Morningstar's Emerging Markets and Asian Equities Sector Wrap-Up has found there is little direct connection between Asia's high GDP growth rates and share market performance.
The report surveyed 18 Asian and emerging markets' equities investment strategies, grading various funds from bronze to gold.
The key finding was that contrary to fund managers' commonly held beliefs, there is little positive correlation between the performance of equity markets and GDP growth.
Using its qualitative survey of equity investment strategies and the Morgan Stanley Capital International Indexes (MSCI), Morningstar showed that Asian equities have actually fallen short of the performance delivered by global equities over the short to medium term.
This is somewhat unexpected given Asia's high levels of growth, strong fiscal position, favourable demographics and stagnant economic conditions in much of the developed world, Morningstar stated.
The reasons for this underperformance in relation to GDP are ambiguous. One potential cause is that equity markets have already priced in future expectations for the economy and so investment-based economic forecasts will in fact leave fund managers behind the curve.
The report, although not specifically focused on debt investing strategies, found that those looking to diverse away from equities should also look at Asian and emerging market debt.
Morningstar points to the fact that governments in Asia have adopted more disciplined monetary policy since the 1990 financial crisis; they have balanced fiscal policies and comparatively low public debt burdens. All this has fostered improving credit metrics and ratings upgrades.
However, gaining direct exposure to emerging market debt can be difficult, with limited vehicles available to investors. Despite this, Morningstar expects some dedicated vehicles to come onto the retail market in the coming months.
The study also found fund managers that have performed particularly badly in the Asian share markets are those that have focused excessively on growth and what they term "blue sky" stories.
Better performing firms surveyed have taken a more holistic approach, looking at other factors such as management and strategy execution as well as the growth potential.
Morningstar singled out Lazard, Colonial First State and Platinum as firms it regards as avoiding temporary in-vogue shares, instead looking to a broader and more sustainable return in their investment strategies.
Overall, the report did not criticise funds that have Asian equity exposure, but rather moved to illustrate that there should be a higher barrier to entry for a growth-orientated approach.
