (US$6.21bil) in Asia over five years, hoping its drive for diversification will also give returns an extra kick.

German open-ended property funds, including those run by Union Investment, have been busy snapping up property abroad since a redemptions crisis forced them to sell many assets in their home market in 2005 and early 2006.

Union Investment opened an office in Singapore in 2006, and is keen to ramp up its investment in Asia from the current 600 million euros, according to its Asia head, Steffen Wolf.

Globally, the company has around 15 billion euros of assets under management.

“Asia is very much top of our priority list,” Wolf said in a telephone interview from Singapore. “We should be looking at between two and four billion euros over, say, five years.”

A pall was cast over Germany’s entire open-ended property funds industry in 2005 when attempts to correct inflated valuations of assets spurred thousands of investors to try to cash in investments before fund units were re-priced.

Deutsche Bank took the unprecedented step of freezing redemptions in its flagship GrundbesitzInvest fund, and funds managed by Germany’s biggest open-ended fund manager DekaBank were also hit.

But Wolf said Union Investment had seen more money flow into its funds in the last year, despite a global credit crunch that has weakened commercial property prices in several markets, including the United States and Britain.

“Investors are quite aware of our risk and return profile, and are shifting from stocks to safer alternatives – savings accounts, government bonds or property,” he said.

Union Investment’s funds, such as Unilmmo Global and Unilmmo Europa, usually give annual total returns of 46%, while its investments in Asia are giving 56%, according to Wolf.

Despite signs that the Tokyo office market is weakening, Japan tops the company’s list of favourite Asian markets, which also includes South Korea, Singapore and Malaysia. – Reuters


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Poll: Funds favour Russia

TheStar

LONDON: Fund managers are increasingly pessimistic about emerging equities, though three-quarters of investors surveyed have gone overweight Russia, a Merrill Lynch survey showed on Wednesday.

The monthly poll of 190 global fund managers found investors at their most risk-averse since April 2001, with 40% now underweight global stocks, as the six-month-old credit crisis stokes fears of a US recession and a global slowdown.

Global emerging market investors showed the highest level of pessimism on profits since the GEM survey began in 2007.

But the survey found a big rise in investor preference for Russia.

“GEM investors maintain large overweight positions in Russia and Brazil. Russia is favoured over Brazil for the first time in our (global emerging markets) survey,” Merrill said, adding that funds were underweight India and China, the two other legs of the so-called BRIC countries.

“What we have seen is the increase in overweight in Russia in the past two to three months and the main driving theme to us is that the government has got a large oil surplus,” said Michael Penn, global emerging equity strategist at Merrill Lynch.

Investor confidence in China's growth was also at an all-time low, the survey found. – Reuters

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Strong response to Gulf firm’s RM1b bonds

TheStar

PETALING JAYA: Gulf Investment Corp GSC's (GIC) two tranches of fixed rate bonds totalling RM1bil has been oversubscribed by an average 2.76 times.

The regional financial institution is owned by the six-member Gulf Cooperation Council.

In a joint statement, lead arranger ABN Amro Bank (M) Bhd together with joint lead managers and joint bookrunners RHB Investment Bank Bhd and Standard Chartered Bank Malaysia Bhd said the bonds would be issued on Feb 5.

The first tranche of RM600mil has a maturity of five years and a coupon rate of 3.98% while the second tranche of RM400mil has a maturity of 15 years and a coupon rate of 4.52%.

The banks said the bond issuance represented the first issue by a Middle Eastern multilateral institution in the ringgit debt market.

The bonds have been accorded the highest AAA rating while the company has been accorded a financial institutions rating of AAA/P1 with a stable outlook by RAM Rating Services Bhd.

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Insurers to reassure investors on subprime effects

BusinessTimes

LONDON: Leading insurers AIG, Allianz, ING and Swiss Re are likely to reassure investors this week they have not been badly affected by the subprime woes that have hit top investment banks.

Worries about the impact on insurers of the US subprime mortgage-related crisis have hit shares in the sector in recent weeks. But analysts expect their results, along with those of Munich Re and Aegon, will confirm the industry has been dealt only a glancing blow by the credit woes.

"The insurance results of the large continental European insurance and reinsurance companies should show few of the scars the banks have shown," Credit Suisse analysts wrote in a note.

Insurers have not invested heavily in the subprime-related investments that have caused banks so many problems. And where they are forced to write down the value of these assets, they are likely to have been offset by a corresponding rise in other assets they hold, such as government bonds, say analysts.

For JPMorgan analyst Michael Huttner, the results will divide insurers into two camps: "Those companies with very limited exposure to any part of the credit crunch, and those with some."

Insurers in the second camp are Allianz and ING, which both have banking subsidiaries, while AIG and Swiss Re have units that are exposed to the credit markets.

AIG, the world's largest insurer by market value, has been particularly hard hit by investor's subprime anxieties.

Its shares have lost a quarter of their value in recent months, reaching their lowest level on Friday since June 2005, as investors have sold on worries it may take a large subprime hit in its third quarter earnings next Wednesday.

AIG's wide range of businesses make it particularly exposed to the credit woes, with a unit insuring mortgage-lenders, a consumer finance arm and a financial products unit that could be hit, along with an investment portfolio containing more than US$1 trillion (US$1 = RM3.35) in assets.

AIG officials refused to comment ahead of its earnings, but point to statements made after its second quarter that it was comfortable with the size and quality of its investments.

Allianz and ING have also tried to soothe investor fears about the size of the knock they may take from their subprime-related assets.

Several analysts expect Allianz to take a hit somewhere between US$290 million and US$724 million, largely through its Dresdner banking unit.

But if Allianz were to take more severe action, slashing the value of Dresdner's 5.8 billion euros (1 euro = RM4.85 ) portfolio of super-senior CDOs in the manner of Merrill Lynch, that could lead to a far bigger writedown - perhaps as much as 1.8 billion euros, Merrill Lynch analyst Brian Shea said in a note.

ING said at an investor meeting in September it was not expecting any major hit to its credit portfolio, but a number of analysts have pencilled in a writedown, possibly running into the low hundreds of millions of euros, and say its wholesale banking unit may be hit by the prevailing headwinds.

But any subprime-related hit may be offset by a hefty capital gain from its stake in ABN Amro, analysts say.

Swiss Re has limited exposure in its assets but could see a hit to its unit that insures bond issuers and reinsures some of the big specialist bond insurers.

The writedowns Swiss Re and the other affected insurers may take next week are unlikely, however, to make anything more than a modest dent in their overall group earnings, analysts predict.

Earnings in their core life and non-life operations may be slowing but remain healthy, with strong demand for life products in markets such as Asia and central and eastern Europe, while there have been little in the way of catastrophe losses in the past three months. - Reuters


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China plans to launch REITs on Shanghai bourse

BusinessTimes

BEIJING: China plans to launch real estate investment trusts (REITs) on the Shanghai Stock Exchange as part of a move to provide more financial products to investors, a senior official said yesterday.

Zhu Congjiu, general manager of the Shanghai Stock Exchange, did not specify when the REITs would come to market.

But he told a financial forum that his office was planning to launch some REIT products to let more investors reap gains from China's soaring property prices.

REITs are a cross between bonds and equities, with regular dividends and capital appreciation gains. They invest in real estate directly, either through properties or mortgages, and can be sold like stocks on major exchanges.

"There is huge potential for REITs in a big and rapidly developing country like China," Zhu said.
He also said his office would consider opening an international board for foreign firms to sell shares in China.

"Some institutions have suggested we open such a board and there is also great demand for it. We will actively study it and launch it when the conditions are ripe," he said. - Reuters

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Emerging equity funds absorb US$5bil

TheStar

LONDON: Emerging equity funds absorbed US$5.21bil last week, bringing the six-week inflow tally to US$18.9bil as money continues to rotate out of developed market funds, consultancy EPFR Global said late on Friday.

In the first nine months this year, global emerging market funds received net inflows of US$3.3bil, slightly less than in the same period last year while ex-Japan Asia and Latin America saw net inflows of US$9.7bil and US$8.2bil respectively.

In case of Latam, this is four times the net amount received in the first nine months of 2006.
In contrast, funds geared to the United States, Japan and Western Europe all posted net outflows in the January–September period, EPFR data show.

The consultancy said Japanese and European equity funds were hit with sizeable redemptions again last week while global bond funds posted net outflows for the ninth week in a row, losing US$4.58bil in the past nine weeks. – Reuters

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