Investment Strategies

More Action Required To Solve China's Property Woes – Value Partners

Amanda Cheesley Deputy Editor 20 June 2024

More Action Required To Solve China's Property Woes – Value Partners

Kelly Chung, chief investment officer, multi assets at Asian asset manager Value Partners, shares her latest insights on multi-assets in 2024, focusing on China.

Money is continuing to flow back to Greater China equities, but while their valuations have improved, they are still below their historical average, according to Kelly Chung at Value Partners.

“The significant rally in the Hong Kong China market in May was mainly driven by the re-rating of valuations to a more normalised level from the extremely bearish sentiment and investor positioning, due to the government’s proactive moves in announcing supportive policies, which surprised the market,” Chung (pictured) said in a note.

“That said, while foreign investors have narrowed their under-allocation in the China market, they remain underweight due to the lack of details in some policies, such as a timeline for implementation,” she continued. Nevertheless, Chung believes that flows are coming back, and investors are increasingly fearful of missing out: “Sentiment has improved to a better level.” 

“Although valuations have improved, they are still below their historical average,” she said. Chung believes that the second leg of the rally will depend on more concrete policy implementation, particularly in the property sector, and company earnings' upward revision after hitting the bottom.

She is not alone in her views. China announced a number of initiatives to support the housing market in May. Although the International Monetary Fund has just upgraded China’s growth forecasts to 5 per cent from 4.6 per cent in 2024, after a strong first quarter, China’s property woes remain a drag on growth, with some analysts saying that the measures fall short of what is required for a sustainable recovery. See more commentary here.  

“Meanwhile, with artificial intelligence demand remaining strong and abating fears of this demand peaking, the tech-heavy markets in Asia are recovering after a correction,” Chung  continued. “However, South Asia has become mixed, given signs of earnings' slowdown in Indonesia and volatility arising from India’s election.” 

Asia investment grade bonds
Although spreads have been very tight, Chung emphasised that demand for Asian investment grade bonds remains strong for carry, given their still relatively high absolute yields. With the treasury yields likely to be heading down again, she believes that Asian investment grade bonds will remain well supported.

Asia high yield bonds
Chung highlighted how spreads have tightened significantly after the rally. “However, since Asian high yield spreads are still well above those in the US, demand remains strong, especially since net issuance continues to be down,” she said.

Emerging market debt
Spreads have become even tighter while demand remains strong. With treasury yields likely to head down again, Chung believes that emerging market bonds will remain well supported.

Gold prices consolidated after breaking their historical high, which was expected. But Chung thinks that gold remains a good geopolitical hedge in the medium to long term. “In addition to geopolitical worries, investors are concerned about the de-dollarisation trend, which will likely continue to support gold prices,” she added.

Chung highlighted how a multi-asset strategy offers lower volatility compared with traditional single-asset or balanced portfolios. However, the correlation between risk assets, such as equities, credits, and commodities, has recently increased dramatically. In an uncertain environment with low yields, Chung believes that income becomes an essential source of return for investors.

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