Multi-Asset Perspective – April 2022


The surging Omicron cases in China and resulting lockdowns have become the largest headwind to the country’s economy.

In Southeast Asia, Indonesia and Malaysia have benefited from higher commodity prices.

Key indicesYear-to-date (ending 31 March 2022)March 2022 performance
MSCI AC Asia ex-Japan Index (in USD)-7.99%-2.77%
MSCI China Index (in USD)-14.19%-8.00%
CSI 300 Index (in CNY)-14.53%-7.83%
Hang Seng Index (in HKD)-5.66%-2.81%
Taiwan Stock Exchange Index (in TWD)-2.68%0.43%
MSCI Taiwan Index (USD)-6.58%-2.21%
JPM ACI China Total Return Index (in USD)-7.02%-2.42%
JPM Asia Credit Total Return Index (in USD)-6.29%-2.03%

Source: J.P. Morgan, MSCI, Morningstar, Data as of 31 March 2022

China / Hong Kong Equities
  • Global markets remain volatile. Although the uncertainties from the Russia-Ukraine tensions have stabilized, markets have shifted their focus to rising inflation, the more aggressive tightening of central banks globally, and the potential risks of a recession. With the surging Omicron cases in China and the lockdown in Shanghai, economic activities have already been impacted, as seen from March data. While there are more supportive measures in some sectors, such as in property, and the expected monetary and fiscal easing, these take time to have a real economic impact.
  • On the other hand, Hong Kong’s economic activities have started to recover as the city has gradually lifted its social distancing restrictions. We expect the market to be range-bounded in the near term.
China A-Shares
  • Due to the surging Omicron cases, the recent lockdowns in Shanghai and other cities remain the largest headwind to China’s economy. Consumption and the service sectors have shown a significant slowdown. The key is whether this is only short-lived. Our view is that Q2’s economic activities will be significantly impacted due to the lockdowns but will have a strong recovery in the second half of the year.
  • There will be a bigger magnitude of policy easing in the next few months as it is much needed to revive the economy. After the recent correction, valuations of A-shares have come down to slightly below average.
Asia ex-Japan Equities
  • Global markets remain volatile. Although the uncertainties from the Russia-Ukraine tensions have stabilized, markets have shifted their focus on rising inflation, the more aggressive tightening of central banks globally, and the potential risks of a recession. The market now anticipates a total of 250 bps rate hike this year, which is one of the fastest paces in history, together with a larger magnitude of balance sheet normalization. The market is concerned that this aggressive tightening will lead to a recession next year.
  • As a result, the US dollar will remain strong in the near. This macroeconomic backdrop does not bode well for Asia ex-Japan equities, especially those with high valuations.
  • On the other hand, sentiment in Southeast Asia continues to improve as markets have started to reopen. Countries such as Indonesia and Malaysia have benefited from the higher commodity prices.
Emerging Market ex-Asia Equities
  • Rising Treasury yields do not bode well for emerging market equities. However, as OPEC has strong intentions to control the oil supply to maintain the oil price at the current level, oil prices remain elevated. Together with surging agricultural commodity prices, selective emerging markets remain supported.
  • Also, money has been shifting away from Eastern Europe to Latin America within emerging markets given the political risk, therefore benefiting countries such as Brazil.
Japanese Equities
  • BOJ continues to commit to the yield curve control with “unlimited” buying in JGBs. This is the opposite with the US Fed tightening. As a result, the Japanese yen keeps weakening as the yield gap continues to widen.
  • The weaker currency is supportive of the export sector of the country. Japanese equities are still undervalued vs. other developed markets.
Asia Investment Grade Bonds
  • As the market is starting to price in the most hawkish scenario from the Fed, and as the US 10-year Treasury yield approaches 3%, duration risk is starting to stabilize.
  • However, credit spreads may continue to widen as the economy slows down and inflation concerns remain.
Asia High Yield Bonds
  • With the gradual easing kicking off in China and some regulatory relaxation in the property sector, investor sentiment has improved towards the China high yield bonds. Indonesian high yield bonds also benefit from the country’s strong economic recovery.
  • However, as global risk aversion remains elevated with equities correcting, sentiment remains weak in high yield bonds.
Emerging Market Debt
  • Central banks around the world are becoming more hawkish amid rising inflation.
  • However, some emerging markets are benefiting from the rising elevated commodity prices and flows from eastern Europe to Latin America.
  • The strong US dollar and rising Treasury yields do not bode well for Gold.
  • However, tensions between Russia and Ukraine have added uncertainty to geopolitical risk. In addition, some investors are turning back to Gold to hedge against inflation.
  • 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 increased dramatically recently. In an uncertain environment with low yields, income becomes an essential source of return for investors.

The author is Kelly Chung, our Senior Fund Manager.

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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.