A US interest rate cut could be on the horizon, but a JPMorgan Asset Management fund is turning away from emerging-market assets.
The money manager’s Global Income Fund has halved its holdings of developing-nation fixed income and equities to 3 percent each, opting instead to buy European corporate junk bonds and Treasuries, the fund’s comanager Eric Bernbaum said.
The US$50 billion strategy is skeptical about emerging Asia’s prospects due to the region’s exposure to the US-China trade dispute.
“The area that we’ve seen the most deterioration in — and the most weakness — is in the emerging-markets complex, particularly ex-China,” New York-based Bernbaum said. “We’re thinking of areas like [South] Korea, Taiwan, Singapore — those regions and countries that are very exposed to global trade uncertainty, disruption of supply chains and waning demand.”
Bernbaum’s call serves as a warning as traders celebrate the coming US interest rate cut by piling into risk assets.
Even if the US Federal Reserve eases, Asia’s export-reliant economies must still contend with the damage wrought by the trade dispute, with no sign that the dispute is to be resolved anytime soon.
While Washington has restarted high-level talks with Beijing, the truce is far from a game-changer, Bernbaum said.
Thorny issues such as intellectual property rights and cybersecurity still persist. US President Donald Trump has complained that China did not boost purchases of US farm products as promised by Chinese President Xi Jinping (習進平) last month.
If recent data are any guide, more weakness might be in store for emerging Asia’s economies. Shipments from South Korea fell 2.6 percent in the first 10 days of this month, with sales of semiconductors down by a quarter from a year earlier.
The strategy, among JPMorgan Asset’s biggest mutual funds, sold the bulk of its five-year Treasuries holdings about a month ago and has been buying 10-year notes where it sees more value, Bernbaum said.
JPMorgan expects the Fed to cut rates by one-quarter of a percentage point in July, and potentially once more by year-end.
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