Pioneer targets Pacific Ocean growth

Slowing growth in China coupled with an exodus from emerging markets has led many Asian institutions to eye opportunities abroad, with the US is high on their list, says Pioneer Investments.

Sam Wardwell, strategist and senior vice-president at Pioneer Investments, spent last week meeting the €165 billion ($220 billion) firm’s Asian clients, which include sovereign wealth funds, pensions, insurance companies and high-net-worth individuals.

Only 3% of the firm’s assets, or $6.6 billion, are sourced from Asia, and the firm is now focusing on growing its Asian investor-base.

“We view Asia as perhaps the most important area in terms of geography going forward,” Boston-based Wardwell tells AsianInvestor on a recent trip to Hong Kong. The firm’s funds, which include global macro and global emerging markets strategies, are managed out of Boston and London. It has a 19-strong sales staff in Asia dedicated to raising regional money.

“While we do have a strong presence in Asia, we have been more an Atlantic Ocean firm than a Pacific Ocean firm,” he says.

Asian investors’ interest in investing abroad, particularly in the US, is an important take-away from his recent trip, where he went to five Asian cities in as many days.

A combination of slowing growth in China and a sell-off in emerging markets has led regional institutional investors to look elsewhere, and a number of large asset-owners are seeking to open their first offices in the US, including Singaporean sovereign wealth fund Temasek Holdings and Malaysia’s sovereign wealth fund Khazanah Nasional.

Wardwell says there several reasons why the US story resonates with the Asian investor community. Although unemployment numbers in the US remain high – 7.4% in July – some 2.3 million people gained employment in the past 12 months, indicating that by the middle of 2014, there will be more people working in the US than ever, according to US Census Bureau statistics.

Demographics in the US are also favourable. According to the US Census Bureau, some eight million Americans are under 30, which should benefit a number of sectors for decades. While China’s demographics are hard to ignore, Wardwell says its one-child policy will eventually stifle the labour force.

Then there is the shale-gas story (see AsianInvestor magazine's July edition), which will see the country become one of the largest and cheapest producers of energy outside of Saudi Arabia and a net exporter.

“The US economy is big, broad and not particularly vulnerable,” Wardwell says. “It’s a relatively safe place to put your money.”

This shift of focus to the US has been fairly recent. On a similar trip at the same time last year, Wardwell says investors were much more sceptical about putting money abroad, preferring to keep the majority of their cash closer to home.

However, EM assets saw a sharp correction earlier this year – particularly severe in China – which in turn have led to emerging markets falling out of favour with investors. According to a recent Bank of America-Merrill Lynch fund manager survey, investors are more bearish on emerging-market equities than they have been for 13 years.

Yet Wardwell says investors should not discount EM entirely – whenever there is weakness, there is usually a buying opportunity. China, for example, is not crashing but simply slowing to an annual GDP of 7-7.5%, he says.

In addition, he points out that EM governments are not laden with debt, unlike Western counterparts. This could balance out the near-term volatility risks.

On Japan, Wardwell remains dubious. “In our firm, the jury is out as to whether ‘Abenomics’ will work,” he says. “Very clearly the lower yen and the fiscal stimulus have had a positive impact in the short run.”

Abenomics has its sceptics and its supporters. While Wardwell believes the aggressive monetary easing and fiscal stimulus measures will benefit Japan’s economy near-term, if prime minister Shinzo Abe fails to follow through on his third policy arrow – actual implementation of structural reform – then the fiscal stimulus and monetary easing “will not be sufficient”.

As such, he is “reserving judgement” on Japan.