It is an understatement to say that the last year has been a particularly turbulent one for Asian equity markets and currencies. The managers that participate in the The WM Company's universe of specialist Asian portfolios have undergone considerable strategical changes during this period. The chart highlights the key changes to the asset structure and the returns earned in each market over the year ending June 30, 1998. The universe consists of 26 investment portfolios with a primary benchmark of the MSCI All Countries Far East Free Ex Japan Index, having a combined market value of $1.4bn.

The most significant policy shift has been a retreat from the plummeting equity markets to cash. The liquidity level, historically consistently low within the analysis, increased from 4% to 21%. It must be remembered that these are specialist Asian equity mandates and therefore if anyone should be prepared to sit out the storm then it would surely be this group. Within the group the highest level of cash exposure was 45.9% and the lowest 3.5%. Nine managers had exposure to liquid assets below 10% of their total fund value.

Over the year ending June 1998 the average manager has outpaced the MSCI All Countries Far East Free Ex Japan Index by 1.5%. This however, needs to be put in perspective as the index return was -59.2%. The key factor in this relative outperformance was the increased holding of liquid assets. If the benefits of the move into cash are stripped out and the pure equity investment is analysed, we get a different picture with the average manager posting a below benchmark return of -61.5%. The highest return achieved was -39.1% whilst the lowest was -62%. Only two managers managed to restrict losses to lower than 50%.

There is little evidence from the survey of any large-scale shift away from the region in terms of clients withdrawing funds. Given, however, that the equity markets have fallen so low it may be that clients are awaiting a recovery of sorts, to recuperate some of their losses prior to withdrawing from the region - only time will tell. The overall size of the universe in monetary terms has fallen from over $3bn to less than half of that figure, $1.4bn, reflecting the large negative returns available in the markets and not a general withdrawal of funds.

If we look further at the individual equity markets, most have seen a reduction in exposure to them. Particularly hard hit has been Indonesia (8% down to 0.7%) and Malaysia (13.6% down to 6.2%). China (2.5% up from 1.0%) and Taiwan (12.6% up from 7.4%) have seen marked increases in the levels of equity investment.

Early results for the third quarter suggest that the high liquidity level will be maintained and indeed may increase. The investment management industry in the region awaits a respite from the dramatic market falls and dreams of the heights of the bull market days of a year ago.

Mark Philip is an assistant vice president with The WM Company