Uncertainty of the timing of another interest rate hike by the US Federal Reserve, the Brexit concern and the stability of the Chinese yuan mean investors need to take a balanced approach between equities and bonds, said Hui.
“The risk-on, risk-off cycle that we experienced in the first quarter, it will come back. It might not be as dramatic as the first six weeks of the year, but we’ll see investor confidence come and go, depending on the data,” he said in a briefing on Thursday.
Asian fixed income and corporate bonds of developed markets are preferred, after central banks in Europe and Japan adopted negative interest rate. Other central banks in Asia do not face pressure for a rate hike, he said.
“If the US dollar bull run comes to an end in the next year, it would help reduce fears of capital outflow [among Asian countries],” Hui added.
He remained skeptical on whether negative interest rates would work. So far they have only “pushed investors to take more risks” and increased prices on equity and alternative assets. But negative rates have not encouraged lending activities, which is what the central banks want.
Commenting on the rebound experienced in emerging markets equities, Hui doubted if the long uptrend has started.
“We have seen the worst of emerging markets, but in the next few months we are not seeing a long-term rising trend just yet. We still need to decide on whether the dollar has truly peaked, and whether energy and commodities have truly bottomed.”
Hui believed the rebound was partly a technical one, hence he advised clients to start looking into EM, rather than overweight the region.
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The MSCI Emerging Markets Index has bounced back from the lows of January-February:
