Multi-Asset Perspective – November 2022


Our investment director and head of Multi-Asset, Kelly Chung, shares her latest insights on different asset classes. In China, Covid controls and reopening remain to be the market focus. Signs of fine-tuning pandemic measures are encouraging. Economic data remains weak, with the recovery path in consumption and property remaining sluggish. However, the government has continued to roll over supportive policies and increase liquidity in the market. The clearer direction toward economic support should continue to lift market sentiment.

China/ Hong Kong Equities
  • The Fed has communicated a “hawkish dovish pivot” message at the November FOMC meeting, meaning that a slower rate hike will likely start in the next meeting. Still, a longer rate hike path is likely to combat inflation. That said, the US market has found a near-term bottom, and global market sentiment has improved after being extremely bearish in October for various reasons. The US dollar peaked, especially versus the euro and British pound sterling, as energy supply is expected to be more stable due to a better-than-expected winter in Europe, and a new prime minister has been onboarded in the UK. In addition, the mid-term election resulting in a split of power between the Democrats and Republicans contributed to the peaking currency.
  • In China, Covid controls and reopening remain to be the market focus and signs of fine-tuning pandemic measures are encouraging. Economic data remain weak, with the recovery path in consumption and property remaining sluggish. On the other hand, the government continues to roll over supportive policies and increase liquidity in the market. The clearer direction toward economic support should continue to lift market sentiment.
  • Sentiment remains very weak toward China/Hong Kong equities. Positioning among investors is extremely light, with real money on the sideline. As a result, the market will remain volatile, and huge reactions to any news or rumor are expected. However, with valuations at extreme levels, we see a higher upside than a downside. On the other hand, with tight liquidity in Hong Kong, given the climbing HIBOR, the debt burden pressure on households and companies will increase, hindering economic recovery.
China A-shares
  • Although foreign investors have been selling China A-shares via the Northbound connect, domestic investors have been buying during the dip after the correction in September and October, as reflected by the higher margin outstanding balance.
  • Economic data continues to be weak, and the focus remains on Covid control measures. There are some slight adjustments in the magnitude of pandemic control in some individual provinces. The market is waiting for a clearer direction of economic policies for next year.
Asia ex-Japan equities
  • With the US dollar peaking and global sentiment improving, Asia ex-Japan equities have started to show some recovery. Valuations in North Asia remain cheap, while company earnings in Southeast Asia countries have been generally strong, supporting the performance and flows to these countries. However, rising interest rates remain the biggest risk.
Emerging markets ex-Asia equities
  • Fund flows into emerging markets ex-Asia countries continue to be supportive, especially in Latin America, given the positive hope from the election in Brazil. However, high inflation and the strong US dollar remain the pain points for emerging market equities.
Japanese equities
  • The Japanese equities market is expected to be negatively affected by recession risks, as the economy is sensitive to global trade. We are seeing signs of exports deteriorating amid the weakening global demand.
  • On the other hand, company earnings continue to be supported by the weaker Japanese yen. However, with the local currency already finding a near-term peak, a stronger yen going forward could become a headwind to the export sector.  On the other hand, domestic sectors will likely benefit from Japan’s reopening.
Asia investment grade bonds
  • Treasury yields continue to rise, given the expectation of a longer rate hike path. Therefore, duration risk has to be taken conservatively.  On the other hand, credit spreads have started to stabilize, and with a softer US dollar, sentiment has improved.
  • Investors are expected to focus on short-duration bonds as the yield curve becomes more inverted. Therefore, credit selection and focusing on the high-quality spectrum are crucial while maintaining a lower duration stance.
Asia high yield bonds
  • Sentiment toward Asia high yield bonds has stabilized as investors have already anticipated most of the negative news, especially in the Chinese property sector. Some issuers have come out to buy back their bonds earlier, given the cheap price. The Asian high yield credit spread has started to show some stabilization, although liquidity remains thin.
Emerging market debt
  • The upward shift of the US yield curve has caused some concerns over emerging market bond However, sentiment has improved with the softer US dollar.
  • Latin America has become more favorable over emerging Europe as their currencies remain resilient and earnings momentum is strong. Lower CDS of Brazil and Mexico helped.
  • Demand for gold remains weak as the yields in government and investment grade bonds are much more attractive. However, with the US dollar finding a near-term ceiling, the gold price has also founded a near-term floor.
  • Gold remains a good hedge amid the heightened geopolitical risk and stagflation concerns.
  • 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.
Key indicesYear-to-date (ending 31 October 2022)October 2022 performance
MSCI AC Asia ex-Japan Index (in USD)-32.26%-6.10%
MSCI China Index (in USD)-42.79%-16.81%
CSI 300 Index (in CNY)-27.47%-7.72%
Hang Seng Index (in HKD)-35.17%-14.72%
Taiwan Stock Exchange Index (in TWD)-25.63%-3.53%
MSCI Taiwan Index (USD)-39.21%-5.12%
JPM ACI China Total Return Index (in USD)-17.37%-4.41%
JPM Asia Credit Total Return Index (in USD)-17.02%-3.66%

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