Recently, Zhong Huixin, a senior fund manager of Huili Group, issued a report on the view that inflation in China and some Asian countries is more controlled against the backdrop of increased global concerns caused by the conflict between Russia and Ukraine. It is in a more favorable position from an investment point of view, and gives an outlook for diversified assets.
First of all, in terms of stocks, rising tensions between Russia and Ukraine have weakened investment sentiment for A shares and Hong Kong stocks. A series of sanctions and geopolitical conflicts against Russia have led to a sharp rise in commodity prices, such as oil, metals and agricultural products. Investors worry that high inflation will further slow global economic growth, and there is panic selling in the market. Given the increased volatility, investors will continue to be cautious in the short term.
On the other hand, the aggressive economic growth targets set by China this year mean that more policies are needed to stimulate growth. Current valuations are attractive to investors who exceed current volatility.
In the A-share market, as commodity prices soared, inflation fears began to hit investment sentiment in the onshore market. However, compared with western countries, China has done a better job in dealing with the commodity crisis. The market is expected to introduce more fiscal and monetary easing policies to support the economy after the two sessions, and the supported industries in the A-share market, such as infrastructure, urbanization and renewable energy, are likely to be direct beneficiaries.
In Asia (ex-Japan) stocks, investors began to avoid risks as the dollar continued to strengthen. In the current investment environment, it is particularly bad for commodity importers and regions with high valuations, such as India. Indonesia, the largest exporter of commodities in Asia, will benefit from the rising cycle of commodity prices. Given that there are still many uncertainties in the market, the outlook for corporate earnings is still uncertain.
In the Japanese market, the report pointed out that the number of confirmed cases caused by novel coronavirus variant virus Omicron has increased, and consumer sentiment has been weakened as a drag on economic growth. In addition, global risk aversion is high and foreign investors will sell Japanese stocks again.
For emerging market stocks (excluding Asia), the market is worried about the war in Eastern Europe, and money continues to flow into Latin America, preferring countries with abundant commodity resources because of rising commodity prices. Western countries plan to buy and hoard more goods from Latin America.
However, volatility in emerging markets will continue to increase, given cautious investment sentiment and a stronger dollar.
Second, in terms of bonds, for Asian investment grade bonds, credit spreads continue to widen as market volatility rises, and some companies are at risk of "depraved angels" given the bleak economic outlook. Even if the Fed's first rate hike in March was not very aggressive, the path of the rate hike cycle and quantitative tightening remains highly uncertain, given continuing and rising inflation concerns.
In terms of Asian high-yield bonds, the credit ratings of some Chinese property developers were downgraded, coupled with the inability to refinance in the short term, and internal housing bonds fell further. Investors need to identify bonds with strong balance sheets from different asset classes. Bonds issued by individual companies with strong fundamentals are at a quite attractive level.
And emerging market bonds, as Latin American markets are benefiting from high commodity prices, continue to flow into the region, such as credit default swap pricing in Brazil. Investors will remain cautious as investment sentiment is weak and emerging market currencies are volatile.
For gold, tensions between Russia and Ukraine added uncertainty to geopolitical risks, and investors bought gold as a hedge. As Russia is removed from the Global Banking Financial Communications Association ((SWIFT),) to exacerbate market volatility, gold will be more favored by capital.
Finally, from the perspective of multiple assets, compared with the traditional single asset or balanced portfolio, the volatility of multi-asset strategy is lower. However, the correlation between risky assets such as stocks, bonds and commodities has increased sharply recently. In the low-yield investment environment with uncertainty, seeking stable returns has become an important source of return for investors.
