Multi-Asset Perspective – March 2022


Tensions between Russia and Ukraine have exacerbated inflationary concerns globally.

That said, China and some parts of Asia are in a better position as inflation is more under control.

Key indicesYear-to-date (ending 28 February 2022)February 2022 performance
MSCI AC Asia ex-Japan Index (in USD)-5.38%-2.35%
MSCI China Index (in USD)-6.73%-3.90%
CSI 300 Index (in CNY)-7.26%0.39%
Hang Seng Index (in HKD)-2.92%-4.58%
Taiwan Stock Exchange Index (in TWD)-3.10%-0.12%
MSCI Taiwan Index (USD)-4.46%-2.55%
JPM ACI China Total Return Index (in USD)-4.72%-2.48%
JPM Asia Credit Total Return Index (in USD)-4.34%-2.20%

 Source: J.P. Morgan, MSCI, Morningstar, Data as of 28 February 2022

China / Hong Kong Equities
  • The escalated tensions between Russia and Ukraine have shaken up market sentiment. Sanctions imposed on Russia and geographic disruptions have caused commodity prices surge to skyrocket levels from oil to metals to agriculture. Investors are now worried that high inflation could further dampen global economic growth. The market has shown panic selling across the board. Given the heightened levels of volatility, investors will remain defensive in the near term.
  • On the other hand, China has given an aggressive GDP growth target for this year, which implies that more pro-growth stimulus would be needed for the economy. Current valuations are attractive for investors who look beyond the current volatility.
China A-Shares
  • With commodity prices surging to skyrocket levels, inflationary concerns have also started to impact onshore sentiment.
  • However, China is better off facing the commodity crisis compared to the west. With more fiscal and monetary stimulus expected to be released after the NPC meeting to support the economy, A-shares will most likely be direct beneficiaries of supported sectors, such as infrastructure, urbanization, and renewable energy.
Asia ex-Japan Equities
  • The escalated tensions between Russia and Ukraine have shaken up the market sentiment. Sanctions imposed on Russia and geographic disruptions have caused commodity prices to surge to skyrocket levels from oil to metals to agriculture. As investors take flight-to-safety, the US dollar has become stronger. Countries that are big importers of commodities and with high valuations are particularly vulnerable, such as India.
  • That said, Indonesia will benefit the most from this commodity upcycle as Indonesia is the biggest commodity supplier in Asia. Corporate earnings outlook are clouded given the many uncertainties in the market.
Emerging Market ex-Asia Equities
  • Given the concerns over Eastern Europe, flows have been moving to Latin America, favoring commodity-rich countries due to the surging commodity prices. Western countries are trying to source and pile up more commodities from Latin America.
  • However, given the cautious sentiment and strong US dollar, heightened volatility will persist among emerging markets.
Japanese Equities
  • Due to surging Omicron cases, economic growth has stalled in Japan with consumer sentiment weakening. Together with heightened global risk aversion, foreigners are selling Japanese equities again.
Asia Investment Grade Bonds
  • Credit spreads have widened given the heightened volatility in the market. There are some fallen angel concerns in selected companies given the bleak economic outlook. Although the Fed may not be as aggressive in its first rate hike in March, the path of the rate hike cycle and quantitative tightening remains highly uncertain given the persistent and rising inflation concern.
Asia High Yield Bonds
  • With more downgrades in selected Chinese property developers and the inability for them to refinance in the near-term, Chinese property bonds have dropped further. Careful selection is required in the asset class to identify those with strong balance sheets. The bonds of those companies with strong fundamentals are trading at attractive levels.
Emerging Market Debt
  • Flows have been switching to Latin America given as markets in the region are benefiting from the higher commodity prices. Brazilian CDS is falling, for example.
  • However, investors will remain cautious given the weak market sentiment and volatile EM currencies.
  • Investors are buying gold as a hedge given the uncertainties arising from the escalated tensions between Russia and Ukraine. Gold has been more favored especially after volatility heightened following the banning of Russia from SWIFT.
  • 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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