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Asia Pacific – a sea of liquidity…?

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To a lot of investors looking for growth and yield opportunities, the prevailing perception with Asia Pacific markets is that they represent a high risk, compared to more developed western markets. This perception was challenged during a panel discussion entitled Asia’s game changers and strategic opportunities” chaired by Gary John-Baptiste, Chief Commercial Officer, Asia Pacific, ABN AMRO Clearing. 

When asked “What percentage of your investments will be focused on Asia in 2019?”, two thirds of the audience voted it would be less than 20 per cent. 

“There is an image problem I think,” said Tobias Hekster, co-CIO, True Partner Capital, a relative value volatility manager based out of Chicago and Hong Kong. “In 2018, the US markets showed more movement and presented more of a risk. I would therefore argue that going forward there could be more risks and frothiness in parts of the US markets than in Asia.” 

Asia presents a massive opportunity. It is home to the 2nd (China) and 5th (India) largest economies in the world, and as the panel highlighted, one of the exciting trends that will likely play out over the next 10 to 15 years is frontier markets developing their export economies as India and China move further towards consumer-driven economies. 

“Bangladesh has been following the Asia model of exporting products, which started with textiles and has moved on to pharmaceuticals. We see a stunning rate of change in Vietnam, which has a well- educated population ready to move up the income ladder. This is not just a China story,” commented Laura Geritz, CEO, Rondure, a Utah-based investment adviser with a focus on value investing. 

Anant Jatia, Founder, Greenland Investment Management explained that the Stock Connect and Bond Connect programmes had been successful in opening up China’s market, and that commodity 
trading on the mainland was set to be the next major development, referring to China’s commodity markets as a “sea of liquidity”. This is because they are largely untouched by institutional investors and dominated by retail flow. 

“For us as an arbitrage player, that presents a huge set of opportunities to take advantage of that sea of liquidity as we start to see the internationalisation of Chinese onshore commodity contracts,” said Jatia. Crude oil and iron ore futures can now be traded by overseas investors. 

India is also planning to allow foreign participation in its commodity markets in 2019. For active managers, having access to two major onshore commodity markets could provide new ways to seek out alpha over the coming years. 

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