The Multi-Asset Perspective: December 2018


Our Senior Fund Manager Kelly Chung shares her latest multi-asset outlook and insights in a new monthly series exclusive to the Value Partners Investment Insights portal.

China / Hong Kong Equities
After a brief reprieve on the back of the Trump-Xi G20 trade truce, market attention has quickly gone back to economic fundamentals and the realities of the US-China trade situation. Although there will be no additional tariffs in the near-term, no actual deal came out of the G20 meeting either. Consequently, the market will continue to be on the lookout for further cues from both countries. The flattening of the US yield curve and the inversion within the 2-5 year section of the curve are warning signs of an economy slowdown. The Chinese economy is already moderating and if the US trots down a similar path, earning expectations will continue to be revised downward. Market volatility is expected to heighten in the near-term.

China A-Shares
The combination of the Trump-Xi meeting at the G20 summit and a less hawkish Fed has reduced worries of a further depreciation of the RMB. Further economic stimulus is expected to be introduced by the Chinese authorities, which will provide support to the domestic market.

Asia ex-Japan Equities
The heightening of risk-aversion sentiment globally and downward revisions in earnings estimates continued to drag markets. While the market outlook has improved somewhat due to the recent stabilisation of Asian currencies, the flattening of the US yield curve is creating concerns of a synchronised global economic slowdown. Within Asia ex-Japan, Indonesia, Taiwan and Korea are the top-ranked countries. Market valuations are currently near historical lows.

Emerging Market ex-Asia Equities
The recent weakness in oil and commodity prices has added pressure on the asset class. Moreover, worries over a global economic slowdown in early 2019 have dragged market sentiment. The possibility of the Fed hitting the pause button on its tightening cycle could lead to a weaker US Dollar, which is supportive of EM equities.

Japan Equities
A weakening Japanese Yen has been helping exporters although global risk aversion sentiment remains high and overall trading volume is low.

Asia Investment Grade Bonds
The recent widening of credit spreads have led to concerns over an economic slowdown and possible earnings downgrades although it remains the best asset class given the existing risk-off environment and a potential Fed pause.

Asia High Yield Bonds
The bearish sentiment implied from the higher volatility within equities, underperformance of small caps over large caps and outperformance of cyclical over defensive sectors have caused Asian High Yield credit spreads to continue to widen. Spreads have widened to a very attractive level, while the number of defaults is manageable and unlikely to escalate further. Investor sentiment needs to recover before demand for High Yield bonds picks up. Demand for High Yield bonds is currently weak.

Emerging Market Debt
The rise of risk-aversion sentiment globally continues to put pressure on EM Debt. EM currencies are, however, stabilising and can help to offset some of the risks.

Gold remains a good hedge during a risk-off environment, especially in the political front. Moreover, the asset class stands to benefit from the possibilities of a Fed pause and a weaker US Dollar.

Even though a multi-asset strategy can offer lower volatility over a traditional single-asset of balanced portfolio, the correlation among riskier assets such as equities, credits and commodities is rising amidst the current risk-off environment. Consequently, additional asset classes are needed for better diversification.

The views expressed are the views of Value Partners 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, 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. Issuer: Value Partners Limited.