Teh Hooi Ling
18 October 2007
Business Times Singapore
(c) 2007 Singapore Press Holdings Limited
BT survey reveals they are mildly bullish, still hot on China but worried about US slowdown
(SINGAPORE) In a unique exercise to determine exactly what the smart money is thinking, BT has polled top fund houses and found that they are moderately bullish about the equities market over the next six months. The 10 fund houses who shared their views have combined assets of US$1.39 trillion under management.
The average outlook of fund managers is +2, on a scale of -10 (being ultra bearish) to +10 (being super bullish). Their ratings are weighted by their fund size.
The most bullish rating is +8 and the most bearish -3. Meanwhile, cash level stands at about 5 per cent.
BT intends to conduct a similar poll every month and this will form the basis of a fund managers' sentiment index - a gauge of how they see things unfolding. The results of the poll will be published in Pulses, the Singapore Exchange monthly financial magazine from next year onwards. SGX has outsourced the production of the magazine to BT starting from January 2008.
The latest snapshot, based on the first poll, shows that geographically, Hong Kong and China still feature among the top picks of fund managers despite the incredible run that the two markets have had in 2007. For the year to date, the CSI 300 - an index that tracks the daily price performance of the 300 most representative A-share stocks listed on the Shanghai or Shenzhen Stock Exchanges - has surged a jaw-dropping 185 per cent.
China is the best performing market in the world for the year to date. Meanwhile, Hong Kong's Hang Seng Index has risen 47 per cent during the same period.
Singapore also appears as the top pick among a number of fund managers. Malaysia, Indonesia, Taiwan, South Korea and Thailand showed up on the lists of more than one fund manager.
Said Geoffrey Wong, UBS Global Asset Management's head of global emerging markets: 'Within Asia, we are currently finding a lot of value in Indonesia, Thailand and India.'
Thailand and Indonesia are favoured for their cost competitiveness. In addition, companies within these markets generate relatively higher return on equity and earnings growth compared with their regional peers, he said.
Schroders, meanwhile, maintains a moderate overweight in the US market for its defensive qualities. 'The Fed has plenty of policy scope to cut rates while earnings growth and valuation remains attractive,' it said.
It also likes European equities for their strong earnings per share growth and valuation - 'the most compelling compared to its own history and other regions'. Schroders is also positive on Asia as the region continues to show signs of decoupling from the US economy, with China providing the key support.
Sector-wise, fund managers see upside in property, industrial, construction, energy, and consumer sector and technology.
Said UBS' Mr Wong: 'In Asia, we like the consumer sector due to strong structural drivers such as a big reserve of young and under-leveraged individuals with rising disposable incomes.' UBS is also positive on the industrial sector as it relates to the infrastructure theme. 'Spending on infrastructure,' said Mr Wong, 'is expected to triple over the next ten years.'
Meanwhile Schroders prefers large over small cap stocks, and growth over value. As for Roger Groebli, head of equity research, Asia at ABN Amro PrivateBanking, his three sector picks are energy, commodities and technology.
When it comes to concerns, the biggest worries for fund managers include a slowdown in the US economy, over-valuation of equities, sharp appreciation of Asian currencies and volatility in the US dollar.
One risk, noted UBS, is that 'higher interest rates and oil prices may result in an outflow of funds from emerging market assets.'
There are a couple of bears amidst the majority of bulls. One particularly bearish fund holds the view that there are a number of imbalances now in the market that will cause a significant market decline at some point in the next few years. 'The most tenuous characteristics is record high profit margins across the board, particularly in lower quality companies,' said the fund manager.
As such it recommended risk reduction and capital preservation to its clients. 'We are not averse to advising our clients to invest a chunk of their portfolio in cash at the moment...In the case where clients have to or want to take on some equity risk, we recommend high quality and large cap equities, particularly in the US.'
A total of ten fund houses responded to BT's poll. The aim of constructing the index is to let the market have a snapshot of the collective outlook of the smart money. No firms will be highlighted without consent. The index is only as good as the number of fund managers who respond to the survey - and hopefully more will start to share their sentiment.