Multi-Asset Perspective – October 2022


Our investment director and head of Multi-Asset, Kelly Chung, shares her latest insights on different asset classes. Investor sentiment toward the Greater China market remained muted. However, with their attractive valuations, she sees a higher upside than downside, especially since earnings for most companies have bottomed.

China/ Hong Kong Equities
  • The market correction in US equities continued amid expectations of the Fed remaining hawkish, with the market pricing in a higher terminal rate. Hopes of a Fed pivot have vanished. Earnings consensus remains too high in the US, indicating more downward revisions are likely in this earnings season. In addition, Europe is facing an energy crisis, and UK pensions are facing margin call risks, given the highly volatile bond market. As a result, global sentiment remains fragile.
  • In China, Covid controls were recently tightened again, as the 20th CPC party congress starts in October. Moreover, economic data remains weak, and the recovery path in consumption and property remains sluggish. On the other hand, the government continues to roll over supportive policies and increase liquidity in the market.
  • Currently, sentiment remains very weak toward China/Hong Kong equities. However, with valuations at extreme levels, we see a higher upside than downside, especially since earnings for most companies have bottomed. Also, Hong Kong is progressing with its reopening. The domestic sector, which remains cheap, is likely to benefit gradually.
China A-Shares
  • Concerns remain over China’s economic recovery, given the still slumping property sector and delayed implementation of infrastructure projects. Consumption data during the National Golden Week were weaker than expected. While all eyes are on the 20th CPC, the market does not expect any significant policy changes.
  • In addition, the intensifying political tensions – between China and Taiwan and between China and the US – have further dampened investor sentiment. Investors are taking a wait-and-see approach in the A-share market, evidenced by the shrinking margin trading value.
Asia ex-Japan Equities
  • Asia’s performance continues to diverge as flows continue to shift from China and Taiwan to India and the ASEAN. The recent US chip curbs on China are more broad-based than expected, which would cause global demand for semiconductors to shrink further.  As a result, the sell-off in Taiwan intensified, although the government has reduced the limit on the daily short-sell volume.
  • On the other hand, while inflation remains elevated in India and ASEAN countries, there are signs of peaking, and earnings momentum remains strong in this region. However, the strong US dollar and rising interest rates will pressure those countries with weaker current accounts, such as Thailand and the Philippines.
Emerging Market 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, liquidity in the JGB market is diminishing, and the BOJ has been dominating the JGB market.  The cost of being diverged from global central banks is increasing.  On the other hand, with Japan’s reopening, the domestic sectors will continue to benefit.
Asia Investment Grade Bonds
  • Treasury yields continue to rise, given the expectation of the Fed’s continuous hawkish rate hike. Therefore, duration risk has to be taken conservatively.
  • Asia investment grade bonds yielding 5-6% are attractive, although the weakening macro environment is weighting on the spread widening. Therefore, focusing on the high-quality spectrum and credit selection is crucial while maintaining a lower duration stance.
Asia High Yield Bonds
  • Sentiment toward Asia high yield bonds turned sour again as more Chinese developers faced liquidity challenges. Even the perceived higher-quality private developers are delaying interest payments this time. Credit spreads widened across the board. Also, with CDS in China rising, the Asian high yield market plunged further.
Emerging Market Debt
  • The upward shift in the US yield curve has caused some concerns over emerging market bonds. Latin America has become more favorable over emerging Europe as their currencies remain resilient and earnings momentum is strong.
  • However, spreads have widened across the board, given the weak global sentiment.
  • Demand for gold remains weak as the yields in government and investment grade bonds are more attractive. The strong US dollar has also put pressure on the gold price.
  • However, gold remains a good hedge amid the heightened geopolitical risk and stagflation concerns, 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.
Key indicesYear-to-date (ending 30 September 2022)September 2022 performance
MSCI AC Asia ex-Japan Index (in USD)-27.86%-12.77%
MSCI China Index (in USD)-31.23%-14.55%
CSI 300 Index (in CNY)-21.40%-6.67%
Hang Seng Index (in HKD)-23.97%-13.15%
Taiwan Stock Exchange Index (in TWD)-22.91%-10.84%
MSCI Taiwan Index (USD)-35.93%-15.84%
JPM ACI China Total Return Index (in USD)-13.56%-2.55%
JPM Asia Credit Total Return Index (in USD)-13.87%-3.51%

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