The Multi-Asset Perspective: May 2019


In this edition of the Multi-Asset Perspective, our Senior Fund Manager Kelly Chung shares her latest thoughts on a number of key asset classes and how the escalated trade tension between China and the US will impact on asset allocation.

China / Hong Kong Equities

Even before trade tensions between the US and China escalated, we were already seeing rising risk aversion, an increasing put-to-call ratio (an indication of investors putting more hedges in place) and a jump in the volatility of indices. Following the escalation of trade tensions last week, investor sentiment has fallen further. We expect the back-and-forth trade negotiations to drag on for a period of time and the market to be in a risk-off mode until there is greater clarity about the direction in which relations the two countries will head. On the other hand, we don’t expect the latest round of tariffs to impact markets as much as the tariffs imposed last year did, especially given that China is prepared to protect its economy with further stimulus if needed.

China A-shares

Momentum was already showing signs of weakening even before the escalation of the US-China trade tensions. Following the front-loaded stimulus in Q1, the market was already expecting stimulus and the pick-up in the economy to moderate in Q2. With heightened volatility in the RMB, investors are likely to be inclined to the lock in the year-to-date profit in A-shares first.

Asia ex-Japan Equities

We remain neutral on Asia ex-Japan equities due to the global economic slowdown and further earnings downgrades. The strong USD also presents a risk to this asset class. However, supportive monetary and fiscal policies would continue to be positive factors.

Emerging Market ex-Asia Equities

Momentum and sentiment in emerging markets ex-Asia have weakened as evidenced by the weaker performance of the industrial sector. On the other hand, the economic recovery in emerging markets ex-Asia remains on track.

Japanese Equities

Valuations in Japan are the most attractive in Asia. There could be front loading of consumption in the buildup to the consumption tax hike in October. However, the JPY’s rally amid the current risk-off environment is hurting sentiment towards Japanese equities.

Asia Investment Grade Bonds

The asset class is benefiting from expectations of a more dovish Fed. However, after the year-to-date rally, valuations have become less attractive, with the asset class’ spread over U.S. investment grade bonds and Asian equity dividend yields having narrowed significantly.

Asia High Yield Bonds

There was a relatively muted reaction from Asian high yield bonds following the escalation of US-China trade tensions last week. Spreads for Asian high yield bonds could widen quite quickly if the current risk-off sentiment is to deepen further as they’re already at relatively tight levels.

Emerging Market Debt

Macro conditions remain favorable for emerging market bonds due to lower yields. However, weakening commodity prices and the risk-off sentiment could hurt the asset class.


Gold remains a good hedge, especially on the political front. The flattening yield curve is also favorable for precious metals.


Multi-asset offers lower volatility compared to a traditional single-asset or balanced portfolio. However, correlation among risky assets such as equities, credits, and commodities tends to rise during a risk-off environment. Additional asset classes are therefore needed for better diversification.

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.