While multi-asset often offers lower volatility compared to traditional single-asset or balanced portfolios, the correlation between risk assets such as equities, credits and commodities has increased dramatically, says Kelly Chung, investor director, head of multi-assets at Value Partners Group.
Commenting on the investment market in China, Chung said China’s economic data had shown improvements in January following the lifting of the country’s zero-Covid policy.
Chung said: “After rallying for three consecutive months, the equities market has taken a breather, with some profit-taking pressure from hedge funds since they were early in overweighting China. With some companies already reporting earnings results, investors’ focus is shifting to fundamentals and earnings outlook. Long-only foreign investors are still mostly underweight in China and are waiting to see further improvement in economic data and company fundamentals.
“There are significant potential inflows to the China/Hong Kong market when long-only investors start to close the gap of their underweight.”
While the rest of the world is facing recession risks, China is experiencing a different cycle with the government accelerating support for the property sector to regain consumer confidence. Hong Kong is also likely to continue to benefit from China’s economic recovery, Chung says.
However, she points out that the reopening rally in China A-shares is lagging behind its offshore peers as valuations were not as extreme as China/Hong Kong equities. Foreign investment has focused on the offshore market, while domestic sentiment remains cautious, driven in part by the recent rising SHIBOR and tighter financial conditions.
On a broader scale, Chung said the macro picture is generally improving for Asia ex-Japan.
“With inflation in Southeast Asia getting better, rate hike pressures have become milder. The softer US dollar and Treasury yields are positive to Asia ex-Japan equities. There are continuous inflows toward the region. On the other hand, with economic growth in the US deteriorating, uncertainties in markets sensitive to global trade, such as Korea, Taiwan, and Singapore, remain high,” said Chung.
Meanwhile, momentum in Asian credit continues to pick up, with strong demand. Credit spreads in the US investment grade bonds have tightened, making Asian investment grades continue to look attractive and with the market anticipating a rate hike cycle closer to the end, demand remains strong.
In addition, investor sentiment toward Asia high yield bonds has picked up quickly, especially in the Chinese high yield space, driven by the supportive policies in the property sector and the recovery in the consumption and industrial sectors on the back of the country’s reopening.
Chung said: “Credit spreads in other Asia ex-China high yield bonds have also tightened due to the improvement in the liquidity and sentiment in the space. Also, with duration risk becoming less of a concern due to the peaking US Treasury yields, investors are extending their appetite to longer-dated bonds in search of more upside.”
Finally, emerging market debt is another area experiencing an uptick in demand, with the macro outlook in emerging markets improving and inflation cooling.
Chung added: “The softer US dollar and downward shift in the US Treasury yield curve are positive for emerging market bonds. The credit spread continues to tighten as it remains attractive versus US bonds.”
