The Japanese market was basically unchanged in October, the ‘worst’ performer among major developed markets according to Bloomberg although still easily the strongest year-to-date. Some of the major houses report a small net sell of Japan, on heavy volumes generally and we sense that some in the long-only community and perhaps even more in the long/short space are to some extent ‘giving up’ on Japan.
The traders’ view
We have noted before that many of those who invested in Japan a year ago moved on back in the spring, to be replaced by large institutions simply getting their country allocation back up from zero to somewhere approaching the benchmark. Traders have looked at the multi-year plan that is Abenomics and declared it dead and buried after six months but investors can see the long-term need to be exposed there. Hence the two-way flow. Even long-only sellers are moving neutral rather than underweight.
In Asia in general and China in particular, this month sees the big party conference that is the Third Plenary and this week the dates were confirmed as being from 9 November through to 12 November. While we should not expect any direct policy statements, or indeed any initiatives not previously discussed, it is likely to act as a catalyst for some parts of the market.
As with Fed watches, certain sectors like the property stocks in Hong Kong, are always looking for clues as to official policy and only this week seized on the notion that China would act to boost social housing supply rather than intervening directly in the housing market to suppress demand.
Global eye
We have previously discussed how the traditional obsession with trying to second-guess monetary policy has been of little use to long-term equity investors for whom insights into other aspects of government policy are far more important. We talked about the positive aspects of changes in policy and reform, particularly in Asia, but there can be losers too.
Recently, a number of investors have been unpleasantly reminded of the old market adage: the problem with (some) emerging markets is that you can’t emerge from them when you need to.
To the other big thematic at the moment and obviously something front and centre for us in Hong Kong, State Street has brought out a fascinating document on opportunities for Asia Pacific fund managers as the structural change we foresee unfolds.One killer quote comes from Andrew Erickson, State Street’s head of global services for North Asia: “We have had more calls from global managers….in the past six weeks than in the previous six years”.
