Craig Mowll

The rise of robotics and increasing automation has changed the world. The consequences for countries and sectors competing on this new, uneven playing field will be far-reaching, and investors’ asset allocation decisions will be challenged as a result.

These are the thoughts which guide the investment decisions of Louis-Vincent Gave, Founding Partner and Chief Executive Officer of investment manager, GaveKal Capital Limited (GaveKal), which manages Asia-Pacific investment products for Australian and international investors.

Mr Gave’s comments came on the occasion of his visit to Australia for Certitude Global Investments (Certitude), which offers Australian investors access to the GaveKal Asian Opportunities Fund, run by Mr Gave and his team in Hong Kong.

Mr Gave said that it was not an exaggeration to say that robotics, automation and the so-called ‘internet of things’ will make an entire class of workers obsolete and change the competitive landscape forever.

“Two strong arms is no longer a source of competitive advantage, and there are any number of jobs which will no longer exist in the near future. Other jobs will eventually take their place, no doubt, but the conundrum remains. It is easy to see which jobs will go, but not nearly so easy to see what they will be replaced with,” Mr Gave explained.

For investors looking to invest in Asia, the new world order will have ramifications for their asset allocation decisions. For example, Japan has been in a deflationary spiral for the past few years, largely ignored by investors who were quick to grasp that it was only a macro trade, rising when the Yen went down.

Mr Gave explained that the Japan of today is very different from the Japan of 20 years ago, and that the alert investor can find some very pleasant upside surprises.

“Japanese companies have morphed into very different animals, they have restructured and focused on costs, and many are delivering handsome returns as a result. But even more importantly, there are a large number of Japanese companies firmly positioned at the forefront of some of the disruptions re-shaping our global economy.

“These include robotics, electric cars, self-drive cars, alternative energy, and healthcare, just to name a few. I think it’s fair to say that investors can no longer safely afford to ignore Japan,” he said.

Craig Mowll, Chief Executive Officer of Certitude, said the bottom line is that successful investors understand that they need to make decisions based on the world they have, not the world they would like to have – including the impact of robotics and similar technology.

“This also means identifying the macro themes, like disruption, which are likely to impact on markets generally, and then finding market inefficiencies through bottom-up analysis and valuation. Choosing an investment manager which specialises in the region and understands all of the complex themes at play is the best way to ensure success,” Mr Mowll said.

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Craig Mowll

The loss of momentum in Europe and the absence of any new potential driver to push European equity markets to new highs will see retail investors increasingly turn to Asia over the next 12 months according to Louis Vincent Gave, COO and Chief Risk officer of GaveKal Capital, on the eve of his Australian visit.

With little to keep retail investors and the marginal investment dollar in Europe, Asia looks well positioned to capitalise on Europe’s loss, particularly with the MSCI Asia index now outperforming the MSCI World for the first time since the first quarter of 2010. Adding to this woe Eurozone equities are now underperforming cash, gold, local bonds, international bonds and international equities.

Mr Gave commented, “Unfortunately for Europe, the marginal investment dollar is more often than not highly momentum-driven and chases performance. That’s because it is usually provided by the retail investor, and retail investors have a long track record of being momentum jockeys.”

This also mirrors the attitudes of investors in Australia according to GaveKal’s Australian partner, Certitude Global Investments. CEO Craig Mowll commented, “Our monthly investment Index, the CGIII, surveys the attitudes of Australian investors and our last report echoes this sentiment. In fact Asia was one of the few regions to stand its ground when investors were asked which international markets they were most keen to invest in over the next 12 months. Most other major markets saw a decline in investor appetite.”

But both GaveKal and Certitude have cautioned investors that not all boats will rise with the tide and country divergence is ever more important. There are widespread differences between the emerging markets within Asia, they agreed.

Mr Gave expanded, “Between 2003 and 2010 there was a high correlation between Asian equity markets driven by the emergence of China as an economic powerhouse, the quintupling of energy prices and the GFC and recovery, but since then the correlation has loosened tremendously. China, Hong Kong and South Korea have been underperformers as growth in China has decelerated. Meanwhile political developments in India, the Philippines and Indonesia have been drivers of the markets.”

The recent CGIII lends further support to this. Mr Mowll added, “We saw in the August CGIII that within Asia the attitudes to each country vary enormously. We saw appetite for Asia increased on the whole, however on an individual basis, interest in China was down slightly while India and Japan were on the increase. The balance of payment surplus and good inflation levels in the Philippines will also make this a stand out for investors.

“Asia is not a homogenous group and investors will increasingly look for managers that act on this and factor this into their portfolio construction.”

One of the key themes of Mr Gave’s Australian visit will be stock selection and he is expected to suggest that the days of casting a wide net are also over, with individual stock selection more important in light of the tremendous divergence within markets. Mr Gave explained, “There is a focus now to concentrate the portfolio on strong conviction ideas to add more value. If we look at Chinese internet stocks versus SOEs or Japanese banks versus exporters these are clear cases in point.

Mr Mowll concluded by saying that investors are increasingly seeking the expertise to give them the confidence to invest in Asia.

He concluded, “Australian investors are informed enough to know that Asia is not one homogenous emerging market but they may not have the time to understand the impact of demographic profiles, political and economic developments on the performance of individual markets. This is why they turn to an investment manager that is nimble enough change the portfolio quickly as the region evolves.”

Louis Vincent Gave will be visiting Australia as a guest of Certitude next week.

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