Leading the team is Eng Teck Tan, senior portfolio manager, who reports to Peter Sartori, Head of Asian Equity at Nikko AM. Tan will apportion his time between Singapore, Hong Kong and Shenzhen^[1], and he is supported by three other portfolio managers based in Hong Kong and two analysts in Shenzhen^[1].

Designed for Insights Intensity

The colossal Chinese market is characterised by an intensity of information that demands a whole new level of research and connectivity that the Nikko AM team is purposefully designed for. With diverse and complementary experience, the team is adept in navigating and staying ahead in a fast evolving China.

Being on the ground, Nikko AM has an intuitive understanding of the Chinese market and its nuances. Furthermore, the firm benefits from its unique and long established partnership with Rongtong Fund Management Co. Ltd. An early entrant to China, Nikko AM is plugged into Rongtong’s local information network and frequent company engagement. The two partners work very closely in mining market intelligence and generating investment ideas.

Institutional DNA

Nikko AM further leverages its research advantage with institutional discipline in portfolio construction. Looking beyond crowded trades, the China equity team invests with high conviction in growth stocks with the potential for sustainable returns.

Nikko AM Deputy President, Global Head of Investment and CIO-International, Yu-Ming Wang said, “China is transforming quickly and we believe it is most prudent to invest in it as a stock-picker. We have widened and deepened our bench strength in China equity, building a team with experience that is bespoke to China’s evolving nature and stage of development. In sports, championships often go to the teams with the deepest bench because they have great ability to withstand adversity and the unknown.”

Our China team is backed by the domain knowledge of our Asian equity team with members who have been investing in China for some 20 years, and our access and connectivity to domestic information networks through joint venture partner, Rongtong. Our team relies on a developed and time-tested ESGintegrated robust investment process, applied for institutional investors.”

Nikko AM has been investing in China for close to 15 years. The firm was the first asset management company to be certified by the Chinese authorities as a qualified foreign institutional investor (QFII) in December 2003, and launched Japan’s first RMB-denominated Government Bond Fund in 2004. This was followed by the launch of one of the world’s first funds investing in the A shares of a burgeoning China in February 2005.

In April 2007, Nikko AM made a strategic investment in a leading Chinese asset manager, Rongtong Fund Management Co. Ltd. Established in 2001, Rongtong is today one of the largest Sino-Foreign joint venture fund management companies in China. Representing new China, its headquarters are Shenzhen, with branch offices in Beijing, Shanghai and Chengdu.

With proven track record and experience that is bespoke to the great growth opportunity that China presents, Nikko AM is poised to help global investors gain exposure to the world’s growth engine.

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[1] Shenzhen is where Rongtong is based.

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The Asian sell-off has been too severe, discounting a scenario akin to the GFC or the AFC. We believe the current challenges are manageable, particularly with the availability of both fiscal and monetary tools.

In our view, the current valuations of Asian stocks are the cheapest seen in years. Asian economies are in better shape than they were in 1997 and their currencies are more flexible. Nor is the world facing the consequences of a US housing bubble burst as in 2007. Asia should also be a net beneficiary of the long-term structural bear market in commodities and oil, helping it to outperform its global peers. China and India should lead the way.

India is a reform and structural growth story, with falling oil prices slashing input costs and reining in the current account deficit. Indian stocks look comparatively expensive, but investors should not overlook India’s high returns on equity and corporate ability to navigate macro volatility.

China too could bounce back after mishandling its currency devaluation and stock market intervention. We doubt this is the start of a large-scale devaluation to boost exports. Reforms remain high on the agenda as China goes through a transition. No question that this is a challenging period for China, but China stocks listed in Hong Kong are pricing in a dire outcome, which we doubt will eventuate.

Compared to India, China looks attractive on a price-to-book of just 1.2x. Valuations are lower than in 2008 and in previous troughs. Rising returns on equity make the case more compelling.

Likewise, ASEAN (Association of Southeast Asian Nations) offers selective opportunities after bearing the brunt of the sell-off last year. Investor fears that the region could not cope with further outflows overlook the tremendous change since the Asian Financial Crisis.

Fears about high debt in weak current accounts in ASEAN are unwarranted, in our view. There are fewer domestic excesses and less misallocation of capital than before the Asian crisis a decade ago. Reserves are strong, currencies more flexible and markets liberalised.

The declines have discounted most of the lingering concerns, leaving Singapore looking attractive on a historical basis. Indonesia is the odd-one-out, sitting some 15% above its 2008 lows. Even so, we believe that opportunities can still be found, particularly in light of the positive structural drivers in ASEAN.

Historical lessons are instructive; they give us a notional minimum for Asia’s corporate value during various crises. The recent market malaise recognises China’s slowing growth, but Asia’s strong long-term prospects overall.

By Peter Sartori, Head of Asian Equity, Nikko Asset Management

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Important Information: This material is issued by Nikko AM Limited ABN 99 003 376 252, AFSL 237563 (Nikko AM Australia). The information contained in this material is of a general nature only and does not constitute personal advice, nor does it constitute an offer of any financial product. It is for the use of researchers, licensed financial advisers and their authorised representatives, and does not take into account the objectives, financial situation or needs of any individual. The information in this material has been prepared from what is considered to be reliable information, but the accuracy and integrity of the information is not guaranteed. Figures, charts, opinions and other data, including statistics, in this material are current as at the date of publication, unless stated otherwise. The graphs, figures, etc., contained in this material include either past or backdated data, and make no promise of future investment returns, etc. Past performance is not an indicator of future performance. Any economic or market forecasts are not guaranteed. Any references to particular securities or sectors are for illustrative purposes only and are as at the date of publication of this material. This is not a recommendation in relation to any named securities or sectors and no warranty or guarantee is provided.

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While Asia continues its long-term strong outperformance over other emerging markets stocks, 2014 has also seen it outperform most other developed markets (including those in Australia). Nikko Asset Management’s New Asia Fund (the Fund) has overweight positions in both China and India as a period of sustained regional stability and reform looks set to continue.

“The weighting of Chinese and Indian stocks in the Fund reflects the benefits of the reform programs being implemented in those markets,” according to Peter Sartori, the Fund Portfolio Manager and Head of Asian Equities for Nikko Asset Management Asia. “While the relative stability of the Philippines, Indonesia and Singapore has contributed to a promising period of economic development across the region, the big difference for Asia in 2014 is the two big emerging markets – China and India – have been performing much better.”

Based in Asia for over 50 years, Nikko Asset Management’s vantage point—extending from east to west—distinguishes its investment approach in the region, which is demonstrated in its broadening product portfolio designed to meet the sophisticated needs of Australian investors.

“As we position Nikko Asset Management to be Asia’s premier global asset manager, we recognise the importance of raising the profile of the changes taking place in Asia,” Sartori said. “The next 12-24 months will be critical for shaping investors’ perceptions of Asia from that of a perpetually-emerging region into one that is fully fledged.”

Sartori and his sixteen member team are based in Singapore, from where they travel extensively around the region uncovering investment opportunities. On an annual basis they hold approximately six hundred meetings with company management, companies either already held in the portfolio as well as potential new investments. Macro-level considerations also play a large part in the team’s investment process.

“India is performing very strongly in 2014 due to a game-changing election result in May, which is lifting the entire country, allowing it to begin to realise its undoubted potential and break away from the now maligned BRIC moniker,” Sartori said. “While in China, the government is now beginning to implement much-needed reforms. The fund has done very well with regard to stock selection in China over the last three years. China is the cheapest market in the region and with the ongoing implementation of reforms, we expect the overall market to continue to push higher.”

Sartori founded the Fund (previously known as the TAAM New Asia Fund) in 2005 along with Sydney-based Treasury Group Ltd. The Fund has a ‘Recommended’ rating from both Zenith and Lonsec. In 2014 the Fund was named as a Zenith Awards finalist in the International equities – emerging markets and regional category.

According to Morningstar Research the Fund was ranked second out of 34 funds over one year and was top quartile consistently over the last 2 years (as at 31 October 2014).

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Peter Sartori

The recent turbulence in markets is resulting from several non-economic factors, such as the Ebola outbreak, sanctions imposed on Russia related to the ongoing turmoil in Ukraine, and plummeting oil prices as Saudi Arabia maintains its high oil production, according to new research by Nikko Asset Management. The Tokyo-based firm nevertheless expects risk markets to withstand the events and continue their upward march.

“Our target for the S&P 500 is a slight rise above its recent level and continues to look quite achievable once some of the panic surrounding these issues calms,” said John F. Vail, chief global strategist and chairman of the firm’s global investment committee.

Meanwhile, in the Asian region, relatively stable political regimes are translating into meaningful economic gains in certain countries, according to Peter Sartori, the head of Asian equity based in Singapore.

“Asia’s moment is now for the taking, and the next 12-24 months will be critical for shaping investors’ image from one of a perpetually emerging Asia into one that has finally emerged,” Sartori said. “Indisputably, sound political systems are crucial for economic development and progress.”

The firm’s analysts point out that Singapore, which has had a single political party in power over a prolonged period of time, has seen its economic growth contract in only five short periods over the last 53 years. The Philippines and Indonesia, too, managed to carve out an enviable sustained economic growth path over long periods where political power was absolute.

China’s economic transformation within its ongoing communist political structure has allowed the country to become the world’s second-largest economy in the short space of 36 years. Its new leader, Xi Jin Ping, is the only person to concurrently hold the highest office of the party, state and military, within his first term in office. “He moved quickly to eliminate corruption, leaving virtually no office untouched,” Sartori said. “China bears should be afraid, especially as the market has been marking a bottom for the last two years; still a substantial 60 percent from the high point reached in 2007.

India, on the other hand, may now be poised to join the ranks of more politically stable countries, thanks to the Bharatiya Janata Party’s resounding general election win in May, the first time in 30 years that a single party secured more than 50% of the government.  “Can the BJP under Narendra Modi deliver policies that will lift the living standards of the poorest and deliver sanitation to the slums? Market expectations are high,” Sartori noted.

Elsewhere in the latest edition of Nikko Asset Management’s Evolving Markets report, the firm’s analysts note that household net financial assets in Japan (excluding real estate) reached a historical high, according to second-quarter data, of \1.29 quadrillion (US$12.6 trillion)　in Japan. The so-called “wealth effect” has been underestimated by local and foreign investors, though in other countries it is a linchpin of economic recovery: “’Asset Bubble Economics’ (ABE) is a phrase that is lightly bandied about,” Vail commented, “But the role of inflating asset prices, while keeping interest rates down, has been the hallmark of the U.S. economic recovery.”

The administration is also serious about making improvements in corporate governance as one of a series of economic stimulus policies. It is expected to start emphasising the importance of dividend payouts, congratulating those companies who raise ratios sharply and criticising those who fail, the report said.

“Foreign investors will realise that corporate governance in Japan is a very serious trend, along with the recent surge in profit margins, and gain confidence in the country,” Vail said. “The implications of this trend are huge as the impact of growing asset wealth and income for individual and institutional investors will be the key to the continuing success of Abenomics, so we expect Japan’s leadership to encourage dividends.”

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Al Clark

Australian and New Zealand investors’ sizable allocations to global assets is leading Nikko Asset Management to make a major global product push into these markets, the company announced yesterday.

The Tokyo-based asset manager is also aligning the current Tyndall brand names in both Australia and New Zealand with the firm’s global name, Nikko Asset Management.

The asset manager will use its expanded investment expertise and capabilities to provide new products to institutional and retail clients in both countries. In August, Nikko Asset Management formed a new global multi-asset team led by Al Clark. In the same month, it added a global active equity capability headed by William Low, and in October 2013, an Asia ex-Japan equity team led by Peter Sartori.

“We are one company and therefore should share one name globally as Asia’s premier global asset manager,” said Takumi Shibata, president and chief executive officer of Nikko Asset Management. “The investment teams, the sales and marketing teams and the back office teams are all working collaboratively for the benefit of our clients. One brand simply reflects what is already working for us.”

Nikko Asset Management plans to introduce several global strategies through its local subsidiaries in Australia and New Zealand in the coming months, while continuing to offer products investing in local securities. The move will allow the firm to leverage its significant global resources in meeting the varied needs of investors.

“We are very pleased to be expanding our global offering to Australian investors,” said Mike Davis, Managing Director of Nikko Asset Management, Australia. “The evolution of our business over the past three years as part of Asia’s premier global asset manager has added to our depth of investment capabilities to meet the sophisticated needs of our clients in this competitive environment. Approaching the market as Nikko Asset Management in Australia will allow us to differentiate the value we bring to our clients, borne out of our Asian insights.”

The firm’s Australian operation has A$24 billion (US$23 billion) in assets under management, representing approximately 14 percent of Nikko Asset Management’s total assets of US$168 billion as of June 2014.

“Nikko Asset Management is well known globally, and we are excited to bring more of the firm’s global expertise to our clients,” said Peter Lynn, Managing Director of Nikko Asset Management, New Zealand. “With this brand transition, there is no change to our investment teams, their investment philosophy, processes or portfolios. As one company, with one name, we will further distinguish our offering to clients in New Zealand.”

The company’s New Zealand operation, which is based in Auckland, is the only foreign asset management firm operating in the country. Its assets under management reached NZ$3.8 billion (US$3.3 billion) as of June 2014.

According to a June 2013 survey conducted by the Australian Prudential Regulation Authority[1], some 31 percent of superannuation fund assets were allocated to global investments, with 25 percent in equity and 6 percent in fixed income. Meanwhile, in New Zealand, a survey of leading balanced funds by Aon Hewitt[2] reveals that 48 percent of assets were allocated globally, with 32 percent in equity and 16 percent in fixed income.

Nikko Asset Management is conducting its inaugural Foreword client event this week in Melbourne, Sydney and Auckland. Speakers include the firm’s global head of investment Yu-Ming Wang, in addition to the portfolio managers in charge of its leading global and local investment strategies.

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[1]Annual Superannuation Bulletin June 2013 (revised February 5, 2014)

[2] The Aon Investment Update, Aon Hewitt Investment Consulting July 2014

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Charles Beazley

Nikko Asset Management (Nikko AM), a related company to Tyndall AM, has acquired the Asia-Pacific investment manager Treasury Asia Asset Management Limited (TAAM).

TAAM’s Singapore and Sydney-based team of eight highly experienced and successful investment professionals significantly enhances Nikko AM’s ability to provide institutional-quality Asian equity products to its clients and prospects in markets worldwide.

“We couldn’t be more pleased to welcome Peter Sartori and his team to our company,” said Takumi Shibata, executive chairman of Tokyo-based Nikko Asset Management.

“This acquisition brings us sophisticated Asian equity strategies, which are gaining well-deserved traction among investors around the world,” said Charles Beazley, president and CEO of Nikko Asset Management. “The team will offer products to institutional and retail investors, who deserve nothing less than the highest quality products, and which TAAM has a distinguished track record of delivering.”

Peter Sartori founded TAAM along with Sydney-based Treasury Group Ltd in 2005. The eight-member team includes portfolio managers, analysts and a dealer. The team’s investment style revolves around bottom-up stock picking of mid- to large-cap equities, with a focus on long-term holdings of high-conviction names.

“Our investment style adds value and has attracted capital from some of the most discriminating investors in the world,” said Peter Sartori, TAAM’s chief investment officer.

“We feel there is a perfect fit with Nikko AM, and this will allow us to do what we do best, which is to generate alpha for clients. Our sectoral coverage approach will be highly complementary with Nikko AM’s more geographic and thematic focus. In turn, we look forward to working with Nikko AM’s professionals in the region, Europe and in North America to build wealth for investors.”

Nikko AM has designated its Singapore office, led by Eleanor Seet, as the centre of excellence for managing Asian securities. The company is focused on creating innovative investment strategies that will allow clients to capitalise on the superior growth dynamics of the economies in the Asian region. Nikko AM currently has over US$156 billion in assets under management.

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