Report - Nikko AM Asia Limited

Portfolio Review
Underperformed due to stock selection in North America
During the year under review, the Nikko AM Shenton Global Property Securities Fund (the “Fund”)
delivered a return of 9.41% (SGD terms, on NAV-NAV basis), underperforming the benchmark by 2.66%.
Our stock selection in the U.S. and Canada detracted from performance as small caps and defensive
sectors rallied, driven by the search for yield. Cash allocation was also a drag. This was mitigated by our
stock selection in the UK and Japan, particularly our exposure to specialist firms in the UK and Tokyo
office names. Our overweight to the Singapore REITs also added value as the sector outperformed.
Outlook / Portfolio Strategy
U.S. economic environment should remain positive
Investors continue to be optimistic regarding growth in the U.S., we believe. Even so, the possibility of
withdrawal of stimulus has been a source of concern. Our view continues to be that policy support from
the U.S. Fed is not indefinite and that withdrawal is indicative of more normal economic growth which
is a positive in the long run. As long as jobs data and retail sales show a stable recovery, the economic
environment should remain positive, in our opinion. The Canadian economy is set to continue expanding
on the back of the resources industry and stable commodity prices.
Stable debt markets, but growth to be sluggish
European sovereign debt markets have been relatively stable on the back of continued easing in the U.S.
and Japan. Our expectation continues to be that European growth should be sluggish in 2013. We also
expect the European Central Bank to further ease monetary policy once German elections are complete.
Southern European countries should continue to bear the painful readjustments in their economy on the
back of the austerity drive. We continue to be pessimistic on the economic outlook of Southern Europe
in the long run vis-à-vis Northern Europe and Scandinavia but have reduced our underweight given
reduction in sovereign risk.
UK economy sluggish, but London remains attractive
UK economic conditions continue to be sluggish, which is being reflected in the weakness of the GBP.
We expect new Bank of England governor, Mark Carney, to have an accommodative monetary policy.
The current weakness in the currency continues to make London an attractive place for capital. We
continue to focus on specialty names with London exposure.
Waiting for structural changes in Japan
In Japan, fiscal and monetary support measures are in place, and the market is focused on what structural
changes will be announced by the government over the next few months. It is positive that the government
has a majority in both houses following the recent upper house elections. The most immediate point of
interest is whether the government decides to go through with raising the consumption tax from the
current 5% to 8% in April 2014. The expectation continues to be that monetary base will double over
the next two years. From a fundamental perspective we feel that Grade A office vacancy should continue
to improve through the year. High quality industrial space should also see stable demand. We also expect
multiple primary and secondary offerings in the Japanese REIT space.
Asian REITs are attractive
We continue to believe that the economies in the Asia Pacific ex-Japan region will grow at a pace which
will remain supportive of commercial real estate values and rents. We are sanguine about the Asian REITs
in the current environment of rising bond yields as they are likely to benefit from stronger rents in an
environment of recovering global growth. Asian REIT yields remain at attractive levels, having recovered
only mildly following their recent sell-down. In particular, spreads between REIT yields and long bond
yields are still elevated, leaving room for compression. We remain overweight in the Asia-Pacific ex-Japan
region.
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