From the regional powerhouses of China and India to the flourishing markets of Southeast Asia, the region is set to be the driver of global growth in the years to come. With a rapidly expanding consumer class increasingly at home in the digital age, Asia’s emerging economies are expected to grow at more than 6% over the next few years, despite an uncertain global environment.
As an extended period of financial repression continues to put returns under pressure, Asia remains a region of relative opportunity. Capturing this opportunity means exploring the full universe of Asian assets, and tactically combining them in a multi-asset approach that is actively managed to maintain a triad of diversification, risk mitigation and return potential in a variety of market environments.
Healthy valuations, backed by strong corporate fundamentals and roots in a thriving region, make Asian equities a robust engine of capital growth. In the period between December 2000 and May 2018, the MSCI Asia ex-Japan Index’s net annualised returns rose 9.72% compared to 5.31% for the MSCI All Countries World Index. Given that bull markets in emerging economies last about 5.5 years on average, the current one, which began in January 2016, has ample room to run its course.
All that said, a multi-asset approach recognises equities alone will not always provide optimal performance. Asian high yield bonds have become another important means to enhance returns. High yield bond1 fundamentals have improved markedly since the 2008 crisis, as stronger corporate balance sheets have brought down default rates. This is especially true of Asia where high yield default rates are among the lowest in the world. A virtuous cycle of growing investor demand for yield, combined with an increased confidence in emerging markets and Asian firms’ greater funding needs, is driving bond issuance in Asia to record levels.
