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Asset Allocation

Could Asia Stage a Comeback?

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Investors remain shellshocked by the turbulence that global markets endured through 2018 but going into 2019, Citi analysts believe the 5 major market challenges could be alleviated.

a)Trade negotiations are likely to result in reduced tariffs

b)Fed, though still likely to raise rates, has become much less hawkish

c)USD may remain range bound amid late cycle conditions, without the tax cut boom

d)China’s policy has turned more aggressive to restore confidence

e)Positioning is much lighter than early 2018, pessimism appears overdone.

 

Implications

Equities: Citi analysts favour the Technology sector with discounted valuations, while fundamental hurdles like trade and regulation are likely to normalize in 2019, with still robust long term prospects. Dividend yield is likely to be of rising importance for investors, which highlights the attractiveness of markets like Singapore, Taiwan and China/HK.

Fixed Income: Bond valuations are such that even if there is no improvement in growth, potential returns are already attractive. Citi analysts expect the market to price lower default risk for China, as the central bank provides greater liquidity.

Currencies: EM Asian currencies are staging a rebound from lowest levels since 2009. Citi analysts expect moderate recovery, which would support equity outperformance and may bring more interest in local currency bonds, with higher yields.

 

 

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