North Asia and South Korea are in the best position to capture investment opportunities in the second half of 2016, Ronald Chan, CIO, equities, Asia ex-Japan, from Manulife Asset Management has said in a market outlook note.
He said he is seeing improvements in investor confidence as fiscal and monetary stimulus measures from Asia’s central banks start to flow through into the real economy.
‘As Asia transitions from an old-style saving focus to a new millennial spending economy, from a commodity-based to consumption-led economy, and from low end manufacturing process to higher value added industries, there are plenty of investment opportunities available,’ he said.
‘Investors should carefully track the ability of the region’s governments to execute planned policy measures and their commitments to reform.
‘Investors should also expect current economic momentum to start translating into better corporate earnings where markets currently have very little expectation.’
Provided global monetary conditions remain accommodative, he said Asian corporate earnings should benefit from better terms of trades from external trades and improved pricing power as deflation risks subside.
Eyeing Indonesia and Malaysia
When it comes to the fixed income perspective, Endre Pedersen, CIO, fixed income, Asia (ex-Japan) at the firm said that the Fed’s dovish posture has facilitated a rally in Asia fixed income and credit in the first quarter of 2016.
‘The best performing local market was Indonesia and we see opportunities in the longer maturity government bonds of both Indonesia and Malaysia.’
He also said that the pan Asia strategy is to manage risk in the coming quarter and maintain the returns earned year to date.
‘We are modestly overweight on Asian corporate bonds of higher quality names with lower beta combinations. We remain biased towards holding US dollar as against Asian currencies.
‘While the view on currencies remains defensive, we also prefer South Asian currencies over North Asia ones.’
With lower yields and lower nominal income growth, Peter Warnes, head of portfolio solutions group, international at the firm also said that the investment environment is challenging but low volatility is gradually dissipating.
‘Many investors in Asia still hold their assets mainly in cash and property with Asian equities generally offering quite volatile returns. Simultaneously, bonds are offering quite uninspiring yields.
‘To moderate risk exposure efficiently, a tactical approach with the flexibility to dynamically invest in multiple asset classes or different geographies is preferred over the traditional buy-and-hold, single-asset-class strategy.
'Investors should diversify away from binary decisions and increasingly generate returns with uncorrelated factor bets.’