CCAM cautious on Asia market outlook for 2H 2013
23 July 2013
News, Asia, China, USA
By Asia Asset Management
Investors in Asia are facing a number of new uncertainties, including the China slowdown and revisions to US monetary policy, as they build asset allocation strategies in the second half of 2013, according to Cathay Conning Asset Management (CCAM).
Mark Konyn, CEO of CCAM, notes that the prospect of higher bond yields in the US has caused investors in Asia to pull back from riskier and higher-yielding investments globally.
“Compounding investor uncertainty has been the sharp slowdown of China’s economy, and ensuing responses from the new leadership,” he says. “It now appears that the slowdown is more severe than originally anticipated by international investors as China suffers the effects of a credit boom overhang.”
Pointing to US monetary stimulus, Mr. Konyn says that the immediate fear amongst investors is that a gradual withdrawal from QE3 will end Fed support for the bond market, causing interest rates to rise further.
The Fed has not set a timetable, instead linking the tapering with economic improvements. As such, any data release that implies economic progress is going to be greeted by a sell-off in bonds as investors increasingly anticipate an earlier-than-previously-expected exit from QE3.
Despite improved earnings among numerous Chinese firms, says Mr. Konyn, overall negative stock market sentiment continues due to; weak exports, diminished pricing power, a backlog of IPOs, and tightening liquidity. The accumulation of these issues will pose problems for Chinese stocks in 2H 2013.
“Future gains relate to how the leadership addresses structural issues associated with excess credit growth,” he says. “This includes addressing the overinvestment that has built up across various sectors within the economy since 2009.
“The next six months will provide entry points for those seeking exposure to Chinese equities. However, it will require careful stock selection as the market is unlikely to be re-rated over this period.”
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