Multi-Asset Perspective – April 2023


Our investment director and head of Multi-Asset, Kelly Chung, shares her latest insights on different asset classes. While China’s economy is recovering from its gradual opening, momentum remains weak. On the other hand, as we are going into the second quarter with a low base from last year, company earnings will turn to the upside.

Meanwhile, the weaker US dollar supported the Asian market. Some nations in the region have also paused interest rate hikes as inflation has become more manageable, supporting market sentiment.

China/Hong Kong equities
  • Global markets remain range bounded without a clear direction as investor sentiment is being pulled by two opposite forces between recession risks and lower interest rates ahead. While the sticky core CPI in the US raised the possibility of one more rate hike in May’s FOMC meeting, the month-on-month PPI decreases may warrant rate cuts later this year.  However, the lower-than-expected PMI in the US and the declining deposit balance in banks signaled higher risks of a recession ahead.
  • The Hong Kong-China market has also been range bound. While China’s economy is recovering from its gradual reopening, momentum remains weak. The lower-than-expected CPI in China also indicates that demand remains subdued despite the country’s reopening, and there are no signs of pent-up demand and revenge spending.
  • On the other hand, as we are going into the second quarter with a low base from last year, company operational data and earnings will turn to the upside. With major foreign shareholders selling down the shares of the internet giants, one big uncertainty is removed, and the market will focus back on fundamentals.
China A-shares
  • Liquidity remains ample in China as Total Social Financing and other credit supply exceeded expectations. The PBOC also cut the RRR in March, supporting monetary policy. However, demand remains weak and needs time to recover. The coming Golden Week in May will show the extent of consumer spending strength.
  • After some correction, valuations have become more attractive, but investor money is rotating among different sectors rather than investing in the overall market. Sentiment will gradually recover in the second quarter as data improves.
Asia ex-Japan equities
  • The Asia market remains range bound along with the US market as investors wait for more data and signals of recession vs. rate cuts. The lower Treasury yields and the weaker US dollar supported the market.
  • Some Asia countries have paused interest rate hikes as inflation has become more manageable, supporting market sentiment.
Emerging market ex-Asia equities
  • Stronger EM currencies and the narrowing EM credit spread supported emerging market equities. Other positive drivers for EM include the stronger commodity prices that benefited from a weaker US dollar and expectations of increasing infrastructure spending in China. However, with recession risks in the US climbing, attention to the risk in EM is warranted.
Japanese equities
  • BOJ chief Ueda held the YCC policy unchanged in his first BOJ meeting. He reaffirmed there is no need to rush to change the monetary policy for now but admitted that it needs to be reviewed over time. The ultra-easy monetary policy remains with high uncertainty. Recent economic data is also weaker than expected, and Japan would be sensitive to the global recession risk.
Asia investment grade bonds
  • Lower Treasury yields along the curve helped Asia investment grade bonds. Although banks in Asia are less affected by the recent banking woes in the US and Europe, some Asian AT1s corrected with European AT1s. Following the correction, yields of Asian AT1s have become attractive.
  • On the other hand, the overall investment grade bond spreads remain tight, and the risk of a recession may cause spread widening in the medium term.
Asia high yield bonds
  • After some aggressive tightening of credit spreads in Asia high yield bonds, especially in the China high yield space, investors have adopted a wait-and-see stance. With some restructuring in some defaulted Chinese property names, sentiment remains positive in Chinese property.
  • However, as the equity yield spread and high yield bond spread narrowed, investors have become more cautious on high yield credit.
Emerging market debt
  • The weaker US dollar and lower volatility in EM currencies helped support emerging market bonds. In addition, the stronger commodity prices that benefited from a weaker US dollar and expectations of increasing infrastructure spending in China positively contributed to EM.
  • Gold recently benefited from the lower US interest rate expectations and the weaker US dollar. Also, the recent banking woes caused investors to consider Gold as a safe haven again. Gold remains a good hedge against heightened geopolitical risks.
  • Multi-asset offers lower volatility compared to traditional single-asset or balanced portfolios. However, the correlation between risk assets, such as equities, credits, and commodities, has recently increased dramatically. In an uncertain environment with low yields, income becomes an essential source of return for investors.
March 2023 performance YTD performance
MSCI AC Asia ex-Japan Index (in USD)3.48%4.34%
MSCI China Index (in USD)4.52%4.71%
CSI 300 Index (in CNY)-0.45%4.67%
Hang Seng Index (in HKD)3.48%3.51%
Taiwan Stock Exchange Index (in TWD)2.59%12.51%
MSCI Taiwan Index (USD)3.01%14.75%
JPM ACI China Total Return Index (in USD)0.59%2.40%
JPM Asia Credit Total Return Index (in USD)0.90%2.53%

Source: J.P. Morgan, MSCI, Morningstar, Data as of 31 March 2023

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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 materials have been obtained from sources believed to be reliable as of the date of presentation, but their 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.

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This commentary has not been reviewed by the Securities and Futures Commission of Hong Kong. Issuer: Value Partners Hong Kong Limited.