Tuan Huynh, Deutsche Bank International Private Bank
Given relatively attractive current equity valuations in Asia ex-Japan, investors can expect higher returns from the region than developed market stocks for the rest of 2021.
In particular, key parts of North Asia look resilient and appealing, said Deutsche Bank IPB at an outlook briefing.
“We think China/Hong Kong equities are supported by the solid economic recovery momentum, the still-loose monetary environment and the continual improvement in corporate profitability,” said Tuan Huynh, chief investment officer, Europe and Asia.
For example, he explained, Chinese equities – especially in the tech sector – showed corrections in the past few months. “We think this provides a good entry point for long-term investors.”
Deutsche Bank IPB is also overweight South Korea, based on a positive view on local tech-related sectors in the country.
Elsewhere in the region, the firm is neutral towards the Indian market and underweight Asean and Taiwan.
Yet it also believes Indian equities might defy Covid-19 related headwinds, so has an eye on earnings growth. Year-to-date, the market has outperformed emerging markets (EMs) overall, returning 12% compared with 7% for the MSCI EM Index.
A tactical balancing act
From a macro perspective, Deutsche Bank IPB forecasts higher growth rates in 2021 driven by the US, followed by ongoing recovery in 2022, led by the Eurozone.
In Asia, the firm’s 2021 GDP growth forecast for China is unchanged at 8.7%. “We think the Chinese economy will be supported by stable export growth and continual consumption recovery,” said Christian Nolting, global chief investment officer.
“We see EM Asia as a whole benefiting from external demand recovery amid economic reopening, especially in the developed markets,” he added.
Looking across other asset classes, Deutsche Bank IPB said it expects a slight upward revision of core government bond yields, and is neutral on periphery bonds.
“We remain constructive on EM Asia credit, as it should be supported by the improving economic fundamentals, loose monetary environment, and investors’ “hunt for yield” sentiments,” added Huynh.
In commodities, meanwhile, visible price gains are expected in line with an economic reopening, in sync with the expectation that demand for oil will increase. For gold, however, higher US yields and the likelihood of a slightly stronger US dollar will limit the asset’s attractiveness.
Looking towards alternative options, the firm sees cryptocurrencies as a potential contributor to returns – but acknowledges that they are still far from a mainstream asset class.
“Even arguments for portfolio diversification or inflation hedging need to be treated with caution,” Nolting said. “We believe that the high volatility, lack of regulation, fraud risks and central bank digital currencies are barriers to a widespread adoption of cryptocurrencies.”