After years of thinking globally, owing to the domino effect on world markets of the subprime-mortgage crisis in the U.S. and sovereign-debt debacles in Europe, money managers that invest in Asia are starting to act locally. “Last year, and even before, a lot of the discussions with investors centered on macro conditions,” observes Hun Soo Kim, Hong Kong–based head of Asia-Pacific research at Bank of America Merrill Lynch. These days, however, “you see a lot of investor interest in companies — wanting to visit companies, going on investor tours, wanting to know the company’s strategy over the next year or two — and a lot less about what’s happening in Europe. The tone of the conversations has changed, and we anticipate it will continue to move in that direction this year.”
Haizhou Huang, chief strategist and co-head of the research department at China International Capital Corp. in Hong Kong, agrees that “the markets are less worried” about euro-area risks and China’s ability to achieve a soft landing. As a result, this year “more focus is likely to be on earnings and specific stocks,” he declares.
That’s not to say that investors have abandoned their macro concerns altogether. “Clients increasingly want a local investment put into a global context,” explains Hong Kong–based Brent Robinson, Citi’s head of pan-Asia research (including Australia, Japan and nonequity asset classes). “Clients are now far more global than they ever were, with trading desks and sector leaders in all parts of the world. We’ve seen a noticeable shift toward Asia, and there are now many more regional, pan-Asia and global mandates than before.”
To fulfill these directives, many asset managers look to sell-side research for insight and guidance. When it comes to providing the kind of analysis of Asian companies and the region’s macroeconomic outlook that they find most helpful, no firm does a better job than BofA Merrill, which for a second consecutive year tops Institutional Investor’s All-Asia Research Team. The firm adds four positions, for a total of 35, and nearly doubles its number of teams deemed the best in their respective sectors, from eight to 15. That’s three times the number of first-place teams won by Citi, which leaps from No. 5 to tie for second place with J.P. Morgan. These firms capture a total of 29 spots each, up from 23 and 26, respectively.
Deutsche Bank is the year’s biggest upward mover, jumping from No. 8 to tie for fourth place with UBS. These banks claim 28 positions each — for Deutsche, that’s an increase of nine; for UBS, a gain of four. CICC makes its first appearance in the top ten, rising from No. 12 after adding five positions, for a total of eight.
These results reflect the opinions of more than 3,200 buy-side analysts and money managers at some 980 institutions that collectively manage $1.67 trillion in Asia ex-Japan equities.
This year’s survey, our 19th annual, includes two new sectors, Currency & Foreign Exchange and Fixed-Income Strategy, to reflect rising interest in Asia’s bond markets and cross-asset-class investing — areas in which macro concerns still cast a long shadow. Simon Flint of Nomura, this year’s No. 8 firm, leads teams that rank in both: first place in Fixed-Income Strategy and third in Currency & Foreign Exchange. The fate of China’s economy and financial markets is a source of abundant apprehension throughout the region, he says. “Given the relative size of China and the depth of trade within the region, the outlook for the economy, economic policy and foreign exchange policy is very important.”
Even so, “Asia and emerging markets should continue to offer better structural stories, given the continuing combination of healthy income growth and in most cases vastly superior fiscal conditions,” says Christopher Wood, captain of ninth-place CLSA Asia-Pacific Markets’ top-ranked team in Equity Strategy for a second straight year — and for the eighth time in ten years. “Most importantly, Asia, with the exception of Japan, is not vulnerable to the sovereign-debt risk that hangs over America and Europe.