Chart of the month: Asia, the alpha opportunity

Asia: the alpha opportunity

 

Source: Morgan Stanley Fund Services, MSCI

 

Since the onset of COVID-19, dispersion in the US and Asia has significantly increased, with Asia continuing to show higher levels. This accounts for the superior performance of Long/Short strategies in recent years, especially in Asia, where there are more opportunities to go long on high performers and short underperformers, allowing these strategies materialize in stock returns.

Over the past decade, Asia’s expanding market size, liquidity, and sector depth have led to a greater diversity in returns, providing an often-overlooked source of alpha opportunities. Many stocks remain under-researched or misunderstood due to local barriers such as language, culture, and regulations. Historically, Asia was seen as a growth market, with cyclical foreign investor flows mainly chasing market beta. However, Asian markets are now evolving into a diverse investment landscape, where fundamental stock selection is becoming increasingly rewarding.

The return composition of Asian equities is becoming more alpha-driven, with stock selection playing an increasing critical role. This is essential in an environment where performance bifurcation within industries has become more pronounced. Following a period of systematic beta decline, markets are now finding strong support levels. Concurrently, improved policy clarity and stability in the economy are boosting confidence in stock selection, allowing investors to focus more on fundamentals rather than tail-end events.

Our strategy: the equity Long/Short multi-manager approach offers the right diversification for investors looking to reallocate capital to the region. Managers have been performing well this year. Since we began investing in the region, we’ve had the opportunity to allocate capital to managers who have successfully protected capital during downturns while generating strong returns in rising markets, benefiting from good asymmetric returns.

The regional market structure is shifting from beta-driven to alpha-driven opportunities. To capitalize on this, we must quickly adapt to the new investment environment with an agile approach. Managers using a Variable Net hedge fund approach provide the necessary flexibility. Overall, we favor active investments over passive ones. Passive investments, such as ETFs, fail to capture the new economic trends, while active long-only funds are less dynamic in adjusting exposure to the right sectors to seize market opportunities.

 

 

 

 

 

Past performance is not indicative of future results. The views, strategies and financial instruments described in this document may not be suitable for all investors. Opinions expressed are current opinions as of date(s) appearing in this material only. References to market or composite indices, benchmarks or other measures of relative market performance over a specified period of time are provided for your information only. NS Partners provides no warranty and makes no representation of any kind whatsoever regarding the accuracy and completeness of any data, including financial market data, quotes, research notes or other financial instrument referred to in this document. This document does not constitute an offer or solicitation to any person in any jurisdiction in which such offer or solicitation is not authorized or to any person to whom it would be unlawful to make such offer or solicitation. Any reference in this document to specific securities and issuers are for illustrative purposes only, and should not be interpreted as recommendations to purchase or sell those securities. References in this document to investment funds that have not been registered with the FINMA cannot be distributed in or from Switzerland except to certain categories of eligible investors. Some of the entities of the NS Partners Group or its clients may hold a position in the financial instruments of any issuer discussed herein, or act as advisor to any such issuer.  Additional information is available on request.
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The sun is rising in the land of the Rising Sun

Rising Sun – Konnichiwa from Tokyo.

From left to right: Raymond A. Kahn, Paolo Faraone, Girolamo Salice, Akemi Kito

Thanks to PWC Japan for having hosted us to the AIMA Forum Japan 2018.

Refreshing speech from Koike Yuriko, Meyor of Tokyo, who highlighted the efforts to revive Tokyo as the Asian main Financial Hub (free access to office spaces, free license and English speakers support to Fintech start-up, fast tracked licenses to Foreign Entities, all administrative papers in English and massive investment in infrastructures).

Focus on sound Corporate Governance, Cryptocurrency, Opportunities for Foreign Asset Managers and Venture Capitalists amongst the main topics discussed at the conference. Q1 2018 AuM in Investment Funds, exceeded the overall 2017 AuM.

Notz Stucki Europe renews its uncompromising commitment to Japanese and Japanese based Managers in supporting European and off-shore fund set-ups and fund raising initiatives.

Asian hedge funds have held their ground

Asian Hedge Funds

Investing in Asia has always been fraught with dangers but also opportunities. For anyone following the markets of late, it’s been impossible not to formulate an opinion on China: everything from the meltdown in the A share market, to the slowdown of the economy, to the potential bubble in credit and devaluation of the yuan has rocked the markets worldwide. That being said, it’s a vibrant region, full of industrious people and as the second economy in the world, it is now impossible to avoid. The main issue has been the volatility (compounded by the general underperformance of all things EM) and since it’s been very hard from Europe to time the market, the idea was to find a way to maintain an allocation to the area but through local talent that can help us navigate these markets. Having gone from crisis to crisis with deeper drawdowns than what we usually see in the West, it must be said that Asian hedge fund managers are used to dealing with this kind volatility and, of late, have done better than their counterparts elsewhere.

To this effect, we have worked with Arowana Asset Management in Hong Kong that run our Luxembourg based fund in the region. Not only have they been able to give us exposure to the risk adjusted returns we would expect from hedge funds in the region, they have also picked the right managers. In what was far from being a supportive market environment for investors in the past 5 years (the MSCI Asia was -1.14% and the HSCEI -24.35%), the fund registered a positive double digit performance with the third of the volatility of the market, confirming our belief that fund managers in Asia can add a lot of value to investors.

Past performance is not indicative of future results. This article does not constitute an offer or solicitation to any person in any jurisdiction in which such offer or solicitation is not authorized or to any person to whom it would be unlawful to make such offer or solicitation.