This is not a bear market: Soc Gen

The recent outflow of funds from Asia and back into developed markets is just an underperformance cycle that is unlikely to signify the end of the bull run for funds focused on the emerging region, said Todd Martin, Societe Generale Corporate and Investment Banking’s Asia equity strategist.

Comments

Guanyu said…
This is not a bear market: Soc Gen

By FELDA CHAY
16 February 2011

The recent outflow of funds from Asia and back into developed markets is just an underperformance cycle that is unlikely to signify the end of the bull run for funds focused on the emerging region, said Todd Martin, Societe Generale Corporate and Investment Banking’s Asia equity strategist.

While the ‘inflationary flare’ that many Asian countries are experiencing will likely continue to encourage fund flows back into developed markets, ‘these (Asian) markets could go up on an absolute basis; they will just underperform Europe and the US’ as central banks in the region raise interest rates and tighten monetary policy to rein in inflation, said Mr. Martin. ‘So this isn’t a bear market, this is just an underperformance period,’ he added. ‘We are probably just one-third of our way into a bull market.’

He believes the flow of funds out of Asia will last a few quarters before money starts pouring back in. ‘What hasn’t changed is that Asian demographics and growth still look better than developed markets’. Their balance sheets look cleaner, so this period of underperformance will only last for a few quarters till we get things (inflation) under control.’

According to Mr. Martin, equities are a good investment in this environment because stocks are a good hedge against inflation. He believes that equity markets in Asia will stay attractive over the coming five years.

‘A lot of stocks and sectors can raise prices and adjust their business models to fight against inflation,’ said Mr. Martin. ‘So that’s the reason why we are not in a bear market right now. We are just moving into a more inflationary environment.’

Still, he notes that not all stocks will thrive. ‘There are sectors to avoid,’ he said, citing consumer staples. ‘There will be certain areas that could get price capped and we will see a big squeeze in their margins,’ said Mr. Martin.

The recent flow of funds out of Asia and other emerging markets has come as a surprise to many, given that as recently as the end of last year, markets continued to expect funds to keep flowing into emerging markets.

Recent data, however, showed that fund managers are starting to pull some of their money out of emerging markets and putting it back into developed markets. Statistics from Lipper released earlier this month showed a record US$4.1 billion outflow from emerging market equity funds in the week to Feb 2. According to fund-tracker EPFR Global, investors pulled more than US$7 billion out of mutual funds and exchange-traded funds (ETFs) focused on emerging market stocks last week - more than double the US$3 billion outflow the previous week.

Popular posts from this blog

Two ex-UOBKH staff charged with lying to MAS over due diligence reports on a Catalist aspirant