Mary Nicola, Pinebridge Investments
As global economies recover from the Covid-19 pandemic, Pinebridge Investments retains confidence in developed market equities, with a tilt towards Europe and Japan.
“We are still bullish, but less so than earlier in the year,” said Mary Nicola, global multi-asset portfolio manager at Pinebridge at a media briefing this week.
European and Japanese equities should outperform, as they catch up with the US. “Although both economies are lagging in vaccination progress, there will likely be a significant pick up in the vaccination rate over the next few months, while macroeconomic fundamentals should improve during the next nine- to 18-months,” she said.
Reflation rather than inflation will be a key feature for the rest of the year, as demand accelerates — although as Pinebridge chief economist Markus Schomer pointed out, the evidence of recent Purchasing Managers’ Indexes indicates that recovery is largely confined to developed markets, with emerging markets barely participating.
In this environment it still makes sense to allocate to risk assets, although “real assets are also attractive during periods of reflation,” said Nicola.
Within Asia ex-Japan, she believes Taiwan, Korea and India equities are expensive on a valuation basis, and she is concerned about regulatory measures and constrained credit growth in China.
Among sectors, Elizabeth Soon, head of Asia ex-Japan equities, thinks tech will continue to be boosted by the increased adoption of digitalisation during the pandemic, with cloud services driven by online video game and ecommerce.
In China, Pinebridge estimates that the market size of the cloud service market will grow to RMB 217.5bn ($33.64 bn) in 2024 from RMB 11.3bn in 2015, because of strong demand from “Generation Z”.
Asia HY sweet spot
Despite its anxieties about several Asian equity markets, Pinebridge sees opportunities in Asian fixed income.
Asian high yield (HY) bonds should outperform US and emerging market bonds in the short-term,” said Arthur Lau, co-head of emerging markets fixed income and head of Asia ex-Japan fixed income
Among sectors, Lau favours Chinese property issues, especially single B names, will offer the best total return in next 12 months.
“Based on current expectation, Asian HY will earn a 7% total return next year, which is a decent return with limited default risk,” said Lau. “The default rate will continue to be low, apart from some high-profile names which are easily identified and avoided.”
Although the spreads (over US Treasury yields) for investment grade bonds are similar for all three markets, Lau recommends the Asian fixed income in the long term, because of its average shorter duration and higher yield.
