Quant Models Can Help Boost Returns, Cut Risk For Investors in Asia
Adding quant models to an investment analysis can generate better results for investors looking for opportunities in Asian markets today.
“The world is changing how it invests – Asia is becoming the bellwether of risk-seeking and risk avoidance. Because of the rise of hedge funds, more people are moving in or out of the Asian market.”
That’s the view of one participant at a Hong Kong conference devoted to quantitative investing earlier this year. There is plenty of empirical evidence supporting the speaker’s assertion that investors are using Asian markets to adjust the risk/return profiles of their portfolios. But foreign investors using fundamentals to invest in Asia are at a disadvantage when it comes to competing with Asia’s own bottom-up stock pickers, who better understand the dynamics of their local markets.
Research based on StarMine models and presented in this special report suggests that using quantitative factors can help improve the caliber of an investor’s decisions in Asia, regardless of whether that investor is a domestic or overseas player.
For instance, in Australia, where the local index declined nearly 14% in the period studied, using StarMine’s Val-Mo model to identify and hold top decile companies while selling bottom decile companies short (and rebalancing monthly) would have generated a 55.5% return. Of course, those returns must be adjusted to reflect an individual investor’s specific transaction costs, but it is clear that quant factors will help to distinguish potential winners from likely losers.
Moreover, another recent study of quant factor performance discussed in the special report shows that combining StarMine models improves risk-adjusted returns for investors in Asian markets.
The StarMine models do perform differently in the various regions, however. While Val-Mo works well throughout Asia, its Relative Valuation component works best in Japan. Meanwhile, the StarMine SmartHoldings model does exceptionally well in Emerging Asia. Combining these models can improve risk-adjusted returns.
For further details on the studies and their conclusions, please see this special report.
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