INSUBCONTINENT EXCLUSIVE:
Bloomberg|Updated: Aug 17, 2018, 07.16 PM ISTEM Asia is at a crossroads in terms of risk appetite, with the trade dispute and dollar
moves.By Liau Y-Sing and Kartik GoyalFrom a rising dollar to an escalating trade war, emerging Asian bonds and currencies have had nothing
Investors in the region are bracing for more - at least in the near-term.
A series of Bloomberg News interviews with fund managers from
Pacific Investment Management Co
to Amundi SA shows that trade tensions, tariffs and elections are still seen as the main headwinds to Asian markets
What happens in China will be key, with some holding out for a stabilization in the yuan, while others say Asia’s strong economic
fundamentals will offer a buffer to any volatility.
Here is what eight portfolio managers with Asian investments see in store for emerging
Asian FX and bonds:
PimcoRoland Mieth, emerging markets portfolio manager in Singapore at Pacific Investment Management Co., which oversees
$1.71 trillion:EM Asia is at a crossroads in terms of risk appetite, with the trade dispute, broad dollar moves, Federal Reserve tightening
and expected China growth slowdown the key drivers from now and into 2019How global sentiment evolves over the next 6-12 months will depend
a lot on extent to which China succeeds in easing liquidity conditions, supports growth and allows a weaker CNY without triggering capital
outflowsCo.’s positioning in Asia FX and rates “remains relatively light and tactical in nature
We have a constructive view on fundamentals for most countries across the region, and recognize the cheapness that has been created in
1H”Forward guidance by the European Central Bank and the Bank of Japan, coupled with the fact that inflation is likely to undershoot for
longer, will keep European and Japanese rates relatively low for longer, and cap the rise in EM Asia ratesAmundiEsther Law, a senior
emerging-market debt manager in London at Amundi SA, which oversees the equivalent of $1.67 trillion:“It is too early to tell if the whole
There are still many headlines risks regarding trade wars, sanctions and election risks generally speaking and these are likely to keep EM
FX and government bonds on their toes in the near term”“Further headline risks on trade wars, higher core yield and stronger USD are key
threats to Asian FX bonds
We try to keep an overall duration short and focus on relative value bets on EM FX”Co
increased EM Asian exposure recently after China’s yuan stabilizedIndonesia is co.’s top pick for EM Asian FX and govt bondsFidelity
InternationalEric Wong, Hong Kong-based fixed-income portfolio manager at Fidelity International which oversees $431 billion:EM Asia will be
supported by accelerating China stimulus as authorities respond to a faster-than-expected slowdown in growthStill, region hasn’t reached
turning point with multiple risks over the next 3-6 months, including upcoming mid-term U.S
elections which may exacerbate the trade warFavors Malaysian government bonds and local Chinese corporate bonds“Philippines is certainly a
Inflation is surprising on the upside and growth is not as encouraging
The central bank did the right thing last week by raising policy rates by 50bps, but it is still behind the curve given where they are in
the cycle and about the inflation dynamics”State StreetNg Kheng Siang, Singapore-based Asia Pacific head of fixed income at State Street
Global Advisors which manages nearly $2.73 trillion:There’s been some stabilization in most EM Asia local currency government bond markets
although this can be quickly disrupted by developments such as a weakening in Turkey’s fundamentalsSays main threats are a “sudden
change in global risk sentiments, currently trade tariffs development is key, sudden shift in policy calibrations by governments and central
banks that take the markets by surprise”“EM currencies are still facing headwinds with risk sentiment broadly still having negative
tint”AllianceBernsteinYoo Jae Heung, Seoul-based senior portfolio manager at AllianceBernstein Ltd
which manages $540 billion:Near-term difficulties include a strengthening dollar due to rising U.S
interest rates, escalation of U.S.-China trade war and political uncertainties in some emerging economiesCompared to the taper tantrum in
2013, emerging markets’ mid-to-long term fundamentals remain positive, given favorable global economic growth projectionsAvivaStuart
Ritson, Singapore-based head of Asian rates and FX at Aviva Investors, which manages more than $482 billion:“EM Asian FX and rates have
already significantly repriced in recent months resulting in attractive valuations in several markets
But, concerns around the broader EM universe are likely to dampen risk appetite in the near term”Still, any contagion from other regions
will probably be transitory given the relatively strong fundamentals of Asian economiesCross-border outflows from some higher yielding Asian
markets such as Indonesia and India have stabilized in recent weeks, suggesting this will be less of a headwindDeutsche Bank Wealth
ManagementTuan Huynh, chief investment officer for Asia Pacific at Deutsche Bank Wealth Management in Singapore:EM Asia FX are likely to
stabilize further for the rest of the year as dollar strength will be modest, Asia’s economic fundamentals are largely resilient and
China’s onshore yuan will be stable with central bank interventionChina government bonds to be supported by monetary easing while
sovereign debt of some other EM Asian economies will be affected by interest-rate hikes amid higher inflation and market volatilityContagion
risks from Turkey will be limited as the euro zone’s exports to Turkey account for less than 0.6% of GDP; total exposure of banks in
Spain, France and Italy with the largest claims in Turkey is 135 billion euros or 6% of their exposure to euro zone countries and so the
fallout is unlikely to cause a euro-zone credit crunchOppenheimer FundsKrishna Memani, New York-based chief investment officer at
which oversees more than $249 billion:Downside from trade war is limited and the U.S
will face some pressure by mid-term elections to resolve the issue as the dispute starts hurting its economyWithout the trade issue, EM
assets “would be meaningfully higher” amid decent growth, stable policy and attractive valuations“We continue to like EM govt bonds
and FX asset in general and are more focused on countries like Brazil, Argentina, Indonesia
The biggest underperformer in EM has been and likely to remain Turkey where politics is trumping economics and the economic policy
environment is getting very dire”Chinese stocks, too, caught in crisis for emerging marketsPain’s not over for emerging marketsInvestors
continue to flee Asian emerging marketsEmerging markets contagion: Inflation targeting reins in outflowsHow emerging market investors are
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