Brave Phalanx: Asian Managers & Investors Remain Undaunted

phalanxGFIA, in its April 2014 “Research Insights,” reviews Asian asset managers and their results for March.

Let’s begin our review of their review with one evocatively named fund and one number: Phalanx Japan AustraAsia Multi-Strategy Fund, which employs convertible bond and volatility strategies, was down, returning -1.8% in March.

Phalanx’ undaunted managers “continue to see a constructive environment” for those strategies “over the short to medium term.”

That may be the over-all theme in Asia right now: optimism about Asia continues despite reversals, in a way that may suggest that trend lines are near a peak.

Japan as a Drag

As to performance, Japan was in March a drag on the rest of the region. After one quarter of 2014, the MSCI All-Country Asia Pacific index is eking out a positive number (0.4%) year-to-date without Japan excluded, but is well in the red (-2.4%) with Japan included.

GFIA tells us that the equitymarkets of the region produced mixed results. Equity in both Japan and China declined: but the motion was upward in Thailand, Indonesia, Singapore, and Malaysia.

In sector-by-sector terms, biotech and technology stocks saw significant sell-offs.

Regional Asia March ‘14 YTD 2014 2013
MSCI AC Asia Pacific ex-Japan 1.8% 0.4% 0.5%
MSCI AC Asia Pacific 0.1% -2.4% 9.3%
AsiaHedge Asia ex-Japan – USD -3.0% -2.8% 14.7%
AsiaHedge Japan incl. Asia – USD -0.8% -0.9% 12.8%
HFRI Fund Weighted Composite -0.4 1.1% 9.8%

Source: GFIA

GFIA mentions in a footnote [citing Eurekahedge on this] that it isn’t only managers who are undaunted by recent reverses; their investors around the world continue to “crave for exposure” to Asia, too, however unsatisfied they must be by recent results. The net asset inflow of money into Asia ex-Japan funds came to US$2.7 billion in the first quarter, so the current AUM level of such funds is about US$135 billion.

Dropping the “ex,” Japan itself continues to pique the interest of investors. The Nikkei 225 was bobbing about in a range from 14,000 to 14,500 last autumn. Then it headed upward near the end of 2013 on what seems to have been a sense of relief that American legislators had resolved the latest crisis over the U.S. Treasury’s debt ceiling. Such was the relief that the Nikkei briefly broke above 1600. Since then it has returned almost to the old neighborhood, and is now in the 14,400s. Investors still want in.

News from India

To the west, India has excited attention of late, attention in part tied to the political fortunes of Narendra Modi, the BJP’s candidate for prime minister, who is widely seen as friendlier to business interests than is the Gandhi dynasty of the Congress Party.

India’s currency has stabilized in early 2014, while both the current accounts and the fiscal deficits have fallen. GFIA writes of a “Modi Rally” and notes that most of the fund managers that GFIA tracks have outperformed the indexes, including Alchemy Long-Term Fund and Karma Select Fund.

The portfolio manager at Karma is positioning that fund “toward domestic cyclicals and small/mid-caps where valuations are the most compelling” because he believes that a “full recovery” is due.

India March ‘14 YTD 2014 2013
BSE Sensex 30 9.8% 9.3% -3.5%
NSE S&P CNX Nifty 3.6% 2.9% -5.5%
AsiaHedge Indian Long/Short Equity 5.2% 5.1% -6.6%

Source: GFIA

As the table above indicates, the AsiaHedge numbers beat those of the National Stock Exchange’s benchmark both in March and year to date. Long/short managers with Indian exposure produced “stellar” performances, GFIA says: Akshayam Fund is an example, as is Flowering Tree.

Elsewhere, Singapore-based Kingsmead has suffered a 5% loss in the first quarter 2014. GFIA attributes this to its short positions in both Indonesia and Hong Kong. Indonesian equities gained in March, due to optimism about the results of the elections held on April 9th.

The bottom line for the region as a whole, though, sounds worrisome. GFIA says, “In our experience, the rapid inflows of assets, alongside what feels like increasingly volatile performance, is typical of periods immediately before market peaks.”

GFIA, a Singapore-based concern that offers advisory services for hedge fund and absolute return investors, cautions at the start of this report that the content includes “subjective and unquantifiable elements.”

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