AMP Capital expects financials to recover in 2009

This is part of an AsianInvestor series on the investment outlook of fund managers with Asian portfolios.

Shane Oliver, Sydney-based head of investment strategy and chief economist at AMP Capital Investors, is responsible for the fund houseÆs diversified or multi-asset funds. These funds invest in a whole range of assets including, bonds, equities, cash, property, infrastructure, private equity and hedge funds. The total AUM of the multi-asset funds is $18 billion.

AMP Capital Investors is a specialist investment manager with around $110 billion in assets under management worldwide, including around $10 billion in Asia.

What are the biggest opportunities that you see in the markets you are responsible for in the coming 12 months? How are you preparing to take advantage of those opportunities?

Oliver: The slump in share markets will provide a great opportunity some time in the next few months. We are not necessarily there yet, but valuations are now becoming very attractive, indicating that a lot of bad news is already priced in. So at some point, I envisage that it will be time to reallocate from cash and bonds into equity markets, including into real estate investment trusts (Reits).

How different or similar is your 12-month investment outlook now compared to the start of this year?

At the start of the year, I did not anticipate a slump in shares of this magnitude although I did expect a poor first half, with better conditions later in the year. With shares now having fallen further, they will have a stronger rebound over the next 12 months. I have also become a bit less confident about Asian markets given their more serious and broader inflation problems which will necessitate tighter monetary policies versus the US.

Have you made any significant changes to your asset allocation in terms of markets or sectors in the past few months?

Our major asset allocation changes since mid-May have been to reduce our equity and Reit allocations in favour of bonds and cash. Back in mid-May we thought that shares were set for another fall having rallied from mid-March on the grounds that the global outlook was still deteriorating and not being helped by higher oil prices, the ongoing credit crunch and inflation fears so we started to lighten off. More recently, we came to the view that the back-up in global bond yields had gone too far and that inflation fears had become overdone given the ongoing deterioration in global growth.

What are your favoured markets in Asia?

On a 12-month view, I would favour China, Korea and Thailand. China is oversold and has become cheap again despite still offering good growth prospects. Korea and Thailand are very cheap and should rebound strongly once confidence returns.

What are the markets you are going to steer clear of in the coming year?

India and Malaysia remain overvalued and India is vulnerable to further monetary tightening.

Which sectors do you expect to outperform in the coming year?

Financials are likely to outperform over the next year as they have been sold down dramatically.

Which sectors do you expect to underperform?

Consumer discretionary stocks are likely to underperform as consumer spending slows.

What are the main challenges that you expect to face in the coming 12 months?

The main challenges over the coming 12 months are likely to be earnings downgrades in response to the global slowdown.

What are the main risks of investing in Asia at the moment? How are you managing those risks?

The main risk of investing in Asia at the moment relates to further share market falls in response to global weakness and rising interest rates in some countries. As a result, we have moved to underweight Asian shares.