After entering 2003 fearing for both the literal and financial health of Asian markets, institutional investors in the region are beginning this year with optimistic expectations of double-digit returns from all major Asian markets.
While few Asian investors believe that equity markets can sustain the 30% to 40% returns witnessed in 2003, research by Greenwich Associates reveals that investors predict return rates of 10-15% for 2004 in every Asian market surveyed (excluding Japan and Australia). “The rate-of-return expectations are very encouraging,” says Greenwich Associates consultant Jay Bennett. “Asian institutions are positive on the future – they are optimistic but realistic in their performance targets.”
Greenwich Associates interviewed 200 Asian equity investment professionals at institutions based in Hong Kong and Singapore and found a marked reversal in attitude after two years of poor performance, the departure of some major firms from the market, and the SARS crisis. Greenwich’s 2003 report on Asian equity investors details these positive expectations, including plans by three-quarters of Hong Kong and Singapore institutions to maintain current staffing levels over the next 12 months following several consecutive years of cost-cutting. The Greenwich Report also examines trends in the Australian markets, and presents data on compensation levels for institutional investors in Asian equity markets.
“This past year really felt like two years,” says Greenwich Associates consultant John Feng. “The first two quarters were plagued by SARS, and it was in general a very tough environment for both the buy-side and sell-side. The second half of the year actually brought healthy rates of return. In some of the smaller markets like Thailand and Indonesia, rates of return were much higher than 30-40%, and, looking ahead, there seems to be a reasonably healthy underwriting pipeline for the issuers in the region.”
Investors are most bullish on Taiwanese shares, with an average 15.4% rate-of-return expectation. For Hong Kong shares, over half of the investors expect returns of 10-20%, and an additional quarter expect up to 10% returns. For the Singapore market, investors are positive, but more cautious: half expect up to 10% rates-of-return and only a third expect returns of 10-20%. Fewer than 9% of all institutional investors surveyed in major Asian markets expect to see negative returns in the year ahead.
Perhaps in anticipation of such continued strong performance, investors across Asia are looking to the sell-side for ideas and advice in making investment decisions. Commission allocations to equity research are higher in Asia than in any other major market surveyed by Greenwich Associates. “Priorities are changing among the investors in the Asian markets,” explains Jay Bennett. “The focus is now shifting to meet the demands of busier local deal calendars. And especially among the largest institutions, a substantial portion of commission allocations are moving out of trading and into research and new issues.”
While Asian institutional investors maintained their portfolio holdings in Australian shares over the past year, a sharp decline in Australian share brokerage commissions suggests that institutional focus has shifted away from the conservative and highly transparent Australian equities market. Asian institutions held their Australian-share allocations steady at 11% from 2002 to 2003. At the same time, however, Australian share commissions plunged to just US$50 million – a decrease of almost 50% from last year, according to Greenwich’s 2003 survey of Asian institutional equity investors.
Across all Asian markets, 75% of institutions expect to hold portfolio manager and analyst staffing levels steady in the coming year. Almost one-fifth expect to increase staff, while only 5% expect to see a decrease.
While average salaries for Asian equity investment professionals were relatively flat between 2002 and 2003, total cash compensation is expected to be up slightly year-on-year. Among all job functions, research analysts appear to be benefiting most, with an increase in salary of 5% and expectations for an increase in bonus of more than 35%.
Portfolio managers in Asia reported average salaries of $132,000 in 2003, ticking just slightly upward from $130,000 in 2002, with the expected bonuses averaging about $60,000, compared to actual average bonuses of $55,000 the previous year. Analysts reported an average 2003 salary of $122,000, up from $115,000 the previous year, with expectations for $125,000 in average bonus this year, compared with about $90,000 in 2002. Traders reported earning an average total cash compensation of $98,000, compared with $94,000 a year earlier, and anticipate bonuses to be up by 17%, from $23,000 in 2002 to $27,000 expected in 2003.