Rate cuts no cure, says Asian fund manager who beat 98% of peers

Asian equity markets may face further turbulence down the road as a series of rate cuts in the region are unlikely to shore up economies, according to a top-performing fund manager.

King Fuei Lee, who co-manages the Schroder Asian Total Return Fund, says there’s a risk of long-term deflation because monetary policy hasn’t stimulated investment and consumption. The impotence of central banks mostly stems from structural problems including demographic issues, income disparity and excessive debt, he said.

“If long-term economic growth continues to be poor, it’s difficult to see what’s going to sustain markets at this valuation,” said Lee, whose fund has returned 12.5 per cent annually over the past five years, beating 98 per cent of peers compiled by Bloomberg.

Lee’s comments come as investors weigh how to react to a wave of monetary easing by central banks across the world, pushing bond yields to new lows amid fear of a global recession. The Philippine central bank is expected to lower rates when it meets on Thursday, after larger-than-expected cuts in New Zealand, India and Thailand. He has been adding protection to his portfolio by buying ‘put options’ on Hong Kong and China, where the fund is mostly exposed to, reducing its net long position to 80 per cent from 88 per cent in the beginning of this year.

While the MSCI Asia Pacific Index was set to complete a two-day gain on Thursday, Asian markets such as Korea and Malaysia have erased year-to-date gains amid trade tensions between the US and China. 

The Schroder Asian Total Return Fund, which is managed by Lee and Robin Parbrook, has returned 12.5 per cent annually in the last five years and has gained 10.5 per cent YTD, beating the 2.1 per cent advance in the benchmark MSCI AC Asia Pacific.