HSBC Global AM CIO anticipates surge of interest in Asian/EM equities

11 January 2017   Category: News, Asia, China, Global, Hong Kong, USA, Europe   By Asia Asset Management

HSBC Global Asset Management (HSBC Global AM) anticipates higher asset allocation towards emerging market (EM) equities and Asian bonds moving forward, as investors seek alternatives to riskier assets engendered by the new era of “Trumponomics”. Bill Maldonado, chief investment officer (CIO) for Asia Pacific at HSBC Global AM, believes that the growth-friendly policies unveiled by US President-elect Donald Trump have shifted market risk perceptions towards a scenario of  “strong demand recovery”, while the era of “deflation dominance” is likely over.

Bill Maldonado

He also thinks that the world is moving towards the “end of austerity” with financial regulators becoming more cooperative with central bankers. However, various monetary measures including negative rates and quantitative easing programmes still mean that global liquidity conditions will remain highly supportive for growth.

From an asset allocation perspective, Mr. Maldonado is partial toward global equities and select EM equities and debt, while maintaining a structural underweight in global government bonds.

“Asia/EM equities have been a major laggard over the last decade. Disappointing earnings growth, multiple contractions and depreciating currencies have all weighted on total returns,” he comments.

“However, the equity valuations look reasonable today plus Asia/EM currencies look undervalued. Additionally, profitability and cyclical indicators are improving,” he adds. Mr. Maldonado also estimates that the implied sustainable return on Asia/EM equities to stand at 9% in US-dollar (USD) terms.

On China, he states that the country’s proactive policy expansion, alongside implementation of further supply side and state-owned enterprise reforms, and a further opening up of capital markets, is supportive of growth.

“Within Chinese equities, we prefer H-shares over A-shares due to their favourable valuation and attractive dividend profile. Following the launch of the Stock Connect programme between the Mainland and Hong Kong, we expect to see stronger southbound fund flow, which is a positive catalyst for the offshore Chinese equity market, especially in the mid-cap space,” Mr. Maldonado opines.  

On fixed income, Cecilia Chan, chief investment officer, fixed income, Asia Pacific at HSBC Global AM, says that Asian-USD credit bonds continue to offer good yield opportunities, and prefers shorter-maturity bonds in the near term. She also believes that Asian sovereign bonds could potentially offer good tactical investment opportunities in the current investment environment.

For Hong Kong-dollar-based investors, Hong Kong-dollar bonds offer currency liability benefits despite having lower yields, while higher yielding RMB bonds could provide some potential diversification benefits despite the higher currency volatility risk, adds Ms. Chan.