Eyeing value opportunities in Asia across asset classes
A spate of market events – sliding Purchase Managers’ Index (PMI) and yield curve inversion – is consideredsigns of economic downturn. Meanwhile, US-China trade talks has added an unknown on the equation, weighing much on investor sentiment. Negative news flow does not end just there. Increasing volatility across the board results in risk-off mentality amonginvestors leading toglobal outflow.
Although economic and political events always cast uncertainty toward capital markets, some positive highlights in Asian market presents value opportunities.
- Where do you find positive signs in the cloudy outlook for global economy?
Despite slumping global PMI, one trend we find is that service sector has been somewhat stable over the past three years1. In addition, consumer confidence in the US, China and the Eurozone ison the rise1.
Meanwhile, ample liquidity level is the result of global central banks’ intent in keeping monetary conditions liquid. This serves as a positive signals to emerging market equity.
In Asia, multiple macro indicators suggest that the regional economies are about to, if not already, hit a trough. In 2020, a recovery in the economy and corporate earnings is now more widely expected2.
- While tradenegotiation worries still hover investment market, what is your take on Chinese economy?
We understand that investors hope to seek clarity in the development of trade negotiations before opting to park their money in risk assets. Export as a GDP contributor in Chinese economy continues to decline in share3.
Thanks to the stimulus measures implemented by the authorities, Chinese economy is now more reliant ondomestic demand than its recent history, which is positive to drive consumer sector gains.
- How attractive is Asian assets comparing to the global ones?
The gloomy market mood from previously had encouraged investors to cash in from stock market and to allocate to bonds.The yield on the benchmark 10-year Treasury note thus fell to its historical low1.
A range of metrics states that equity market is a sweet spot amid the global economic situation. Currently, risk premium in stock market rose to the level on par with that during European debt crisis in 20111. The forward price-to-earnings ratio estimates of emerging market is trading at 25% discount1 to its US equivalent. In Asia, valuations in some markets, including China and Japan, have dropped beneath their respective historical levels1.The discrepancy in return between global growth and value stocks notches up its highest since 20011.
Apart from equity, Asian investment grade and high yield bonds also attract investors with higher yield offered, contrasting low or negative yield from mature markets. Gold and other alternative assets can also serve to hedge against part of the macro risks.
The entire macro backdrop represents a value opportunity in Asian markets for investors and a timing to gradually deploy capital when assets prices are low. Dynamic allocation across different asset classes will help diversify risk.
1.Bloomberg, MSCI, Value Partners, September 2019
2.Jefferies，Datastream，Value Partners，September 2019
3.National Bureau of Statistics of China，September 2019
The views expressed are the views of Value Partners Hong Kong Limited only and are subject to change based on market and other conditions. The information provided does not constitute investment advice and it should not be relied on as such. All material has been obtained from sources believed to be reliable as of the date of presentation, but its accuracy is not guaranteed. This material contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. This material has not been reviewed by the Securities and Futures Commission in Hong Kong. Issuer: Value Partners Hong Kong Limited.