Be in the right place at the right time - and now that's Asia

With the ECB confirming last week that it would pick up where the Federal Reserve left off as far as monetary stimulus is concerned, bond yields have actually gone the other way. That’s been very uncomfortable for many investors.

The rotation that did happen this year sneaked up on investors and also confounded the conventional wisdom at the beginning of 2014. It’s a shift back into Asian stock markets. The move above 2,000 for the S&P 500 has not been the main story of the past three months. Rather it has been the unexpected return to form of many of the Far Eastern markets which were so short of friends at the start of the year.

Unexpectedly, Thailand, China, Taiwan, the Philippines, India, Hong Kong and Indonesia have all been better places to be invested over the past three months than the US. In most cases they have outperformed Wall Street significantly.

There are five reasons for the improving fortunes of Asian markets over the summer. The first is an easing of concerns about the winding down of monetary stimulus in the US. The end of QE is just around the corner but Fed chair Janet Yellen is clearly in no hurry to raise rates.

Second, there has been a reawakening of foreign investor interest in the region. If you disregard a couple of months of outflows from Thailand as the military took control, each of the last six months has seen steady inflows to pretty much every country in the region.

That’s been driven by the third reason, a growing appreciation of the attractive valuations in the region, although it has to be said that the averages are heavily skewed by China and Korea, which are notably cheap.

Fourth, politics has been a positive in Asia since the spring, prompting the waggish observation that the election of Mo (Narendra Modi in India) and Jo (Joko Widodo in Indonesia) have together helped the region recover its Mojo. Investors see both as business-friendly breaths of fresh air, with none of the baggage of the traditional political elites in the two countries.

If they can deliver on promised reforms, the world’s third and fourth most populous countries might yet provide a new engine of growth to pick up the baton from the faltering Chinese economy as the principal driver of global expansion.

The early signs of a synchronised cyclical recovery, helped by the summer’s mini-stimulus in China and a programme of fiscal boosts in Korea, provide the fifth reason to believe that the Asian rotation can continue. It should buy time for the slower-burn reforms in China and Japan to take hold and the long-run advantages of the region to reassert themselves.

Tom Stevenson is an investment director at Fidelity Worldwide Investment. The views expressed are his own.

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