Behind the numbers

Category: Asia, Hong Kong, Global

The second half of 2016 saw stocks in Asia return to relatively attractive valuations and there was even the possibility of an upturn in the earnings cycle, which has continued into the first half of 2017. However, the election of US President Donald Trump and the result of the UK’s referendum to leave the European Union were just two examples of political uncertainty globally in the last year. While equities performed well, pessimism grew globally towards government bonds.

Over the last year, the US economy has continued to build momentum, as the great experimentation of global monetary policy since the financial crisis began to give way to normalisation, not least in relation to the US Federal Reserve’s (Fed) rate hikes.

For the 2016 Asia Asset Management Fund Manager Survey, which covered the 12-month period to the end of June 2016, one of the main issues affecting the market had been decelerating growth in global and emerging markets, particularly in China.

However, during the span of this year’s survey, covering the 12-month period to the end of June 2017, global investments have experienced a modest recovery. Indeed, according to the 2017 World Investment Report published by the United Nations Conference on Trade and Development in June this year, projections for the year are cautiously optimistic, with higher economic growth expectations across major regions, a resumption of growth and trade, and a recovery in corporate profits leading to a possible small increase in foreign direct investment.

The report notes that global flows are forecast to increase from US$1.75 trillion in 2016 to almost $1.8 trillion in 2017, and $1.85 trillion in 2018. And while political uncertainty and geopolitical risks could hamper recovery, and tax policy changes could significantly affect cross-border investment, foreign direct investment prospects are moderately positive in most regions, with developing economies expected to gain around 10% year-on-year (YoY). This includes a sizeable increase in developing Asia, where an improved outlook in major economies seems likely to boost investor confidence.

The results of the 2017 Asia Asset Management Fund Manager Survey point to the fact that fund managers globally continue to hold on to hopes of more positive market performance, despite concerns relating to profit forecasts. Results from 54 respondents suggest that that fund managers are weathering the storm, with the top performer in terms of total AUM in Asia (ex-Japan, Australia and New Zealand) reporting a 28.41% increase YoY. While institutional AUM of the top 25 participating managers saw a slight increase of 0.93% YoY, retail assets were down 1.06%.