The early take-away from my Asian experience:
1. Increasingly the focus of all Asians will be the north-south corridor of internal Asia rather than across corridors into the US & Europe - adjusting your investment outlook to this new world order is in my simple opinion the most important change one needs to make to understand - let alone make money in the next few years.
2. RMB faith. There is tremendous support/believe in China's ability to compete as currency in the international market. The concept being that the US ultimately will devalue themselves out of the trouble, this is what they have done in the past and this time it is no different - Europe meanwhile will put up more and more protectionist measures as highligthed by Mr. Dirigisme Sarkozy, who makes Karl Marx look like an amateur in the game of Socialisme. Asia accepts JPY will go stronger, but they prefer the RMB as storer of value through the next few years.
I respect this concept, but I have a hard time being a 'hard line Liberal' to accept ANY model which is based on 'economic planing' and allocation through central planning. I can't see China going it alone, but I think the above argument extremely valid and I am not one to argue based on my simplistic views of the world.
3. China will link periphael Asian currencies to the RMB. This to me is truely new idea, but again from 10.000 feet perspective it makes sense: China can use the present crisis to extend "guarantees" to Indonesia and other weak foreign reserves nations serving multiple purposes: access to their resources, building co-depence on China reserves, secure military export, and align China interest with that on the linking currency. Truely if done it will catapult China status and have geopolitical implications not presently priced in.
4. Appetite for corporate Asian credit. A favourite theme of mine, seems to have fans in Asia to - there is so much dislocation in short-term corporate bonds, that the upcoming refinancing will make for excellent plays which taken correctly could yield 15-35% p.a. There was NO APPETITE - and I mean zero, zilst, nada, ingenting, keine interest for Europe or the US - This is the first time I have seen Asia so 'local' in their investment outlook. Clearly a tell sign things are to change.
5. We all had positions we did not want. Around the table pretty much all of us, where in positions we did not like: The US Dollar, fixed income, short equities.
This tells me one of two things:
1. Either we need further erosion as we all take profit too early not truely acknowledging this is the 'right' trade despite our reservations.
2. There is room for major (suckers) rally as 'we' move into what we really like.... altough talking from personal experience I never seem to have any positions on I really like, the ones I understand normally losing me money, and the ones I do not believe in being the profitable ones.
Overall I am very keen on Asian stocks (versus short Europe) - I am, probably naively, starting to believe Japan could outperform.
- They have total savings in excess of all Sovereign Wealth Funds in the world
- The dividend yield on Nikkei is now higher than JGB's - why would you then buy Japanese Fixed Income?
- The premise of scarcity of capital makes the Japanese productio model appealing (think Toyota)
I hate travelling! Yes, hate is the correct word! However I am again totally humbled at how being on the ground explains so much more, and having the luxury of meeting people ten times smarter than myself and hearing them talk about the markets, makes me realise its all worth it - especially having been 'carried' to Asia on Singapore Airlines new 777-300 which makes travelling overnight as much of a pleasure as it can be: Check this: http://www.flatseats.com/Micro/index.htm
Strategy:
We are still long 75% cash, the 25% deployed in:
Negative Stoxx50, long jpy, short gold, short EURUSD & EURJPY. Small long TIPS, looking to buy selective Japan, SGD, utilities.
Finally, may I suggest you read my Singapore colleagues blog which is truely timely, wise and to the point: http://saxocapital.blogspot.com/
Safe trading,
Steen
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