Belinda Boa, Blackrock
Recovery, reflation and sustainability are the three major themes guiding Blackrock’s portfolio positioning in Asian credit and equities, Belinda Boa, head of active investments for Asia Pacific and CIO of emerging markets equities, told a media webinar last week.
“A vibrant global economic recovery is underway, and while the pandemic-related social and economic stresses remain, we believe Asian risk assets are well-positioned to benefit,” said Boa.
Lucy Liu, portfolio manager, global emerging markets equities at Blackrock said that their funds began positioning portfolios last autumn for a cyclical upturn based on expectations of gradual normalisation in global demand.
“This is largely on track, and while setbacks are possible, lockdowns this year have been shorter-lived and more targeted than they were in 2020,” she said.
Liu highlighted sustainability themes, particularly related to new energy, as potential investment opportunities. Ambitious targets include neighbourhood electric vehicles sales of 25% in the auto market by 2025 and 40% by 2030, as well as a non-fossil fuel target of 20% of the energy mix by 2030.
“We are prudently positioning in solar inverters, EV batteries and photovoltaic-related components,” she said, emphasising that China is becoming a reliable global supplier of sustainability solutions.
“We have spotted companies with defendable global positions in these areas and have moved to an overweight position in new energy over the past six months,” said Liu.
On the other hand, Blackrock has turned cautious on Chinese internet companies because of the regulatory clampdown, and has trimmed some positions in semiconductors and memory suppliers, reflecting changes in competitive dynamics and stock valuations.
Emerging market portfolios have also reduced holdings in India and Indonesia for tactical rather than structural reasons, but remain overweight in both countries.
“Our conviction in their investment case as strong domestic stories holds, and see a robust IPO pipeline in India for the rest of the year,” Liu.
China fixed income tilt
The positive Asian equity team’s outlook is shared by Blackrock’s fixed income managers.
“The global need for income has risen and this region stands out as a sourcing ground, supported by reasonable valuations and a positive macroeconomic backdrop,” said Ronie Ganguly, portfolio manager, Asia fixed income and credit.
Blackrock prefers high yield credits over investment grade bonds, because the severest price dislocations have occurred in high yield, especially B-rated credits, noted Ganguly.
China offers the best opportunity, he added, and it is his portfolios’ largest country overweight position. “China’s deleveraging efforts will result in price differentiation, better fundamentals and ultimately a more efficient onshore credit market,” he said.
“We aim to turn the pickup in default rates and varying levels of risk premia priced into companies into potential opportunities to generate alpha, in both the onshore and offshore markets.”
Elsewhere, Ganguly likes some frontier market sovereigns for tactical reasons, but has become more selective in India due to tight valuations and uncertainties on its economic reopening. Ganguly has turned neutral towards Indonesia after a strong performance during the past six months.
“We prefer a barbell strategy for our blended portfolios, combining Asian and Chinese single-B credits with the higher-quality single-A credits across the investment universe, from China to the Middle East,” Ganguly said.
In the local credit markets, Blackrock favours China, India and Indonesia in the medium term, preferring FX-unhedged exposures in India and Indonesia, and partially FX-hedged in China to benefit from the strong interest rate carry and US dollar softness.
Tactically, Ganguly likes longer duration in Korea, Malaysia and Thailand on a currency-hedged basis, because of the steep pricing of rate hikes in Korea and high expected real yields in Malaysia and Thailand. Conversely, he is underweight duration in Singapore, due to the market’s vulnerability to higher US Treasury yields.
“We remain optimistic about the prospects for Asian risk assets over the next several months,” said Boa.
Confidence is based on Blackrock’s assessment of the post-pandemic global reopening, China’s balancing act between its growth and reform agenda, and the region’s ability to attract global capital flows based on its strong fundamentals.
The risks to the firm’s “mostly positive outlook” include demand-driven inflation derailing the growth path, geopolitical tensions leading to detrimental outcomes for financial markets and progress on overcoming the pandemic taking a step back, according to Boa.
