Investors can look past the uncertain macro and market outlook over the next quarter, with some positive returns expected from fixed income and opportunities to emerge in equity markets.
This is according to some of the highlights from Axa IM’s investment outlook for the second half of 2022.
In credit, Christy Lee, senior portfolio manager, fixed income at the firm, believes that a valuation shift and relative outperformance of Asia versus emerging markets indicate the potential for more stable fund flows for the region in the coming months.
There are also reasons to be positive on Asian equities, based on valuations and the robust nature of key themes, according to Simon Weston, head of Framlington equities for Asia.
Growth in equities to return
Markets cannot escape the current macroeconomic cloud and its subsequent impact in terms of inflation and wavering Chinese growth. What is relatively new, however, is the spectre of stagflation along with heightened and tense geopolitics, said Axa IM.
In line with this, the transition from monetary loosening to tightening typically creates uncertainties such as the scope for policy mistakes.
Yet Weston sees most of the long-term structural investment themes within Asia as remaining intact despite these macro concerns.
“Asian valuations are already discounting many of these concerns,” he explained.
As a result, Asia continues to offer significant yield opportunities, he added, in what continues to be an income-starved world despite recent action in bond markets.
Credit stability
Meanwhile, the outlook for Asian credit is also relatively bright, with the sharp correction during the first quarter of 2022 bringing valuations to more reasonable and attractive levels.
In China, for example, while Lee said that there are more stressed situations in the country’s property sector, signs of easing may intensify going forward.
And outside of Chinese property, there are plenty of attractive pickings in Indonesian and Indian high yield. “Higher US Treasuries have also pushed all-in yields to the higher end of historical trading ranges in recent years,” said Lee.
More specifically, she identified several credit opportunities across the region: China state-owned enterprises with solid fundamentals and reasonable levels of government support; Asian banks; Indian renewables; and solid Indonesian property credits.
“We prefer short-dated credits given the flat US Treasury curve,” added Lee.
This sets the stage for more stable fund flows to come, also fuelled by Asian credit fundamentals recovering almost back to pre-Covid levels.
