(Pictured: Peter Sartori)
by Greg Bright
Australian institutional investors are generally considered to be among the most sophisticated with their offshore investments. They pioneered international infrastructure and have been enthusiastic participants in overseas private equity, direct property and other real assets. But what about listed equities?
While adopting an allocation, on average, of more than 30 per cent to total offshore assets (in some cases 50 per cent or more) – also among the highest in the world – and with listed equities the biggest single component of this, it has to be said the listed part of their portfolios has not changed much in the past 20 years.
In the 1990s, led by MLC, there was a brief flirtation with regional portfolios versus global. And, during the tech boom later that decade, there was talk of splitting the world into two: the US and the rest. But it turned out to be just talk.
Over time, for most super funds, any additional spice from international equities has come from a range of sources including concentrated global portfolios, smart beta instead of straight indexed, thematic investments, global brands, and emerging markets – with the occasional Asian mandate.
In fact, super funds seem to be more likely to look for extra returns in their active strategies from having a concentrated global portfolio rather than a more diversified one that is overweight to Asia or has discrete Asian mandates.
Notwithstanding the rise of China as a direct investment destination for most big companies in the world, Australia’s big investors have been happy to gain their Chinese and East Asian exposures indirectly.
However, according to Peter Sartori, a veteran investor in Asia ex-Japan stocks for Australian investors, various factors are combining which should see a significant improvement in sentiment towards the region. He has tilted his ‘New Asia’ fund, which he runs from Singapore for Nikko Asset Management, towards China and India, both of which are offering compelling, though very different, stories.
Sartori launched the fund in 2005 in Sydney under the Treasury Group multi-affiliate umbrella. He opened a Singapore office in 2007 and moved there himself in 2009. The Nikko AM Asian equities team numbers 16 in Singapore, of whom 12 are dedicated to the New Asia fund. Since Nikko bought the business from Treasury Group in October last year the number of sector analysts has been increased from five to eight. It’s a big team for an Asia ex-Japan fund.
Sartori says that super fund reticence to invest in Asia ex-Japan because of existing exposures through their Aussie equities portfolios, especially resources, no longer makes sense. “For some years you’d say: ‘just having BHP gives you enough exposure to China and India’. But it’s different now because the Asian story is no longer just a commodities story,” he says.
“Both countries are crucial for the region,” he says. “India has had a game-changing election. We think they’re at the start of a multi-year bull market. India has always had good companies but it’s disappointed at the macro level because of poor infrastructure and restrictive regulations.
“China is very different. It’s much more of a stock-picker’s market. It has slowing growth and a very cheap stock market. Sentiment has been against it.
“Both [countries] have very strong leaders with absolute power and they are both keen to implement reforms.”
Sartori admits that, for investors, Asia has been on a “roller-coaster ride” for the past 20 years. “But we think it’s now in for a period of more sustainable returns and with more consumption driven and less export-driven economies,” he says.
The recently announced Shanghai-Hong Kong Connect market – known as the ‘through train’ – allowing both north and south-bound stock investments through Hong Kong brokers, is another reform which is likely to make the Chinese market more stable through encouraging institutional foreign investment. To date, the Chinese stock market has been dominated by domestic individual investors.
The Shanghai ‘A Shares’ market, in which foreign investors had been able to invest only through QFII quotas prior to the through train, is up about 15 per cent since last month’s launch, while the Hong Kong market was up only 1 per cent in the same time, indicating more north-bound investment than south so far. The Shanghai market is still well off its peak of more than 6000 at the end of 2007, having risen about 35 per cent from its bottom near 2000 early this year.
The Nikko New Asia fund consists of between 40-60 stocks from a universe of about 600 from the MSCI Asia ex-Japan (All Countries) index. Indian stocks currently make up 15 per cent of the portfolio (index 9 per cent) and Chinese stocks 32 per cent (25 per cent). Within that, the fund is skewed towards health care and insurance companies.