Posted inIndustry views

Japan and Europe retain favoured status after rate hike

Industry sources say that the Federal Open Market Committee’s decision to increase interest rates by 0.25% tilts their preference toward developed market equities and the banking sector.

BlackRock’s investment team revealed that in a low interest rate environment, it prefers European and Japanese equities over bonds, and market-neutral strategies such as long/short equity and credit.

Andrew Swan, BlackRock’s head of Asian equities said “a gentle rise in US rates has little impact on our portfolios. This is our favoured scenario and reflects our positioning.”

Rival firm, M&G Investments, has a similar regional preference.

“European and Japanese equity is priced for stronger prospective returns than US equity – although certain areas of the US market, such as banks, look attractive given the potential to perform well in a rising rate environment,” the firm noted.

Pioneer Investments noted that besides the banking sector, select buying opportunities are now present in the high-yield market.

“The recent sell-off in the high-yield and bank loan markets has created select buying opportunities in many sectors. We believe bank loans offer particular value as floating rate, senior-secured assets,” the firm noted.

Ahead of the FMOC’s decision to hike rates, several fund selectors told Fund Selector Asia that their clients favour European and Japanese equities in a rising interest rate environment.

Ryan Sim, OCBC’s wealth management group head of investments, noted that amid global volatility, investors prefer to increase their exposure in developed markets.

Aman Dhingra, executive director at Coutts, noted a similar trend. He told Fund Selector Asia  last month that with the expectation of being in a rising interest rate environment, the firm has positioned itself to be overweight on European and Japanese equities

Part of the Mark Allen Group.