Standard & Poor’s Fund Services has announced the release of its 2011–2012 global equities sector review. 

S&P Fund Services analyst, Justine Gorman said: “Risk-on and risk-off behaviour has been one of the most dramatic developments in global markets since the start of the financial crisis. High correlations are dominating and are at similar levels seen immediately after the Lehman Bros. collapse.

“The mood of the markets oscillates between optimism and pessimism, and the now synchronised markets move as one. Assets are now characterised either ‘risky’ or ‘safe haven’, they have lost a great deal of their fundamental identity.” 

“It is therefore not surprising that during the recent volatile market environment S&P found that many global equity managers opted to invest in blue chip companies with strong cash flows that can be objectively valued,” said Ms Gorman. 

Key themes of the report are: 

• Despite the worsening economic conditions in advanced economies, Asia remains a bright spot in a low-growth world. Underpinned by resilient domestic demand and strong growth in intra-Asia trade, Asian economies are less dependent on OECD countries than in the past. While Asia’s emerging economies account for 30 percent of global GDP, they contributed close to 60 percent of global growth in 2011 and are expected to do the same in 2012.
• Until recently, the typical global equity manager had considered an exposure of about 8% in Asia to be a neutral allocation, because it accords with the weighting on a market capitalisation basis within the MSCI index. This creates structural market inefficiency as the Asian economies comprise about 30% of the global economy—which logic would dictate is a much better starting point for the determination of a neutral position.
• Fund managers are beginning to make the global structural shift in their portfolios. Many managers are optimistic on China, seeing valuation opportunities in Chinese equities and are generally buying in to the “soft landing” scenario. Other markets of interest include Korea, followed by Hong Kong, where managers can gain access to the Chinese market indirectly.

 1 August 2012