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Aberdeen looks for redemption in China
China and its emerging markets trading partners got roughed up pretty badly this summer. Aberdeen Asset Management is betting that the sector is hitting a trough -- and is essentially asking for investors to buy into their view.
Aberdeen itself got hit by the market mayhem. In just the second quarter of this year, it has lost $30.5 billion in assets and its stock has tumbled 23% so far this year. Total assets under management have fallen 7%. The firm has been bleeding assets for nine straight quarters, and a possible rate rise in the U.S. later this year could just make that worse. Competitors, such as Schroders and Henderson, are seeing outflows, boosted by their exposure to European assets, reports the Financial Times. About 30% of Aberdeen client assets are in emerging markets, and about 5% is in Chinese companies.
“We’ve got to sit this out. All we can do is control what we can control, which is [to] look at the costs in the business [and] try and manage money well for our clients,” said Aberdeen CEO Martin Gilbert in late July. “What we can’t do is manage market sentiment.”
Aberdeen has pushed to counter asset outflows with acquisitions, most recently snapping up the London-based Advance Emerging Capital, reports BBC. In August the firm looked to the U.S. and bought U.S. hedge fund investor Arden Asset Management, boosting its hedge fund unit's assets from $2 billion to $11 billion. Aberdeen also purchased U.S. private equity firm Flag Capital Management in May. Late last year, the firm acquired Scottish Widows Investment Partnership (SWIP) in an attempt to diversify its business away from such an emerging market focus. But the firm hasn't seen much benefit from that move yet.
At an all-day conference for media, the head of equities Devan Kaloo says there's a light at the end of this long and dark tunnel. "Perspective matters," he says. Yes, GDP in China has been slowing, but it has been for some time. Emerging market investors have a right to be skittish, especially as the U.S. looks to raise interest rates, says Kaloo. Investment outflows for emerging markets year-to-date have already surpassed the outflows for all of 2014. But Kaloo is confident that many of these issues are signalling the bottoming of the economic cycle that can only recover from here.
Investors pulled 31.5 billion yuan of shares of Shanghai-listed stocks in July, as the market spiraled. The Shanghai Composite Index fell 40% from its high June 12. But last month investors bough 21.4 billion yuan worth of the market's listed stocks through a trading link with Hong Kong, reports The Wall Street Journal. Some sectors, such as insurance, healthcare, and technology, are thought to be ready to benefit from the transitions in the Chinese economy away from raw materials to boosting middle class needs.
Kaloo says the news is unlikely to get much worse: withdrawals from emerging market stocks are nearing their peak, in his view; and China is trying to discipline its markets. And the currency has already gotten crushed by the strengthening dollar. If the Fed raises rates by 25 basis points, he doubts EM will get very hurt. The damage is done.
There are some actively good signs. Set aside the SOEs -- the ginormous zombies of the economy -- and there's some good stuff happening in the private sector. Emerging market stocks are attractively valued, he says. And investors could benefi