A hybrid portfolio comprising equities and bonds, in particular covering Apac, is worth considering to combat the impact of inflation on asset values, according to BEA Union Investment.
The market expects that the end of debt purchasing and interest rate hikes in the US will happen soon, and lowered import tariffs might be imposed to ease high prices. Such expectations might lead investors to take profits in expensive asset classes and switch to other markets with more attractive valuations, such as Asia.
The price-to-earnings ratio (P/E) of Asian stocks is relatively low, according to BEA Union, who highlights investment opportunities in several countries and sectors.
Foremost is Australia, where, backed by a well-developed financial system, there is huge merger and acquisition potential, said the firm.
India also has potential. Since the launch of the “Digital India” programme, digitalisation has been sweeping the country and made significant progress, driven by the massive growth of online consumption during the pandemic.
Meanwhile, China should stay within investors’ radar. Last year, the Chinese government implemented a series of tightening policies, which aimed to suppress corporate over-borrowing and counter an emerging bubble.
“It is inevitable to have short-term shocks, but when market consolidation is complete, the uncertainty tends to become clearer,” said BEA Union. “Economic development will thus be increasingly stable and solid in the long run, [and] the oversold stock market offers long term investment opportunities.”
In terms of sectors, BEA Union likes electric vehicles and elements of the solar and hydrogen supply chains, as well as Australian commodities, and Indian iron and steel companies.
In an inflationary environment, bond yields are likely to rise, but BEA Union believes Asia high yield credit can give investors some protection.
“[They] provide higher yields and shorter durations compared with their [US and European] peers. Hence, when interest rates rise, these bonds are more resilient and higher yields can help increase the real return. Institutional investors have always employed bonds as a primary tool for diversifying investment portfolio risks,” said the firm.
In particular, considering their sufficient cash flow and strong debt repayment capabilities, the performance of Indian and Indonesian commodity bonds will remain strong, it said.