Multi-Asset Perspective – July 2022



Our investment director and head of Multi-Asset, Kelly Chung, shares her latest insights on different asset classes. She also explains why China equities are attractive in the current volatile environment.

China / Hong Kong Equities

Recession fears have dominated global market sentiment since the last two weeks of June. Economic data has deteriorated in all developed markets, and confidence indicators slumped to the lowest levels in decades. The economic slowdown is faster than expected, especially for the demand for goods, while inflation in services persists. The overall emerging market universe experienced one of the largest outflows in the last two weeks, with China being the only market having substantial inflows.

China is the only country where its policies are friendly to investors. Consumption and credit supply have shown a quick turnaround in economic data in June, supported by the government’s easing policies. However, although the policy direction remains supportive, there may be some profit-taking in the near term, given the quick rebound in Chinese equities in June. That said, we expect China will continue outperforming other markets as earnings downgrades have bottomed in the country. In contrast, other countries are still halfway through their downgrades. Hong Kong’s domestic sector also benefits from the gradual reopening and relaxation of quarantine measures. However, the Hong Kong market is more susceptible to global recession risks.

China A-Shares

China is counter-cyclical against the west, and A-shares are usually less impacted by global markets. However, there are some signs of slight monetary tightening in July. The government is steering the easing more towards the fiscal side after significantly increasing the credit supply in the last few months. However, we believe the PBOC is taking a wait-and-see approach to the effectiveness of fiscal policies rather than turning to policy tightening. Northbound flows to China A-shares increased significantly in June as investors have increased their confidence in the country’s economic recovery. The RMB has also stabilized with no more depreciation pressures, even as the US dollar appreciates further. On the other hand, valuations have gone back to above-average levels, while China’s Covid-zero policy remains the biggest risk.

Asia ex-Japan Equities

As global recession fears dominate the market, risky assets, including commodities, have corrected significantly. The previous winners, such as oil and agriculture, have also corrected, joining base metals in the downturn. There is profit-taking pressure in Southeast Asia, such as Indonesia, which benefited from the commodity upcycle. In fact, earnings downgrades in Southeast Asia have just started and should last until 2023, lagging behind North Asia and China markets, which are halfway through and nearly finished with their downgrades, respectively. The strong US dollar has also intensified the outflow from most countries in Asia. Tight liquidity and increasing inflation are putting pressure on many of these emerging markets.

Emerging Markets ex-Asia Equities

The strong US dollar and recession risk are causing significant outflows from emerging market equities. The manufacturing sector in emerging markets has been negatively impacted by the slowdown of goods consumption in developed markets. With the correction in commodity prices, investor sentiment will remain weak in most emerging markets.

Japanese Equities

The Japanese equities market is expected to be negatively affected by recession risks, as the economy is sensitive to global trades. Despite its weaker currency, we are seeing signs of exports deteriorating amid the weakening global demand. Moreover, as Japan’s inflation finally hit above the 2% target1, there are concerns that the Bank of Japan may shift its policy stance on yield curve control soon as the cost of printing money increases. On the other hand, as Japan is gradually reopening, 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 risks2. With recession fears escalating, the US yield curve has started to be 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%. However, with the economic outlook deteriorating, there are risks of credit spreads further widening. 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. Investors are also selling higher-dollar priced bonds, given the weak sentiment. Price reaction to negative news is significant. There are also outflows from Indonesia and India high yield names, given the deteriorating economic outlook.

Emerging Market Debt

The strong US dollar and recession risk remain the major concerns for emerging market bond investors. CDS in some weaker emerging market countries are also rising. The only positive tailwind is the lowering of US Treasury yields.


Gold has continued to break lower as the US dollar continues to surge and has become the only safe haven for now. Historically, however, gold is the best performing asset class under stagflationary conditions. As the market has become increasingly concerned about stagflation, gold will likely be considered one of the best hedges in such an environment.


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. Statistic Bureau of Japan, 22 July 2022
  2. Bloomberg terminal, 20 July 2022
Key indicesYear-to-date (ending 30 June 2022)June 2022 performance
MSCI AC Asia ex-Japan Index (in USD)-16.28%-4.49%
MSCI China Index (in USD)-11.26%6.56%
CSI 300 Index (in CNY)-8.29%10.43%
Hang Seng Index (in HKD)-4.81%3.01%
Taiwan Stock Exchange Index (in TWD)-17.11%-10.40%
MSCI Taiwan Index (USD)-25.08%-14.19%
JPM ACI China Total Return Index (in USD)-10.38%-1.91%
JPM Asia Credit Total Return Index (in USD)-10.73%-2.28%

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

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.