Published by Asia Asset Management – 6th Jul 2018
As investors brace for the potential fall-out from the trade war between the US and China, at least one market participant believes the fears are overblown.
Although Colin Graham, chief investment officer of Singapore-based Eastspring Investments, acknowledges that individual companies could be hit, he says “the evidence suggests that current fears have been exaggerated and are more than discounted as a result”.
“Trade war fears similarly look less of an issue when placed in perspective. About 5.7% of China’s listed-company revenues are directly generated from North America, although one could probably double this if exports via Hong Kong are included,” Mr. Graham writes in a report published on July 4.
He believes the case for Asian emerging-market stocks “looks attractive” despite jittery markets in the region.
“Asian equities, excluding the technology stocks, are barely above where they were before the 2008 financial crisis despite a subsequent near doubling of the earnings,” he says.
Mr. Graham also notes that Asia is now less reliant on the US dollar, making debt servicing “less of an issue” than what the market is pricing in.
He points out that US dollar debt accounts for only 28% of total Asian debt and around 23% of Asian corporate sales in US dollars.
So, like the trade war fears “one can shoot similar holes in Asia’s dollar debt story,” he says.
According to Mr. Graham, his asset of choice is Asia Pacific stocks “where there is undiscovered value”.
With investors anticipating the US interest rate to be around 2.75% by the end of 2019, the dividend yield of about 4.50% for Asia’s high dividend stocks “remains attractive, especially as Asian equities look attractively valued generally”, he says.
Eastspring Investments, the Asian asset management arm of UK-based insurer Prudential plc, had US$188 billion of assets under management as at December 31, 2017.
