Multi-Asset Perspective – July 2023


Our investment director and head of Multi-Asset, Kelly Chung, shares her latest insights on different asset classes. Investors are worried about a double dip in the China’s economy, as economic data continued to soften in June. Although the government is unlikely to provide a massive stimulus in the near term, it continues to release supportive signals and measures. On the other hand, the backdrop for Asian equities has improved as the recession risk in the US is receding and pushing out further to next year.

China / Hong Kong equities
  • Last month, the Fed gave signals that more rate hikes are needed to combat inflation. However, the lower-than-expected CPI number in June calmed the markets, with hopes that only one more rate hike is necessary. As the economy was more resilient than expected, market observers believe that the risk of a recession may be pushed to at least the second half of next year, further fueling the US equities market rally.
  • On the other hand, the Hong Kong/China market has remained range-bound. Investors worry about a double dip in the economy, as economic data continued to soften in June. Adding to market concerns is the weak renminbi. However, with the US dollar peaking in the current rally and China’s government giving signals of stabilizing the renminbi, the local currency has bottomed in the near term, which should support market sentiment. Although the government is unlikely to provide a massive stimulus in the near term, it continues to release supportive signals and measures.
China A-shares
  • Economic data remain weak. The flat CPI in June provides more evidence that demand remains muted, although liquidity is ample. As the US is expected to hike rates, China is also cautious in its rate cut as the renminbi has already significantly depreciated. Local government debt is also causing concerns to investors. Given the subdued market sentiment, company and sector selection is key.
Asia ex-Japan equities
  • As the recession risk in the US is receding and pushing out further to next year, the backdrop for Asian equities has improved. Also, the peaking US dollar in the current rally should help Asian equities.
  • However, with some markets rallying significantly in June, such as Korea and Taiwan, driven by the momentum of AI, some profit-taking is likely in the near term. Valuations are also getting above average for some markets after the June rally.
Emerging market ex-Asia equities
  • The stronger-than-expected US market is favorable for emerging markets. Also, the volatility in EM currencies has come down, supporting emerging market equities. The lower risk aversion in the market also benefits EM.
Japanese equities
  • Japan is the best-performing country in the second quarter, driven by foreign inflows as investors were previously significantly underweight the market for a long period.
  • However, after the significant rally, valuations have become excessive. As a result, local investors are less excited about the rally in the market. As the US dollar peaked in the current rally, the stronger Japanese yen may cause a pullback in the equity market in the near term.
Asia investment grade bonds
  • Recent new Asia investment grade bond issuance is very active – and the demand is strong. Credit spreads keep tightening. As the market has already priced in one more rate hike due to the softer CPI in the US, Treasury yields should have peaked and should favor duration in the near term.
Asia high yield bonds
  • Some demand is returning to Asia ex-China high yield bonds after some correction as yields look attractive. After the Adani debacle in India fizzled out, the demand for Indian high yield bonds has become strong, given the improving earnings momentum.
Emerging market debt
  • More stable EM currencies and CDS supported emerging market bonds.
  • However, the narrower spread between EM bonds and US credit has caused the market to become less attractive.
  • Momentum is getting weaker as the short-end Treasury yield is very attractive.
  • However, with the rate hike peaking, the price of gold will remain supported.The asset class also 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.
June 2023 performance YTD performance
MSCI AC Asia ex-Japan Index (in USD)2.72%3.03%
MSCI China Index (in USD)3.97%-5.46%
CSI 300 Index (in CNY)2.13%0.46%
Hang Seng Index (in HKD)4.51%-2.74%
Taiwan Stock Exchange Index (in TWD)3.48%21.76%
MSCI Taiwan Index (USD)1.69%19.94%
JPM ACI China Total Return Index (in USD)0.06%1.21%
JPM Asia Credit Total Return Index (in USD)0.32%2.92%

Source: J.P. Morgan, MSCI, Morningstar, Data as of 30 June 2023

Read more

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.

Investors should note that investment involves risk. The price of units may go down as well as up and past performance is not indicative of future results. Investors should read the explanatory memorandum for details and risk factors in particular those associated with investment in emerging markets. Investors should seek advice from a financial adviser before making any investment. In the event that you choose not to do so, you should consider whether the investment selected is suitable for you.

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