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Allianz GI shuns EM equities

The firm's views on the asset class differ from other managers, who believe valuations have made emerging market equities attractive.

The equities bucket in one of the firm’s global multi-asset portfolios has been cut in half, according to Stefan Nixel, Hong Kong-based chief investment officer for multi-asset solutions for Asia-Pacific at Allianz Global Investors.

“We have shifted gear from a very growth-oriented allocation in 2017 to gradually reducing the exposure towards risk asset classes, including equities and also corporate bonds,” he told FSA in a recent interview.

Stefan Nixel, Allianz Global Investors

Nixel expects volatility to continue in 2019 due to concerns over a late-cycle economic environment as well as earnings peaking on a global scale.

“We usually observe that in this type of environment, equity returns are not as high anymore and volatility increases.”

Nixel, who also manages the Allianz Global Dynamic Multi Asset Strategy 50 Fund, said that the product’s exposure to equities is around 30-40%, which compares to 70-80% during the start of 2018.

A contrarian view of the EM?

Existing equities exposure in the portfolio is defensive. The majority are developed markets stocks, particularly in the US, Nixel said.

“We became more focused toward the US, which held up nicely in 2018, as the Eurozone and emerging markets were basically weaker. I think we have to acknowledge that the US economy, given the fiscal stimulus in 2018, is still one of the most solid economies globally.”

Around 34.5% of the fund accounts for developed markets within its 36% exposure in equities, according to the fund factsheet. Only 0.2% are in emerging markets.

Nixel’s views on emerging markets differ from other managers who are positive on emerging markets due to attractive valuations. They include Blackrock, Schroders, T Rowe Price and Goldman Sachs Asset Management.

Nixel acknowledged that EM valuations have become more attractive relative to global equities, but he expects volatility in the asset class to continue.

“With all the geopolitical risks globally, [especially the trade conflict between the US and China], as well as the weakening of economic data, we still do not see that it is time to go value hunting in emerging markets.”

Turning to fixed income, Nixel is also defensive, with the majority of its fixed income sleeve in government bonds.

“We are also a bit cautious on the credit side, so the portfolios are really tilted toward government bonds, and also to very short duration bonds. It is really about safety first at this point and waiting for opportunities to arise.”

The Allianz Global Dynamic Multi Asset Strategy 50 Fund versus the multi-asset sector in Hong Kong, according to FE Analytics.

All fund and sector NAVs have been converted to US dollars. The fund’s benchmark, which is 50% MSCI World Total Return Index + 50% Bloomberg Barclays Capital Global Aggregate Bond Index, is not available on FE.

Part of the Mark Allen Group.