Asset Class Returns As At end-February 2010

REITs continued to be bought up aggressively as the deep discounts saw many funds taking the plunge to buy for value and recovery. Commercial properties are still a long way off to normalisation but its gratifying to see activity there, and the returns for the past 12 months was nearly 100%.

The trend in February was again one of posting a wide range of results and a shifting pattern of winners and losers on a monthly basis. This isn’t a shock, but more of it is probably coming, meaning that a new set of challenges await for managing asset allocation relative to the trend for much of the past 12 months.

February saw some weakness triggered by the Greece situation. Commodities and US stocks were the only ones posting positive monthly gains. Sovereign debt issues were hit as investors priced in the higher default risk.

I suspect the better performance of REITs and commodities were probably linked to rising yen and dollar carry trades. We can expect more of the same. Other than that, I do not see any strong asset class trends appearing, expect muddling performances from the rest over the next few months.

Asset Class Returns As At 31 December 2009

REITs have continued to climb, a sure sign of sustained bottom fishing, which may explain the still subdued recovery in real estate in the US. This kind of sustained bottom fishing is important as it will enable funds to tap new investors or old ones to put in fresh capital to take advantage of a recovering sector. As in any recovery, you need to see fresh capital re-emerging. Uptrend boosts confidence, and a bit of confidence is a lot more powerful than a spreadsheet or power point presentation.

Emerging markets equity closed off the year very well. Developed markets equity continue to suffer from a perception of delayed recovery, and subsequently a lack of fresh funds flowing into those markets. What was surprising, or not really, was the sell off in US bonds and emerging market bonds. This is a strong indicator - it shows that risk aversion has continued to ease, and more importantly investors are preparing funds to obtain higher returns in the first quarter of 2010 (i.e. equity).

p/s photos: Mona Chopra

Asset Class Returns As At 30 November 2009

Time for the monthly review of the performance of various asset classes. Emerging market stocks have had a fantastic YTD, chalking nearly 70% return, some of that attributable to the USD carry trade, but also due to the immediate stimulus programs enacted by many emerging markets' governments. When you realise that most of these countries did not have as massive a wealth destruction effect as say in the US and much of Europe, one can understand the liquidity awashed in emerging market.

The other important sector which I have highlighted last month was that the commodities have started to move, which is also why the CPO saw some good upwards action last month. I suspect that its not pertaining to the fundamentals of commodities per se but rather some of the switching by USD carry trade into commodities.

If you look at the US equity markets, though many seemed fearful as it climbs towards 11,000 on the Dow, they are just up broadly by 25% on a YTD basis.

Surprisingly, junk bonds are also posting unusually large returns, or what we call high yield bonds. That can be explained by the deluge of funds moving out of cash markets and TIPs seeking higher returns one the risk aversion mentality subsided, causing a sudden ramp up in demand for junk bonds. However, the return last month for junk bonds has been muted as many are more circumspect now that the Dow has breached the 10,000 level.

p/s photos: Jessica C. (Wacoal's top model)

No, Not Lost In Space ...

Readers of this blog may have been speculating that I might have been abducted by aliens or taken away to Sg Buloh for some "gentle questioning sessions" - ... actually hopped onto a plane and have been in Sydney, still am... do not have access to the internet, so the postings will be infrequent.

Thankfully, there is the monthly asset class returns from The Capital Spectator - gives me something to talk about without too much work.

After a long period of flattish performance, commodities have started a move last month. Though it may sound silly, I think it is VERY EASY for this kind of asset class moves to turn into a wave, go long on CPO. I do think the rumour of Sime Darby selling 10% to China-interest has a high degree of credibility - and of course it is very good for Sime Darby. Though I did not like many of Sime Darby's M&A and subsequent integration plans, it is still the number one plantation company in the world. Many also may not be aware that it has been building very important port facilities and have a few very exciting long term ventures in China already. Let's just say that Sime Darby may be reinventing themselves to latch onto China as the platform for their next growth phase for the next 10 years. Yes, Sime Darby is a BUY now, no time to do a "Why I Like..." but close enough.

Curiously though, there have been more interest in bonds and relates papers last month according to the table. More significantly, the REITs have showed signs of weakness after a spectacular run for the past 3 months. This may indicate that we may have recovered from the lows, now the euphoria is over, some of these REITs are still showing tremendous leverage and debt difficulty.

p/s photos: Jocelyn Lukos

Asset Class Returns As At 30 September 2009

Emerging market stocks continued its strong run in September bringing its YTD gains to 61.5%. REITs which I touted as being safe to get back in 2 months back, registered another good month. Developed markets equities ambled along. Nothing new here, with the G20 committed to an easy money policy, the equity markets broadly should be supported still. Watch for upticks in commodities as that has languished for most of the year. Commodities have more to pick up when real capital spending and global trade recovers. The fact that it has not moved much tells you that globally the recovery, especially in developed markets is slow, and that the producers still have some inventory levels to work down. Emerging markets vibrancy alone cannot tilt the scale. To me, we are in the 6th inning in a 9 innings baseball metaphor rally. The following legs will kicked in when developed markets equities start to really gain steam.

Asset Class Returns As At 31 August 2009

August was the month which saw Emerging Markets equity skidding after a strong showing for the past few months. The group lost 0.5% but was still up a long way on a year to date basis (+48.3%). At that kind of rate, August was a much needed breather. As mentioned during last month's tally, REITs was the one to be in, and rightly chalked up the best showing in August, so much so that REITs are on positive territory on a year to date basis thanks to the month of August alone.

August was the month where Foreign Developed Markets (ex-US) had a bit of a decent run, maybe on a portfolio reallocation where some institutional funds were taking off some bets in Emerging Markets in preference for developed markets. Commodities continued its dismal run, and this may indicate that the global economy is still some way off from a proper recovery, what we are seeing is a stock market recovery, which basically tries to discount a more solid economic recovery 12-18 months down the road.

p/s photos: Shinobu Ikehata

Asset Class Returns As At 31 July 2009

The month of July was a very exciting month. Things really moved! Emerging markets continued to defy most expert predictions by surging headlong, led by China. It wasn't just emerging markets but developed markets surged as well. The funny thing is that when emerging markets moved, we always get the nasty and critical pieces on how and why emerging markets are too risky and have no reason to outperform the developed markets - hello... how the fuck do you think we got into this current mess, thanks to the fucked up brilliant greedy financial experts in developed markets!!!

REITs is a very interesting vehicle as they will only attract buyers when investors can see a genuine bottoming in the real estate space. Although the REITs are mainly representative of the US sector, it does indicate some vibrancy - despite its 10.4% gain last month, REITs as a whole is still down 41.3% year to date, an indication that there is still a long road to recovery. Another way to look at them is that it is time to really buy aggressively those REITs that currently yields very well (low teens) in Grade A or even Grade B offices. Wait another two months, and it won't be so attractive anymore.

Despite the concerns over commodity price gains in recent weeks, its pretty clear that the gains have not been excessive. As a group it is only up 3.2% and on a year to date basis, it is still down by 38%.

p/s photos: Chrissie Chau