No such thing as Asia

People treating Asia as one investment market are overlooking the multi-faceted characteristics of the region, and hence its ability to provide the basis for effective and real diversification in investment strategies, according to Fidelity International global chief investment officer Michael Gordon.

Speaking at the Fidelity Investments annual investment forum, Gordon said: “Asia is best understood as a collection of countries. Sure we can combine those countries to look at Asia Pacific ex-Japan or including Japan, but within Asia individual countries make up the picture.”

He felt this point was best illustrated by looking at five-year return correlations between different countries in the Asia Pacific region. For example, New Zealand and China had a correlation of 0.28, while Hong Kong and the Philippines had a correlation of 0.23, both well below the correlation of 0.7, the level statisticians feel signifies a relationship existing.

“Therefore, Asia can provide some really good portfolio diversification opportunities,” Gordon said.

In particular, he thought the region represented an outstanding resource for Australian investors to achieve real global diversification in their investment portfolios.

Gordon said Australia’s five-year return correlation with India was 0.5. Similarly, its return correlation with China was 0.4. For diversification purposes, this compares very favourably when looking at Australia’s five-year return correlation with the US, which has been around 0.7 and 0.8.

“So investment into Asia from Australia, I would argue, provides genuine and real diversification” he concluded.