Stock rebound not imminent: Temasek fund arm
SINGAPORE (Reuters) - The worst may be over for global equity markets after the Fed-led rescue of Bear Stearns BSC.N, but U.S. economic woes and slower earnings will hold back a decisive rally, the fund management arm of Singapore's sovereign wealth fund Temasek said on Friday.
Chan Chia Lin, the chief investment officer of Fullerton Fund Management, also said the recent volatility in the financial markets favored hedge fund of funds structures as they allowed investors to benefit from a mix of investment strategies and assets, while minimizing risk through diversification.
She said the outlook for corporate profits needs to get better before the market really rallies.
"For a (stock market) rally to sustain beyond the short term, you need expectations of an earnings recovery which will not happen yet," Chan said in an interview ahead of the April 7-9 global Reuters Hedge Fund and Private Equity Summit.
That is because the United States is in the early stages of a recession. "Economic numbers will continue to worsen in terms of labor market retrenchments and in cutbacks in household spending," she said. The U.S. recession will in turn hurt exporters in Asia and Europe.
"It's very much a trading market for now," she added.
Fullerton, which was previously Temasek's internal fund management arm, was spun off in 2003 as an Asian specialist asset manager offering hedge funds and other investments to institutions and rich individuals.
It manages about $2.5 billion of funds from external investors and part of Temasek's TEM.UL more than $100 billion in investments. About 30 percent of Fullerton's total assets under management are in funds with absolute return strategies, including hedge fund of funds, Chan said.
The firm's flagship Faris hedge fund of funds returned 19.2 percent last year but was down 0.7 percent in the first two months of 2008, she added.
By comparison, the MSCI Asia ex-Japan index .MIAPJ0000PUS rose 33 percent last year, but lost nearly 10 percent in January and February.
Chan added that the writedowns by global financial institutions were likely to continue as the amount written off so far, at around $200 billion, was well below the $400 billion to $600 billion figure estimated by analysts.
The risk of a complete meltdown has, however, lessened thanks to the U.S. Federal Reserve's provision of $30 billion in funding to facilitate JPMorgan's buyout of Bear Stearns, she said.
INFLOWS
Chan said the Asian-based hedge funds that Fullerton tended to invest in were relatively unaffected by redemptions and tighter credit as they did not borrow as aggressively as their Western counterparts.
The majority of Asian hedge funds invested in equities unlike in the West where many of the high-profile failures involved managers who dealt in credit derivatives or engaged in quantitative strategies.
"When you have a break in the environment, when you have a crisis, your models stop working," she said of quantitative funds that tended to borrow heavily to maximize returns.
She added that there continued to be positive net inflows into Asian hedge funds as some funds -- for example those that invested in commodities or were short in the market -- have fared well amid the volatility in financial markets.
"If anything, because of the huge turmoil in the last six to nine months, people will look at absolute return funds," she said, adding that Fullerton remained on track to increase external assets under management to $3 billion by the middle of this year.
"As our fund size grows, we would be looking to rebalance our portfolio," she said. "So we would be looking to invest in new managers."
(Editing by Paul Bolding)
