Multi-Asset Perspective – August 2022


Our investment director and head of Multi-Asset, Kelly Chung, shares her latest insights on different asset classes. She also explains why there is a much higher upside than downside in China equities market.

China / Hong Kong Equities

US equities rallied significantly in July, supported by better-than-originally feared second quarter earnings coupled with low positioning and the bearish sentiment in the previous month. In addition, the Fed has given a relatively dovish comment in the July meeting, with the market now expecting only 100 bps more rate hikes for this hiking cycle1. As a result, the US yield curve has shifted downwards, lifting global risk appetite.

In China, on the other hand, due to the disappointing July economic data, particularly on consumption recovery following a significant pick-up in June, together with the continuous drag from the Chinese property sector driven by the mortgage issues, China/Hong Kong equities have taken back their gains in June, now back to the low levels in May. However, we believe that China will continue implementing both fiscal and monetary policies to revive the economy. Currently, sentiment is weak toward China/Hong Kong equities. With their attractive valuations, we see a much higher upside than downside from here, especially since earnings for most companies have bottomed. Also, Hong Kong is progressing on reopening, with a much shorter hotel quarantine period. The domestic sector, which remains cheap, is likely to benefit.

China A-Shares

There are concerns over China’s economic recovery, given the still slumping property sector and delayed implementation of infrastructure projects from the already issued special purpose bonds, as local governments are focusing on dealing with the mortgage issue of unfinished developments. As a result, the RMB has recently slightly depreciated, given IMF downgrading China’s GDP growth to 3.3% this year2. In addition, the recently heightened political tensions between China and Taiwan and China and the US have dampened investor sentiment. Investors are taking a wait-and-see approach to A-shares, given their above-average valuation. Sector performance will likely continue to diverge as investors only want to focus on the growth sectors with high earnings visibility.

Asia ex-Japan Equities

Asia has started to attract inflows back, particularly toward Southeast Asia and Korea, supported by the downward shift in the US yield curve and moderating USD. However, we still see some stress in Asian equities, given the heightened geopolitical risk around the Taiwan sea. Also, inflation remains high in Southeast Asia, with many countries continuing their rate hike path. New growth orders in Taiwan are also slowing down. We believe Asian equities will remain range-bound in the near term.

Emerging Market ex-Asia Equities

Although the US yield curve has shifted downward, it has remained inverted since March, implying a recession may come in the next 12-18 months. Sentiment in emerging markets remains weak. Meanwhile, the stabilized agricultural prices have helped remove some concerns over social instability. However, the manufacturing sector in emerging markets has been negatively impacted by the slowdown of goods consumption in developed markets.

Japanese Equities

The Japanese equities market is expected to be negatively affected by recession risks, as the economy is sensitive to global trades. We are seeing signs of exports deteriorating amid the weakening global demand. On the other hand, company earnings have been supported by the weaker JPY and continue to see upward revisions. Also, as Japan gradually reopens, selective domestic sectors are showing signs of bottoming.

Asia Investment Grade Bonds

US Treasury yields temporarily peaked in mid-June as the market shifted its focus from rising interest rates to recession risks. With recession fears escalating, the US yield curve has become more inverted. Asia investment grade bonds benefited from the lower Treasury yields, and some quality investment grade bonds have become attractive, yielding around 4.5-6%. The low beta names also see spread tightening, given the higher demand, while there is continuous spread widening in the high beta names. As a result, focusing on the high-quality spectrum and credit selection is crucial.

Asia High Yield Bonds

China high yield bonds remain weak, especially in the property sector, where more have delayed coupon payments or have requested exchanges to extend their bond maturities. However, outside of China, we see inflows coming back to the Indonesia and India bonds after the market correction, given their attractive valuations. Also, the declining CDS of Asian countries, such as Indonesia and Korea, helped.

Emerging Market Debt

The downward shift in the US yield curve has caused EM bond yields to fall. Inflows are returning to the asset class after the correction, with attractive valuations. CDS in Brazil and Mexico have also stabilized.


Demand for gold remains weak given the more attractive yields in government and investment grade bonds. With the moderating USD, the gold price has bottomed. In addition, gold remains a good hedge given the heightened geopolitical risk and stagflation concern, especially in Europe.


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.


  1. Bloomberg, Aug 2022
  2. IMF, 27 July 2022
Key indicesYear-to-date (ending 31 July 2022)July 2022 performance
MSCI AC Asia ex-Japan Index (in USD)-17.29%-1.21%
MSCI China Index (in USD)-19.69%-9.50%
CSI 300 Index (in CNY)-14.11%-6.34%
Hang Seng Index (in HKD)-11.78%-7.32%
Taiwan Stock Exchange Index (in TWD)-14.55%3.08%
MSCI Taiwan Index (USD)-22.87%2.95%
JPM ACI China Total Return Index (in USD)-11.44%-1.19%
JPM Asia Credit Total Return Index (in USD)-10.51%0.25%

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

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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.