Daily Management Review

The Continued Shift To Asia Explained By A Strategist As ‘Go East, Young Investor’


The Continued Shift To Asia Explained By A Strategist As ‘Go East, Young Investor’
Michael Power, a strategist at Investec Asset Management, which manages $115 billion on behalf of third party clients thinks about gravity a lot.
And ‘Go east, young investor” are the four words that can sum up his advice on where to park some of that money.
"The center of economic gravity continues to move away from the West to the East," he said in a TV interview.
In a decade from now, the financial services industry will look very different he said.
"I think it's going to refocus on moving away from indexes, which reflect the past — and that past is very Western-centric — towards a future [that] captures Asia to a far greater degree."
Over the last year, there has been an inflow, especially into emerging markets, of billions of dollars into Asia. Compared to the MSCI All Country World Index, which is up 6.03 percent, the MSCI Asia Ex-Japan Index has climbed 13.03 percent and the MSCI Emerging Markets Index is up 11.96 percent year-to-date.
"I think we're going to see continued outperformance of the emerging markets," Richard Ross, head of technical analysis at Evercore ISI, said.
Noting that emerging markets accumulated more than $39 trillion in debt since 2006, according to the Institute for International Finance, global debt climbed to more than $215 trillion in 2016 (325 percent of GDP).
"We are seeing some countries where fiscal frameworks are such that countries really need to double down and ensure that they don't get out of hand," said Sudhir Shetty, chief economist of the World Bank's East Asia and Pacific Region.
With economies in the Association of Southeast Asian Nations likely to expand faster in 2017-18, growth in East Asia and the Pacific will stay on track, pointed out Shetty outlining some of the details of a new World Bank report.
EM Asia in particular, the emerging markets still continue to excite a number of analysts. While it depends on where the global economy has been heading, it also hinges on President Donald Trump.
"People are hedging because if you don't get a Trump fiscal plan, the other side of that trade really is emerging markets," said Luciano Sircusano, chief investment strategist for WisdomTree Investments.
it's not about when Trump's plans will be materialize, but if for Investec Asset Management's Power. Trump is increasingly looking like a busted flush and is not so much the "Ace of Trumps" or even the "Joker," he argued.
"The reflation trade has deflated. And I think that what we're beginning to realize at the moment is much of the promise of Trump is not going to be realized mainly because his ability to get much of his program through Congress is severely compromised. I think there was a lot of big talk and it's not being followed up by big action."
Power said that he is reminded of the positioning on Latin America in the 1990s by some of the head scratching over EMs and Asia.
"[It] was all about the Brazilian steak with one or two potatoes being supplied by the other countries. But the steak was really all that was important. And if you didn't get the steak right you didn't get the region right," he said. "And increasingly, I think that emerging markets…if you don't get Asia right and specifically you don't get China right, you're not going to get the story right."
Transparency, access, corporate governance and regulation in China is however something that plenty of investors have concerns about.
"One has to go back, if you want, to history and look in 1870. That's exactly what people were saying about the United States and we know what happened next. If you avoided the United States, you did badly," he said. "One of the ways of not avoiding it was to basically give your money to JPMorgan and they made it work for you and they made it work for you well."