Fund managers made a significant contribution to the volatility of Asian emerging markets last year ...
Fund managers made a significant contribution to the volatility of Asian emerging markets last year by benchmarking themselves against the peer group and investing only in liquid stocks.
According to the latest report by Standard & Poor's Fund Research, as the peer group increases exposure to a certain market or country, others follow, generating vast inflows or outflows into individual countries.
Against such a backdrop, only two funds in the emerging markets Asia sector have been awarded an frAAA rating out of 48 funds which passed the performance screen: these were JF Thailand, which maintained its rating, and the India Liberalisation fund, which is upgraded by one band on the strength of three successive 12 month periods of top-quartile performance.
Four funds obtained improved ratings to frAA. They were Barclays Asian Selection Fund - Thailand, Fleming Flagship Fund India, JF India Trust and HSBC GIF Indian Equity.
Five funds slipped a rating band. Both Dresdner RCM New Tiger Hong Kong and Henderson HF India fell from frAA to frA reflecting worries over both funds' new managers' relative lack of experience in their respective fields.
HSBC GIF Hong Kong Equity and HSBC Hong Kong Growth fell from frAAA to frAA following the promotion of fund manager Man Wing Chung and concerns that he is now overstretched. HSBC GIF Chinese Equity fell from frAA to frA after two years of underperformance.
The report found that fund managers achieved mixed success in outpacing their benchmarks over the period to 1 December 1999. It identified three factors that contributed to outperformance.
Firstly, they had good thematic sector positioning, which meant backing cyclical recovery stocks in the first half of the year and then moving to telecom and technology stocks in the second half. Secondly, sound stock selection was important, as was low cash levels and use of gearing, where permitted. James Tew, European head of research, said: "Considerable emphasis over the period has been placed on sector research, developing regional themes, identifying stocks to back as well as to avoid.
"Similar to the rest of the world over recent months it is the telecom and technology sectors, with groups such as Flemings, Schroders and Fidelity, which spotted the trend early, that have tended to fare best."
The rewards for making the right decisions over the year to 1 December 1999 were substantial. In the high-flying Korean market, the margin between the top and worst performing fund in the 51 strong sector was 208% in dollar terms. In India, the second best performing market in the region, the difference between the leading and last fund was again over 200%.
Despite improved risk appetite
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