Risk appetite in EMs has improved: Allianz Dresdner

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So typically a fund manager who has experienced these outflows in the past, as they encounter a market correction or consolidation, will typically build up a buffer of cash hoping not to get caught out as these redemptions start coming through, and be forced to sell their most liquid stocks in the portfolio, which tends to be the higher quality stocks. So rather than look to unwind some of those stocks that are less liquid and perhaps have performed, they are forced to sell stocks that they would have liked to hold for a long term and which are likely to do better over the full cycle. So in that sort of environment you do expect to see some of the dedicated funds build up some cash positions.

Q: Any specifics on which pockets are seeing more interest. Is it the midcap universe because as we understand that it is seeing a lot of interest now, or is it still very sector specific?

A: We have seen in retail markets, both in this region and elsewhere in Europe, a huge proliferation in investment in emerging market funds, and also in the index related products, which is sold through retail banking channels and through the private banking channels. These tend to drive some of the index stocks quite hard.

You do get opportunities in terms of valuation differences in midcaps and some of the small cap areas. So we tend to follow that quite closely. So some of our single country funds and some of our regional funds investing across Asia Pacific will tend to fish a little bit lower down in terms of market capitalization and take advantage of this.

A good example of this is our Hong Kong fund, which tends to have a slightly overweight position in midcap names and it works through a strong advantage for the investors. So yes that is the case.

In terms of the overall theme, probably now investors globally are starting to get sharper focus on China. There seems to be some credibility to the belief that China will continue its growth path, both through this year and into next year, with a slight moderation but basically high levels of growth. Even though this interest rate surprised markets and investors, there seems to be a belief that there is very little that the Chinese authorities and the Central Bank can do to really effectively rein in credit growth.

So as a result the economies are going to continue to grow and I think investors are taking advantage of some of the perceived liberalizations coming up. Also, with expected RMB revaluation we have started to see interest mounting again in China.