Fidelity investment seminar...

We attended a good seminar hosted by Fidelity here in Singapore this morning, with presentations clustered around the theme of "Asia's the place to be..." or words to that effect. Although I reckon that I've heard this theme reiterated in countless guises (and made a few of the same points myself) since I started looking at these markets in 1986 (along with the so far mythical concept of "de-coupling"), there were some good takeaways from the presentation for both shorter-term and long term investment concepts:

(1) Outlook for the rest of 2010 into 2011:

Fidelity's London based technical guru, Jeff Hochman, summarised his view for this year and into next as:

• Global equities are in a "seasonal correction phase" at the moment, but a "cyclical low point in the next few months should provide a buying opportunity into 2011". Take advantage of this, Jeff says, to load up on Asia and Emerging Markets since "they will retain leadership qualities for many years".
• Equity valuations look reasonable, although earnings growth estimates are probably too high at present (hence the predictions of a sell-off in the next few months as analysts belatedly trim their expectations). We look forward to seeing such ground breaking research reports with titles like - "Our analysis was rubbish. Sorry"
• Jeff sees the main risk being that the bond markets are right in de facto predicting deflation and/or a double dip recession. However, it is at this point that the "Bernanke Put" would ride to the rescue in the form of a second round of Quantitative Easing (QE2 - not a cruise liner). In other words, the worse the numbers get, the more will be thrown at the markets in terms of excess liquidity, setting up for a potential April 2009 style rebound (the markets climbed by 30% in the 7 weeks from the March 9th low until the end of April 2009)
• Buy agricultural commodities and Gold.

Interesting points, and ones with which we agree, even if they seem uncomfortably close to a widely held consensus.

(2) Another interesting theme came from Fidelity's high yield manager, Bryan Collins. He's a big bull of Asian high yield on the basis that it gives a good exposure to the rapidly growing Asian region , whilst giving an attractive yield - around 8-9% in USD terms (a full 7% over the cost of government bonds).

This looks like a strong investment case, although as my colleague, Tom, points out: in late 2008 the Asian high yield market completely dried up in the post Lehman environment and prices collapsed. Some funds were down over 40% between September and December 2009, presenting the mother of all buying opportunities, but little consolation if you were an existing holder beforehand (which I was!). 2009 however, did see a massive recovery, such that by the end of last year, prices had recovered all their losses and then some. In all, a very interesting investment idea but probably not one for those who shy away from volatility.

So far so good.

(3) We were less impressed with the constant reiteration of the "Submerging" vs. "Emerging" economies theme during parts of the presentation. In the former camp are all the debt laden "developed" economies, in the latter, everyone else.

Our lack of excitement was not because we don't buy into the geopolitical construct that Asia (led by China and India) is going to re-work the global economy in its favour over the next 40 years or so. We do buy into that theme, and it's the reason why I'm writing this from Singapore, not London.

Our skepticism is prompted more because that long term theme will undoubtedly see significant movement around the mean trend: whilst the general trend may be upwards, there will be sharp lurches on either side of the track as attempts are made to avoid various potholes.

As Keynes once put it: "the markets can remain irrational for longer than you or I can remain solvent...". In other words, the progress to realisation of the strategic realities of the Asian century will not be smooth, and will undoubtedly see equity markets out here reacting to hiccups on Wall Street for some time to come, regardless of whether or not that is fair, appropriate, logical or rational.

In addition, we must always bear in mind that Asian markets like China, have their own internal dynamics which affect domestic investor sentiment as they cope with the strains created by rapid growth: just ask any investor in the Shanghai market this year who's nursing a 19.5% loss thus far in 2010, during which time the S&P500 is "only" down 6%.

So if you're talking about "submerging", in 2010, the US markets have thus far gone for a gentle snorkel, whilst China has so far been for a full decompression dive, despite 8% plus GDP growth...

Steve
e-mail: steve.davies@javelinwealth.com
contact: +65 65577185
website: http://www.javelinwealth.com
Javelin Wealth Management supports www.kiva.org, the global microfinance philanthropy initiative, and the Central Asia Institute (see www.ikat.org).