Investors should seek more favorable returns from emerging-market and high-yield bonds, as growth momentum in developed markets is expected to remain weak, asset management experts and market strategists said on Wednesday.
“We expect low growth, low inflation and low interest rate conditions to persist worldwide as central banks continue to implement dovish monetary policies to stave off economic contraction,” Standard Chartered Bank (Taiwan) Ltd wealth management head Cindy Fu (傅敏儀) told a news conference in Taipei.
These conditions and an anticipated recovery in commodity prices are expected to be beneficial for US dollar-denominated bonds of export-oriented emerging economies in Asia, Fu said.
Crude oil would likely lead the recovery in commodity prices, as OPEC members have agreed to cut production, Fu said, adding that oil prices might reach US$55 per barrel in the short term and US$60 per barrel in the long run.
“This trend would help investments that track the energy sector’s performance,” she said.
As global markets have already factored in a likely delay in the US Federal Reserve’s possible interest rate hike, the greenback would have little catalyst for appreciation in the short term, Fu said.
Against this backdrop, investors should seek more attractive foreign-exchange opportunities, such as the Australian dollar, as that nation’s economy is likely to benefit from rising commodity prices, she said.
As for equities, Fu said she is upbeat on stocks in Indonesia, India, South Korea and China, while advising investors to be more cautious about Japanese equities.
Separately, a market strategist said investors should be wary of increasing political upheavals in Europe, inflationary risk in the US and corporate debt defaults in China.
Following the UK’s decision in June to exit from the EU, several eurozone members are poised to hold referendums on the same issue, including Italy next month, and the Netherlands and France next year, Hong Kong-based JPMorgan Asset Management chief market strategist Tai Hui (許長泰) told a separate news conference in Taipei on Wednesday.
“Populism is rising across European nations and that could lead to further Brexit-like fallout,” Hui said.
Hui said he is less concerned about the possibility of Republican US presidential candidate Donald Trump winning the presidential election, as the US Congress would be effective in countering radical policies.
While the US would likely see the greatest exposure to inflationary risks, the administration would react by rising the yields on Treasury notes, which would affect the appeal of emerging market bonds, he added.
As for rising corporate default risks in China, strategists have urged investors to adjust their investment portfolios ahead of the curve, saying it would be hard to exit the market otherwise.
As debt utilization is exacerbating the debt problem in some Chinese industrial sectors, such as steel and petrochemicals, Hui said investors should seek safe-haven sectors where utilization is lower, such as technology and pharmaceuticals.
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