Investors should keep a keen eye on emerging market equities, including old-economy Chinese stocks that are gaining in value, say analysts at Deutsche Asset Management (Deutsche AM).
The German-based asset manager expects China to continue its “bumpy decelerating model” to maintain slow and stable growth, with stimulus from the government readily available when necessary.
Sean Taylor, the group’s chief investment officer for Asia Pacific and head of emerging markets, says that the growing value in old-economy stocks can be attributed to an increase in coal and gas prices, leading to a more balanced investment in areas which were previously underweighted. He goes on to say that investors should especially look at sectors that are supported by government policy.
Compared to fixed-income products, Mr. Taylor says equities are a more attractive option, as the market is relatively cheap at the moment. Returns are expected to be in the single-digit area for 2017, despite higher risks and volatility.
Stable and continuous growth in China, India, Russia and Brazil has prompted the firm to overweigh in the area of emerging markets, with around 10% growth expected. However, the impact of the potential protectionist measures from the US is still unknown.
For investment in Japanese equities, Mr. Taylor says investors were not well-rewarded last year despite the positive performance of many high-quality Japanese companies. This was because the market was mainly driven by the yen, which was propped up by the Bank of Japan. However, the firm expects the US dollar to remain strong next year, which directly translates to a weaker yen – playing to the benefit of the Japanese economy.
With global growth of 3.5% expected next year, Deutsche AM forecasts US GDP growth to reach 2.2% compared to 6.3% in China, against the backdrop of a stronger US dollar and US Federal Reserve interest rate hikes.
As of June this year, Deutsche AM had global AUM of approximately 719 billion euros (US$762.38 billion), of which 41 billion euros was sourced from the Asia-Pacific region.