It is a good time to invest in Asian equities. That’s the view of fund managers at Old Mutual Global Investors.
According to the firm’s 2017 Investment Outlook for Asia Pacific release, Joshua Crabb, head of Asian equities, said: ‘Although we predict continued volatility, a number of key market trends are changing and we believe now it is a good time to invest into Asian equities.
‘Correspondingly, we expect Asian equity markets to generally move higher from current levels in 2017.’
Crabb said that Asian equities remain under-owned and are relatively cheap compared to developed markets on a 1.5x price to book ratio, with 2017 earnings revisions that have stabilized and are improving.
He considers a rate rise at the December meeting of the US Federal Reserve to be 100% priced into markets and said that as long as future increases are gradual, Asian economies should be able to adjust without too many problems.
'The global market rotation towards value and away from growth also applies in Asia and overall we are positioned for a cyclical upturn with a strong value tilt,' he said.
'Donald J. Trump’s push for tax cuts and his plans for fiscal expansion are pro-growth and positive for equity markets and commodity prices, with steeper yield curves largely good for financials.
'Politicians’ bark is often worse than their bite and we do not think we will see the full scale, aggressive increases in import tariffs that Trump promised during his election campaign, more a focus on making strong bilateral trade deals.'
Looking specifically at Japan, portfolio manager Rob Weatherston said that although 2016 has been a challenging year, overall Japan is in fact one of the best-performing developed markets since Abenomics began in 2013.
He believes the recent rise of the USD and increased long term bond yields are positive for corporate earnings and expects to see evidence of analysts increasing their forecasts going into 2017.
‘Foreign investors have pulled a lot of money out of Japanese equities this year, making it one of the largest periods for outflows since 1987,’ Weatherston said.
‘We think it is likely that this will reverse next year as investors better understand the Japanese recovery.
‘The stock market offers exposure to an attractive combination of loose monetary policy, domestic fiscal stimulus, external demand stimulus and structural reform. We remain positioned for this.
‘We expect the reflation theme to remain on track and corporate governance improvements to continue with material increases in pay-outs to shareholders.
‘Overall, the Japanese market remains relatively cheap versus developed markets and we think offers an attractive risk reward from this point forward. There has never been a more exciting time to invest in the country.’