FinanceAsia Magazine

Issue: February 2013

Issue: February 2013

The Gradual Rotation

If you believe US equity markets, the financial crisis is over. Time now for companies to put cash piles to work; for investors to return to risk assets; for inflation and interest rates to rise.

The Great Rotation out of ‘safe’ assets such as US Treasuries into risk assets such as equities is happening, with January recording strong flows into actively managed equity funds in the US and Asia.

In Asia, notably China but elsewhere too, there appears to be a huge amount of IPOs just itching to come to market. And authorities are preparing themselves for vast inflows from the West, to the extent that Korean and Singaporean central bankers

are talking about capital controls or other measures to moderate such movements. Asian financial markets should benefit from the Great Rotation. Current equity

valuations remain very low on a 10-year historical basis, measured by price-to-earn- ings or price-to-book, while there is a recognised need to develop local bond markets as an alternative to bank lending.

But it ain’t gonna happen at once. The Great Rotation is going to take a long time — years — to play out.

First of all, US and European regulation remains a work in progress and the politics of a shrinking pie will continue to cloud decision-making: to wit, the unwelcome decline in US output in Q4; ongoing adventures in euroland; Brexit; Abe-san’s preference for printing money instead of liberalising Japan’s economy.

Secondly, regulation designed to buffer capital among financial institutions will force banks and insurers to continue to buy bonds, no matter what. Third, capital-weighted benchmarks still dictate institutional flows. Fourth, Japan shows that zero interest rates and bond-market rallies can last far longer than expected.

Fifth, Asian bond markets may have become a strategic holding for more global investors, but the data on actual institutional flows — think US public pension funds 
— suggests that it will take a decade for this to translate into meaningful allocations. Sixth, capital controls, insufficient independent credit ratings and slipshod governance and regulation will limit shifts into Asian markets.
Seventh through tenth, yes the RMB is sexy — but will international auditors be allowed to examine onshore issuers’ books? Will China actually liberalise interest rates? Will Beijing open up enough for A-shares to join global emerging-market indices? Will the current politicised process of company listings be reformed?

I am optimistic about the Year of the Snake offering reasonable growth, pockmarked by volatility — a more normal year. But, channelling Winston Churchill, we are not at the end, nor even the beginning of the end, but at the end of the beginning.

Jame DiBiasio
Executive Editor


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About FinanceAsia Magazine

Established in 1996, FinanceAsia is the leading publisher of financial news in the Asia-Pacific region. Our combination of print and online products provide the latest news, analysis and insight into Asia’s financial markets.

Published monthly from our office in Hong Kong, FinanceAsia magazine provides our readers with the latest financial trends, interviews, features and investigative reports. The publication has a readership of key decision-makers at corporations, governments, investment and commercial banks, institutional investors, asset managers, brokers, traders and financial intermediaries.

Our regular sections include:

Data Story
We look at the key data behind a topical theme in Asian finance, showcased with an array of graphs and tables.

A monthly opinion column from the FinanceAsia editorial team. We provide our thoughts on a topic making the headlines.

Deal of the Month
Our regular two-page spread with its signature artwork and in-depth analysis examines the equity, debt or M&A deal that we feel has had the biggest impact on the Asian capital markets that month.

Investor Dialogue
For company CEOs and CFOs, what investors think is a critical concern, and in this column we help them understand just this. Each month we speak to a Chief Investment Officer of a top fund and outline their views on corporate governance, what stocks they like and where they expect to generate the best returns.

A monthly opinion piece from a respected author or commentator on Asian business, finance or economics.

People on the Move
Here we summarise the key hires, fires and moves at the region’s banks, highlighting at least one major move each month.

Deal Tracker
We examine the major primary markets deals of the month and comment on the quality of the debt or equity transaction and the secondary market performance.

The Arts of Finance
A light-hearted look at investment opportunities surrounding the arts business in Asia.


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