PETALING JAYA: The equity market valuation of Asia ex-Japan is now trading at levels that was last seen during the global financial crisis in 2008, said HSBC Global Asset Management chief investment officer Denis Gould.
He added that equity valuations were generally more attractive in Asia ex-Japan compared to the developed economies.
“The equity market and currencies in Asia ex-Japan are attractive in the medium term but the volatility risk is higher,” he said during a conference call on investment outlook for the second half of this year.
He added that corporate earnings growth in the region remained subdued but with room for “upside surprises”.
Meanwhile, Gould said the local fixed income market was attractive especially with the negative interest rate regime adopted by several developed economies.
About 24% of the global government bond market has negative yields, he noted.
“Malaysia’s fixed-income market offers about 3.9% yield for single A rating papers. That is pretty attractive especially with reasonable economic growth at about 4%,” he said.
On the ringgit, Gould said that although the currency had gone down significantly from the oil shock and slump in commodity prices, the risk was still there if crude oil prices were to decline again.
“The Malaysian stock market is averagely valued, meaning that it is not cheap,” he said.
Year-to-date, Gould said, the market had been bumpy with a large sell-off in February followed by a strong rally afterwards.
“We reckon that volatility in the market could increase in the coming months especially with more uncertainties in the market such as the Brexit issue and the US interest rate hike,” he said.
On the Asia ex-Japan bond market, Gould said that lower than expected bond supply coupled with higher investor demand could continue to support the asset class’ performance.
The supply of Asian bonds had moderated in 2015 to US$147.7bil from US$180.2bil in 2014.
“Declining onshore Chinese bond yields have encouraged onshore bond investors to diversify into offshore Asian bonds in search for higher yields,” he said.
He added that corporates in Asia responded very well to the weakened macro environment by cutting cost and improving efficiency to protect their margins as well as better managing debts.
“Asian credit fundamentals look sound with its default rates expected to stay below most other regions this year,” he said,
Despite the positives, Gould said many global investors still had very little or no exposure to Asian bonds.