Emerging consumer stocks will act as a good buffer against Chinese slowdown, the Apac CIO of Credit Suisse Private Banking has said.
'We believe the slowdown will continue to be centered around the industrial and export-oriented sectors. Economic growth in the services or tertiary sector has kept steady at around 8% per year even during the last couple of years when industrial growth declined,' said John William Huia Woods.
The consumer remains a bright spot within emerging markets despite decelerating growth, while other more traditional sectors such as manufacturing and exports have slowed, he stated in a monthly investment letter co-authored by Jack Siu, investment strategist - Apac, and Wenli Fei, equity strategist.
'Against this backdrop, consumer and service-oriented companies in emerging markets will likely outperform as these companies depend mainly on domestic sources of growth.
'Apart from near-term cyclical support, the consumer businesses in emerging markets are also driven by secular trends, including demographics and a rising middle class.'
According to the Credit Suisse Global Wealth Report 2015, wealth growth in emerging markets will continue to outpace that of high-income economies over the next five years (9.1% against 6.1% in nominal USD terms).
Other defensive themes
Globally, Woods remains positive on investment grade hard currency bonds, especially in the USA and emerging markets.
'In Asia, demand for hard currency bonds is well supported by the continuous foreign capital inflow for Asian bonds as a result of its attractive yield pick-up relative to global core government bonds and European credits.
'We expect a similar environment for Asian hard currency bonds in H2 2016, and with the addition of deteriorating domestic fundamental factors resurfacing in investors’ minds, investment-grade bonds are likely to produce a safer risk-adjusted return over high yield.'
The investment chief also like market neutral hedge funds.
'Hedge fund styles with very low or no exposure to classical market beta should perform reasonably well in this environment, helping investors generate positive returns in multi-asset class portfolios.
'We particularly highlight equity market neutral, fixed income arbitrage or global macro as strategies that should be able to capitalize on the current market regime,' he said.