What a difference a year makes.
In the Asia-Pacific region, the cautious optimism and resilience of 2021 has been clouded by both global and domestic pressures – and investors are looking for clarity.
“The last twelve months have been particularly difficult in Asia-Pacific, which has felt the three main headwinds in the global stock market: Ukraine, inflation and zero Covid constraints on growth,” said Martin Yule, head of of Asia-Pacific research at UBS. .
Additionally, second-order effects such as strong commodity prices, supply chain issues and food inflation are conspiring to dampen growth and optimism in the region. “With very important issues to resolve, 2022 looks like a year of volatility and uncertainty,” he said.
All of this means the buy side is focusing on the global macro themes of the day and their impact on investing, according to Citi’s Brent Robinson. “There’s plenty to worry about so far in 2022 – inflation, stagflation, monetary policy tightening and interest rate hikes, rising dollar, China politics, market disruptions. supply chain, oil, geopolitical risks in Europe and elsewhere, and the likelihood of a coming recession,” he said. “Step back to 12 months ago, and only a few of these macroeconomic concerns were being considered.”
The past year has been a “difficult” year for the markets, confirmed Erica Poon Werkun, head of securities research for Asia-Pacific at Credit Suisse. “Not only have valuation indices corrected with the rise in bond yields, triggered in turn by the sharp rise in global inflation, but global growth has become a new concern, especially after the start of the Russian-Russian conflict. Ukrainian,” she said.
As has happened in the past, investors withdrew funds from emerging markets in response to uncertainty. This includes those in Asia, with concerns about the region’s economy heightened by its reliance on imports for its energy needs. (Energy-exporting economies such as Indonesia and Malaysia have done better so far.)
“Generally, however, compared to previous bouts of Fed tightening, emerging market Asia is likely to be much more resilient – the economies are much larger, with stronger macroeconomic health,” Poon said. Werkun. “Once the Covid lockdowns are lifted, reviving the Chinese economy itself can be a boost for the region. India also has several underlying growth drivers, such as a booming property construction market and surprisingly strong growth in services exports.
A major feature of Asian markets since February 2021 has been the relative underperformance of China and growth stocks, according to William Greene, head of Asia research at Morgan Stanley. “As a result, investor participation was broader across a much wider range of markets, sectors and styles than in the prior period,” he said. “For example, the ASEAN and India markets significantly outperformed, while value stocks and energy/materials names also performed well. Fortunately, our strategy and quantitative research teams were the first to identify these performance shifts, which were among the largest on record.
This effort has not been wasted on investors who have once again identified Morgan Stanley as the region’s leading equity research provider, according to the 29th Annual Survey by Institutional’s All-Asia Research Team. investor.
Based on the opinions of more than 4,800 investment professionals at more than 1,400 institutions with large securities portfolios in the region, voters recognized the same core vendors as last year. Citi moved up a spot to share second place with UBS. JPMorgan Chase & Co. and BofA Securities repeated their fourth and fifth place finishes, respectively.
The lack of movement in the ranking, which was weighted by each respondent’s stock commissions for Asia ex-Japan, also accentuated extremely thin margins among major vendors. Only one team position separated first-place Morgan Stanley (35) from runners-up Citi and UBS (34). JPMorgan has seen the biggest improvement with 31 positions in the team, up from 26 last year.
Survey responses were also weighted by each polling company’s non-Japan Asian equity assets under management to produce a weighted ranking by assets under management, which reflected the commission-weighted results.
While equity research offerings are still shaped by the region’s approach to the pandemic – including China’s “zero-Covid” approach, which sent the country back into lockdown in March in response to Omicron variant – some vendors see a light at the end of the tunnel.
“Outside of Hong Kong and China, Covid is fading in the rearview mirror,” Morgan Stanley’s Greene said. “Economies have launched plans to live with Covid and are reopening. The restrictions are the least onerous since the start of the pandemic. Activity in the contact-intensive services segment is likely to rebound quickly, boosting employment. These jobs tend to be in the middle or lower end of the income scale, so the rebound in activity will help ensure a broad-based recovery in consumption. »
At UBS, Yule reports that his team has gotten quite used to operating under Covid-related restrictions, although these have reached a new level this year in places like Shanghai. “Being on the ground across APAC is a long-term strategic advantage and allows us a level of due diligence on businesses that some currently struggle to achieve,” he said. “Regional travel constraints have made regional collaboration all the more important.”
The reopenings also ushered in the return of some analyst travel. “In retrospect, the zero-Covid lockdowns have curbed infections to some extent, but at the cost of a profound impact on economic activity,” Citi’s Robinson said. “The good news is that in recent months, Asia has moved quite aggressively to reopen across the region. Most of our offices are back to work or a combination of office work and work from home. customers are starting to travel. At Citi, staff are starting to travel widely for the first time in a few years.”
Robinson credits Citi’s long history in Asia and Citi Research’s national footprint model with regional and global sector overlay across equities, fixed income, strategy, economics, quantity and commodities. “We work tirelessly every day to deliver bottom-up analysis of local investments in a global multi-asset context for our clients around the world,” he said.
More recently, this has meant acknowledging the blurring in traditional sectors for innovations such as electric vehicles and “smart car” technologies. “There has clearly been a slow hemorrhage in the traditional GIC sectors. Citi Research has adjusted by creating six critical “super-sectors” to ensure we collaborate and connect on key themes to give our clients the best insights as technology innovation changes both traditional and new sectors.
Technology as a catalyst for change has arguably brought many sectors together, observed Yule, and made collaboration even more critical. “Certainly many of the most relevant investment themes today encompass a wide range of sectors: the electric vehicle value chain; connected devices; robotic technologies; renewable energies, etc. “, did he declare.
His company continues to invest in its alternative data collection and interpretation capability known as Evidence Lab to obtain and interpret datasets for its analysts. “We believe the sell side needs to evolve from the opinion sector to the evidence sector, and that’s why we created UBS Evidence Lab,” Yule said.
Credit Suisse, the provider that improved the most last year, remained stable in sixth place in this year’s commission-based results. “We continue to focus on our immersive approach to the industry, where analysts leverage their expertise and contacts to provide a holistic view to investors,” said Poon Werkun. This includes working on an ecosystem of private companies in the region, incorporating new datasets for analysts, and collaborating with the quantitative and ESG strategy teams.