Trader profile: Politics outweighing fundamentals

Francisco Quintana is the head of research at Asiya Investments.

Francisco Quintana is the head of research at Asiya Investments. Courtesy Asiya Investments

Name: Francisco Quintana

Position: Head of research at Asiya Investments.

Experience: 10 plus years

Based: Kuwait

What is the asset class and geography you are focused on?

Our mandate is to invest in emerging Asia, without any restrictions regarding asset classes. We think that there is an ongoing transformation by which Asian exports-led economies will in time become consumption-oriented. This change will create opportunities that, under the current circumstances, the Arabian Gulf’s investors won’t be able to access. Over half of the wealth of GCC investors remains in the GCC region, which is not a good idea from the diversification standpoint, and even more so when we take into account the regional oil dependency. In terms of asset classes, we work mostly with equities, although private equity deals and trade financing have been gaining share of our portfolio lately.

What is the outlook for the month ahead?

Fundamentals continue to be stronger in Asia than anywhere else, but fundamentals have not been the main driver of prices for a long time. At this moment in time, only two factors really matter – policy and conflicts. Policy-wise, the outlook is not particularly exciting. The Federal Reserve is discussing the timing for tightening, Japan has already used most of its artillery and China is trying to balance tightening reforms with mini-stimulus measures. The European Central Bank is the only actor that can offer some significant action. Whether the ECB can help international markets across geographies and asset classes is unclear, mostly because of political constraints hampering its capacity. All things considered, we remain mildly optimistic on Asian stocks for the next month.

What are the main risks, either upside or downside, to the outlook?

Right now most of the risks are on the downside. The likelihood of a global meltdown is lower than in 2011 but the world’s economy is still weak and fragile, even after five years of massive liquidity injections by central banks. Asset prices in developed markets have been artificially inflated and any factor that could trigger a disorderly correction should be watched carefully. The top three threats now are armed conflicts, an abrupt discontinuation of central banks’ current support and a hard landing in China. Geopolitical issues constitute the main risk. Instability in Hong Kong, the China Sea and Libya is a relatively minor threat at this stage. The real risk lies in those clashes that have the potential to engage global powers in a disruption of global trade and investments or to disrupt oil supplies for a long period of time, such as the conflicts in Ukraine or Iraq-Syria. However, we attach a relatively low likelihood to these scenarios.

What is the best investment at the moment?

Policy rules. Given that Europe is behind the curve in the policy cycle, now is its turn to act. This means that, in the short term, European fixed income may be the most promising asset as a tactical investment. In the long run, fundamentals should play out, making Europe and Japan increasingly unattractive. Growth will come from companies exposed to emerging markets, particularly South East Asia and India, but also to the United States, which is, comparatively, in better shape than its peers.

What was the best investment you were ever involved in?

Probably AG&P Manila, a Filipino private construction company that builds large steel modules for oil companies that are then shipped and assembled at the destination. We became shareholders less than four years ago and since then our investment has doubled its value. Plus, given the expansion plans of oil firms in the Gulf, it fits well in the spirit of our company of linking Asia and the Gulf.

What was the worst?

Rather than a specific investment, what comes to my mind is the sell-off in the summer of 2011. We were aware that a downgrade of the US credit rating was on the table, but we underestimated its effect in Asia and our portfolio took a hit. We should have been able to beat the market by taking a more conservative position. I believe we learnt from the experience and have since then improved our risk monitoring tools.

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