By Aradhna Dayal
What a difference a
few weeks can make. The advent of spring has not only resulted
in sunny skies and flowers all around in multi-coloured hues,
but also seems to have brought a certain cheer to the Asian
hedge fund land. As if taking their cue from nature, markets
are rallying once more and macro clouds seem to have cleared up
slightly. Worries on the Eurozone crisis eased in the early
part of the year and managers were turning their focus to other
issues such as inflation and soaring oil prices. Asian managers
have finally been putting the risk back on books, though are
remaining cautious on a short-term correction.
March also marked the first anniversary of the devastating
Japan earthquake. And in what is perhaps a fitting tribute to
the spirit of the nation, we are beginning to see a deluge of
rekindled interest in Japan-focused strategies from global
Investors have excellent reasons to bring back Japan in
their portfolios: with over 20% gains in the first quarter,
Japan has been one of the best-performing markets in Asia so
far this year. More than $250 billion is being spent on
reconstruction, and there seems to be a new vitality in the
public thinking. At the government level as well, there seems
to be policy acceleration, as shown by the massive QE package
announced by the Bank of Japan. There is a new energy policy in
the works too, which will tilt the scales in the favour of
renewable energy, and hopefully lead to cheaper and affordable
renewable energy solutions coming out of the country.
Meanwhile, depreciation in the yen is boosting the corporate
mood as well as exports.
While investors see significant undervaluation at the stock
level, merciless consolidation among Japanese hedge fund
managers over the past few years has left this space largely
uncluttered. This gives rise to a unique situation:
opportunities abound and yet there are only a handful of
credible Japan managers left in the arena, who are well placed
to receive significant new inflows this year as investors
correct their underweight positions in the country.
In the words of one talented - and young - portfolio manager
I recently had the pleasure of hearing, Japan as a country has
risen time and again like a Phoenix from the ashes, and the
2011 earthquake was probably exactly what the country needed to
fix its structural problems, all of which will make it more
appetising to global investors once again. In short, a land of
the rising sun once again.
However, challenges still abound in this uniquely structured
market. Adherence to the established systems is causing delays
in the completion of the reconstruction work. Inflation remains
a major concern, and hedge fund managers, burnt badly by small
caps over the past few years, prefer sticking to the more
liquid large-cap stocks, thereby making value capture that much
Elsewhere in the region, the two emerging Asian giants China
and India seem to be at a crossroads. The first is battling
inflation and an economic slowdown plus a change in party
leadership. The second is facing serious political and economic
It will be interesting to see how global investors respond,
but our view is that we may soon witness a new breed of funds
coming to the market: Sino-India strategies that dynamically
allocate between these two markets, country-focused credit
strategies and more quantitative strategies.
With that in mind, the latest issue of AsiaHedge brings you
previews on new funds by industry veterans such as David Ruan
and Joe Chan, who are currently readying new multi-strategy
platform and quantitative strategies, respectively.
This month, we also turn the spotlight on macro fund
managers based in Asia, who in the post-global financial crisis
have been carving out a new niche of their own. Despite the
rising investor interest, these funds face considerable
challenges, especially when it comes to execution, as well as,
of course, making the correct market calls.
We hope you enjoy reading the April issue of AsiaHedge as
much as you enjoy the colours and fragrances of spring.