Tai Hui, JP Morgan Asset Management
High valuations and slowing global growth means that corporate earnings growth may not be the same as in previous years, but Asia equities remain one of JPMAM’s preferred asset classes for the next quarter.
“While we believe equities should still deliver better results than fixed income on absolute terms, on risk-adjusted basis, it becomes less obvious that stocks will outperform,” Tai Hui, Asia chief market strategist at JP Morgan Asset Managemnt, told a media briefing this week.
Yet, although the Fed rate hike and Russia’s invasion of Ukraine have brought volatility to the market, Hui believes that the effects have been largely played out and should not further drag down the performance of Asia equities.
“Asia is poised to come back when their governments start to take a more balanced approach when it comes to dealing with Covid,” Hui added.
“Sectors that have been hard hit by the pandemic, such as domestic demand, tourist and service sectors, will continue to benefit.”
When it comes to growth versus value, Hui noted that rising bond yields would typically hurt the growth sectors while benefiting the value sectors.
Therefore, the strategist favours financials, energy, industrials, and materials sectors, and believes utilities, consumer staples, healthcare will underperform the index.
In the emerging markets, Hui recommends investing in countries that are commodities exporters rather than importers to grasp the opportunities related to inflation.
With the Fed hiking rates and inflation coming down from a historical high level, Hui said he is “not a huge fan” of gold.
Looking at past data, Hui noted that the gold price usually suffer in a rising real yield environment and is likely to struggle in the next few quarters.
This is contrary to views from DBS, Schroders, and Invesco, who all favour increasing exposure to gold to diversify investment portfolios.
Despite the Russia-Ukraine war, Hui does not recommend investing directly in energy or oil, as he thinks the price increase is not sustainable.
Although the price will be pumped up as a result of new sanctions, he believes it will be followed by demand disruption shortly, which will bring prices back down.
“The move in energy prices could be very abrupt at different times, but that means average investors are unlikely to time those movements,” said Hui.
The strategist believes it is better to invest in the stocks or bonds commodity and energy companies instead of the actual assets.
Finally, for investors who would like to hedge against inflation risks over the next several years, Hui recommends investing in transport, infrastructure and property.
“These asset classes deliver steady income with little correlation with equities or risk assets. For example, many toll roads are linked to local inflation indices, which can be used as inflation hedges,” said Hui.