The view from London
I am just back in San Francisco from visiting clients in Europe and the United Kingdom. The weather was unseasonably warm and attitudes toward Asia were coolly optimistic. There was increased interest in the Asia region, for sure, and clients asked about the recent performance of Asian equity markets and whether an earnings recovery might be sustained.
More European clients treat Asia as an investment destination in its own right rather than looking only at the emerging market asset class. They were interested to hear that our experience was that most of the flows into Asia from the United States had probably come from passive emerging market exposure that might be linked to movements in the U.S. dollar, rather than by a desire for core exposure to the region.
I found this heartening because it suggests that sentiment toward the region is still not overly optimistic. Benchmark moves have been concentrated in a relatively small group of stocks. If the global monetary environment remains stable and earnings growth continues to broaden across the region, as I expect it will, then plenty of people are still sitting on the sidelines as far as core active allocations to Asia are concerned. Lots of people seemed to say they are “waiting for the pullback,” even though Asia’s markets have not run up all that much so far in a medium-term historical context.
Investors in both Europe and the U.K. quizzed me about valuations in the United States and asked whether I thought they were expensive. Investors seemed generally keen to trim their U.S. holdings, but indicated they were still adding more to their European exposure than to Asia.
In contrast to my previous trips—when people said their Asia allocations were as low as they could remember—this time some investors said they had moved to more neutral allocations. In a way, I found this also encouraging because the mood in Europe toward Asia has been less pessimistic than the mood in the United States.
Robert Horrocks, PhD
Chief Investment Officer