Schroder: China actively promotes economic growth combined with the prospect of mild interest rate cuts in the United States, pushing the investment outlook in Asia in a positive direction.
2024-11-18 10:43
Zhitongcaijing
Schroders' Director of Diversified Asset Investment, She Kangru, wrote in a post that looking ahead, Schroders remains optimistic about the overall fundamentals of the Asian bond market, especially after lower-quality enterprises have been filtered out following adjustments in the bond index, particularly high-yield real estate companies.
In a post by She Kangru, Director of Diversified Asset Investment at Schroders Global, looking ahead, Schroders Global remains optimistic about the overall fundamentals of the Asian bond market. Especially after the bond indexes have undergone adjustments, lower quality companies have been removed, particularly high-yielding real estate companies. In addition, recent fiscal stimulus measures introduced by mainland China and the downward trend in US dollar benchmark interest rates both support the Asian bond market.
She Kangru mentioned that as Asia fully recovers from the COVID-19 pandemic, the region is expected to continue driving global economic growth in 2024, with this growth momentum believed to extend into 2025. Furthermore, China's active promotion of economic growth, along with the mild prospect of US interest rate cuts and a soft performance of the US dollar, should help central banks in the region further relax monetary policies. These global macroeconomic factors will help attract funds back into Asian financial markets, creating a favorable investment environment for stock and bond markets in the region.
Regarding the stock market, companies with clear profit prospects and stable cash flow are expected to be the main drivers of returns in the Asian market. Currently, many high-quality companies also offer attractive dividends, enhancing defensive capabilities in uncertain market conditions.
Furthermore, three major investment themes will continue to play a key role in the Asian market in the remaining time of 2024 and into 2025. These themes are artificial intelligence (AI) and the broader information technology (IT) industry, corporate governance reform, and attractive Asian credit market yields.
Artificial intelligence and information technology: The IT sector in Asia benefits from cyclical recovery and positive market expectations for AI. With user demand gradually stabilizing post-COVID-19, most inventories have returned to pre-pandemic levels. Schroders Global believes these factors have laid a solid foundation for the recovery of various aspects of the IT supply chain
(including semiconductors and technology hardware) in 2025.
Corporate governance reform: The Tokyo Stock Exchange (TSE) has called on companies to focus on achieving sustainable growth and increasing company value. As a result, Japanese companies have adopted more robust corporate governance and more efficient capital allocation measures, leading to significant returns in the Japanese market.
These reforms have also extended to other Asian markets, including South Korea and China. These two markets have respectively introduced their "Enterprise Value Enhancement Program" and a new "Nine Measures" guideline, aimed at improving market accessibility and strengthening investor protection. It is expected that these measures will have a profound and lasting impact on the financial markets of both regions.
Attractive Asian credit yields: The Asian credit market, particularly investment-grade credit, offers attractive risk-return characteristics. In the current interest rate cut cycle, credits issued by Australian and Japanese financial services companies are expected to continue performing well due to improvements in credit fundamentals. Similarly, sectors with relatively attractive overall income, such as the Macau gaming industry and the renewable energy sector in India, are also expected to continue strong performance.
She Kangru noted that policymakers in mainland China have recently introduced their largest monetary and liquidity stimulus plan since the COVID-19 pandemic. Subsequently, at the meeting of the Standing Committee of the National People's Congress
(NPC), a plan to swap 10 trillion RMB in debt was announced to relieve financing pressures on local governments.
Schroders Global believes that the Chinese central government may hold back more "ammunition" to address future challenges due to the uncertainty and efficiency brought by the newly elected US president. There will be several opportunities for authorities to launch new measures at the annual Central Economic Work Conference and NPC in December. At that time, authorities may further outline fiscal policy strategies for 2025, especially in terms of housing supply, infrastructure investment, and consumption.
Considering the relatively relaxed regulatory environment and reasonable expectations for policy support, Schroders Global believes that the mainland Chinese financial markets may demonstrate resilience in the short term and benefit from continued retail investment.
If more effective fiscal stimulus measures are introduced in the coming months to stabilize the real estate market and boost market sentiment, or if significant improvements are seen in the profit prospects of mainland Chinese companies, especially in non-essential consumer industries, this trend is likely to continue until 2025.
While focusing on tangible economic results, Schroders Global still prefers strategic industries in mainland China, such as advanced technology, new materials, electric vehicles, and renewable energy, as well as enterprises with efficient business models, such as high-quality state-owned financial enterprises and mainland Chinese internet platforms and technology companies. Both of these industries recorded robust profits in 2024.
Schroders Global believes that investors may consider adopting a barbell strategy, diversifying between growth assets and income assets to balance market volatility and enhance overall returns.