Investment predictions can be treacherous; less so when you ask about 500 portfolio managers, most of whom represent desks with more than $5 billion to play with.
A good test of this theory came as global fund managers gathered at Credit Suisse’s annual Asian investment conference in Hong Kong.
The audience expressed enthusiasm for European equities, with 43% of the room voting the region as the most likely to outperform over the course of 2014.
Sector-wise a clear plurality favoured technology stocks.
Secondary picks include China A-shares, India and Indonesia. But there is clearly a divergence of views, because, when asked which market they were most underweight, some of the same markets appeared.
Overall there was no consensus on out-of-favour geographies in Asia-Pacific but Australia, China A-shares, Malaysia and India have plenty of detractors.
In terms of sectors, consumer discretionary and consumer staples were also well liked, along with tech. Property was somewhere between disliked and loathed, while materials and energy & utilities also proved unpopular.
Opinions diverged when it came to financial stocks, which were rated both highly and negatively.
Among a selection of global macro risks, one third of the room cited China as likely to disappoint on the reform front.
Only one out of four cited global monetary policy-tightening as the greatest risk. In contrast these investors – many of whom were from the US and Europe – were sanguine on US and European economies.
The most bearish note came with regards the renminbi.
Taking the current value of Rmb1 at $6.19, one third of the room expected a 3%-5% depreciation over the next 12 months, to March 2015; while 14% said the currency would depreciate by more than 5%. Another 24% said it would end flat, leaving a minority of investors (29%) expecting the renminbi to appreciate, either modestly or considerably.
The audience has a tendency to get sector picks right and country picks wrong. Last year, for example, the audience loved China and Indonesia but was lukewarm on Japan, getting it totally wrong. But it was spot-on last year by backing consumer discretionary and going underweight energy stocks.
This year, the audience expected Asia-Pacific stocks to rise about 10% over the course of 2014 and, while this happened to be true last year (in terms of vote and – roughly – the outcome), it is the way Credit Suisse audiences in Asia always vote – so it can be reliably ignored as a predictor.
Indeed, the CS gig has a long history of audience participation it can draw upon: Credit Suisse began sponsoring this annual event in 1998.
The bank stepped in just a few weeks before the conference – then tied to the Hong Kong Rugby Sevens – collapsed because the sponsor, Peregrine, had just gone bust. HSBC has since stripped CS of the rugby ball but the investment bank continues with the serious side of the week.
Questions for 2014
Eric Varvel, Credit Suisse’s Asia Pacific chief executive, added his two cents by outlining the main issues investors share as they think about how to deploy capital.
These are:
- Tapering policies at the Federal Reserve and potentially other developed-market central banks, and the impact this will have on emerging markets;
- Broadly speaking, domestic or internal fragility among many emerging markets;
- The ability of Chinese reforms to unlock value, both at home and around Asia;
- The impact of elections in key markets such as India and Indonesia on domestic reform programs and financial liberalisation;
- Whether Japan’s “Abenomics” experiment will yield sustainable results;
- Whether Australia will remain open to foreign investment;
- Also, broader trends that impact portfolios, from big data to healthcare to technology and social media.
These unknowns come at a relatively optimistic time for investors. In 2013, global GDP growth notched 2.9%, which is an improvement over previous years.
Equity market performance was mixed, with gains in Japan (57%), the US (27%) and the eurozone (18%) but with Indian equities up only 7%, Indonesia down by 1% and China A-shares down by 5%.
Leveraged loan and high-yield financing volumes were up massively (in the US, up 14% year-on-year, bringing such issuance above the 2007 peak).
Global M&A was also active, with $2.4 trillion worth of deals in 2013. That was actually down by 8% compared to 2012 but the first three months of 2014 are up by 35% compared to the first quarter of 2013, and Varvel expects plenty more to come. China outbound M&A is already double the level of Q1 2013.
The best news, however, is that consumer confidence, particularly in emerging markets, is robust. Even in places with sagging stock markets, such as China and Indonesia, Varvel says the bank’s research suggests consumers’ outlook is positive.
