Strategy

Asian, Emerging Market Asset Classes Look Compelling – Pinebridge

Amanda Cheesley Deputy Editor 27 June 2023

Asian, Emerging Market Asset Classes Look Compelling – Pinebridge

Michael Kelly, global head of multi-asset at PineBridge Investments, has published his midyear multi-asset outlook for 2023, which outlines key themes to watch and the firm’s asset allocation strategy.  

"Over the course of 2023, our investment mantra has been 'Go East' â€“ and at midyear, this stance appears more relevant than ever," Michael Kelly at PineBridge Investments said in a statement.

"With fundamentals in Asia and emerging markets pausing, and markets questioning China's ongoing recovery and policy pivots, we see a medium-term opportunity opening once again to shift allocations from West to East," he continued.

"This is borne out in our Capital Market Line, where Asian and other emerging market asset classes are attractively valued relative to most core markets – a dynamic that hasn't occurred for some time, based on our framework," he added.

Kelly believes that China's recovery is merely pausing and looks poised to reaccelerate, driven by policymakers' new pragmatism – stepping up dergulatory and monetary stimulus, even as developed markets lean the other way. By year-end, he expects China to be viewed as the "least-dirty shirt" of the major global economies, with its gravitational pull supporting investment in Asia and other emerging markets.

Within global equities, he remains defensive on broader developed market stocks given current overvaluations. He maintains a more favourable outlook on select emerging market equities – Indian equities are secularly poised to accelerate amid rising foreign direct investments. Productivity and climate-related investments are his highest-conviction themes and appear capable of being powered through a general slowdown.

"In global fixed income, Asia high yield looks compelling, but the risk/reward for longer investment grade developed market bonds is also attractive," he continued. "In a softish recession, higher-quality credits should remain fundamentally unscathed, and intermediate to longer-duration US investment grade credit looks interesting. Asia high yield presents a compelling medium-term opportunity to earn high carry with very low duration with distinct diversifying properties to core developed market portfolios," he said. "Compared to US high yield, Asia high yield offers less breadth but with higher spreads. supported by improving fundamentals." 

In alternatives, he expects high dispersion among "green commodities," with aluminium and cobalt looking quite attractive, while lithium appears unattractive, largely due to supply dynamics. "Meanwhile, new vintages in mid-market private credit look poised to benefit from pullbacks in regional bank lending," Kelly said.

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