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Three big issues on fund managers' agendas this month

With the swathe of macro issues on fund managers' agendas each month it can be hard to prioritise which to tackle first. Here Citywire Global has canvassed three leading investors to find out where they will be concentrating their efforts in the short-term.

China's shadow banks: credit bubble looms large

Brett Diment, Aberdeen

For Brett Diment, head of emerging market and sovereign debt at Aberdeen Asset Management, the looming credit bubble in China remains the largest concern.

Diment says China’s non-banking groups have risen from providing 10% of overall funding to around 50% in the past five years.

‘China’s shift in recent years toward a financial system less reliant on banks, and more reliant on alternative funding sources – the so-called “shadow banking” sector – was always going to cause concern for the country’s administration and investors around the world.

‘But while keen to curb the risks, in drawing up new rules aimed at controlling its shadow banks, Chinese policymakers also recognise the benefits it has brought to the economy. The economic slowdown forced a recognition that market-led financial and capital markets will play a key part of China’s future growth.’

Diment sees the tightening of lending conditions as necessary for China to shake off warranted speculation about the quality of loans being extended.

Capex spending: time for companies to act

Sharat Schroff, Matthews Asia

Lacklustre growth in Asia as a whole is irking Citywire + rated manager Sharat Shroff of Matthews Asia. The increasingly fragmented region means investors have to be very selective in the coming year.

‘The ability to deliver better growth in 2014 and beyond hinges on the ability of companies to recover some of their profitability, and engage in investment spending, says Schroff.

‘Another key factor is valuation. On both an absolute and relative basis they look compelling, and these are not based on earnings projections that are particularly heroic. In addition to growth and valuation, the flow and availability of capital can have an impact.

‘Here we could see more challenges ahead, particularly given the Fed’s recent tapering, which could see liquidity remaining constrained in the short term. However, when we put all these together, we believe there are reasons to be optimistic on the outlook for Asia this year, and it is these factors, among many others, that we will be following closely over the coming months.’

Cyclical shift: sell-off creates buying opportunities

Richard Sennitt, Schroders

Fellow Citywire + rated manager Richard Sennitt, who oversees several Asian income funds at Schroders, believes a more cyclical shift is afoot in Asia, and he is rebalancing portfolios accordingly.

‘Our view has been for some time that the defensive areas of the market look relatively expensive,’ he says.

‘In general, this is also true among income stocks, where we had been seeing relatively more value in the more cyclical, slightly lower yielding stocks that have potentially a bit more growth rather than the more traditional, higher-yielding defensive names.

‘Although this remains our preference, the sheer scale of the sell-off in the higher yielding areas of the market has started to throw up ideas.

‘Clearly, from here, a substantial move up in long bond yields would be a headwind for Asian income stocks. However, long-term rates have already nearly doubled from the lows despite inflation in the US (and globally) remaining weak; with the initial date and size of “tapering” now confirmed we believe that this will help relieve some of the uncertainty that has been overhanging income stocks.’

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