CITI VIEWS FROM SINGAPORE - WHAT INVESTORS ARE TELLING US

Following a recent trip to see clients in Singapore, there was some interesting feedback about the way that Asian clients were positioned and what they were thinking. Over the 2-day period, we met a range of hedge funds following diverse strategies as well as institutional fund managers. Major themes that emerged were:

1. CONFUSION - In 9 years of dealing with clients in the Asia Pacific region, never has there been the level of confusion about market direction and outlook that there is now. Clients have, in the absence of any firm views, been looking to trade momentum but have been caught out by the way that the market has moved.

2. LIQUIDITY - Clients acknowledged that fundamentals and macro are not currently explaining the market movements. Conversations were brought around to focus on the liquidity in the market and how and where it could emerge. Concern levels were high that the underlying fundamentals were not justifying equity market levels but few had the appetite to do anything about it.

3. LIGHT POSITIONS - Positions were seen to be very light with funds shying away from shorting due to the excessive intra-day volatility. Most were saying that they would wait until the market established a trend and would then follow that trend. Institutional fund managers who were underweight / under-allocated said that they would probably do nothing in the event of a market correction but would buy if the market moved higher.

4. PLAYING PLACEMENTS - Hedge funds were busy playing placements as they seemed to be the easiest source of alpha in a market that was otherwise dominated by beta. Some fund managers expressed scepticism about the quality of some of the placements, especially those from India. The Bawang IPO also raised eyebrows.

5. MISSED PROPERTIES - Talk of the town was how property prices had rallied in Singapore partly on the back of a scheme which allowed buyers to put down a 5% deposit, 75% of which could be refunded after two weeks if the buyers had changed their mind. This was reminiscent of Hong Kong in March/April.

6. EVENT DRIVEN DEAD? Funds seemed to be moving towards their areas of specialization and there appeared to be a fair amount of turnover in terms of funds, personnel and strategies. In particular, event driven hedge funds highlighted that the market's attention was no longer on event driven trades, despite there being a number of potential large and liquid situations.

7. LITTLE CONVICTION - Although clients seemed to be very receptive to hearing a strongly held market view, few seemed to be in a position to do much about it. Macro hedge funds were looking to buy upside calls and were very interested in understanding the dynamic of the markets and the impact they were having on each other. Some were looking to enhance alpha by selectively overwriting single stock positions. Korea was a topic of interest given the lack of recent market performance but there were concerns about the macro in India.

The overall picture is one of confusion and a client base that has been whipsawed and punished by the market. However they are prepared to get back into the action once a clear trend is established, either up or down. There are low levels of conviction but higher levels of cash. The problem is that if there are too many investors positioned the same way, as it appears there are, then the only ones who will make money will be those who take a view and are pre-positioned. Given the recent move down in implied volatility, using options to play the direction of the market over the next few months seems opportune.