Survey Shows Managers Expect Biggest Gains From Small Asian Markets

(February 15, 2011) — A survey by RBC Capital Markets and the Economist Intelligence Unit finds that asset managers expect strong growth from small Asian markets.

As a result of rapid growth from emerging and frontier markets, investors have looked beyond the traditional emerging market countries of Brazil, Russia, India and China (BRIC) to delver ‘alpha.’ “The emerging markets are more diversified than ever and are growing at different rates,” Marc Harris, RBC’s co-head, global research, said in a statement.

Smaller Asian markets, including Hong Kong, Singapore and South Korea, were considered to be the markets most likely to enjoy improved growth prospects in 2011, with three in four of those canvassed expecting to see better prospects there than in India or China.

Meanwhile, RBC Capital Markets’ study also indicated that an increasing number of executives of asset management, private equity and hedge fund firms have a pessimistic view on the US and Europe. According to the report, just 54% of participants predicted equity gains, down from 66% in a similar RBC survey in May 2010. Additionally, 68% of respondents said that foreign holders of US debt would encounter losses over the next three years.

Just 26% of respondents expected European equity markets to fall, compared with 40% in the prior survey, conducted in May 2010.

The most recent survey — conducted in January — featured 461 senior executives from around the world, of which 108 were executives of asset management, private equity and hedge fund firms. Other respondents came from banks, hedge funds, pension funds, sovereign wealth funds, and private equity firms.

With emerging markets set for further heavy inflows of investment, fund managers have expressed continued confidence in emerging markets as a top 2011 bet, fueled by double-digit returns, rising incomes, and rapid economic growth. According to the Institute for International Finance (IIF), equity portfolio flows to emerging markets are set to reach $186 billion this year and will be more than double the $62 billion annual average seen between 2005 and 2009.  Another study by Pensions Week, conducted last month, found that pensions have reported favoring emerging market debt over developed market debt. The study of investment consultants showed eight out of 13 leading EM debt fund managers say they expect 7-9% returns across the asset class in 2011.

The findings by RBC Capital Markets and Pensions Week point to a continued desire to focus on emerging markets and alternative strategies, such as long-short equity, macro funds and special situations, as opposed to US equity.