Aditya Birla Sun Life AMC Limited

Asia Pacific Portfolio Strategy – Global Economic & Market Views

May 21, 2019
6 mins | Views 6318

Outlook of global market and financial conditions:

Ease in global financial conditions – The global financial conditions index is settling around the 100 mark in 20191, having sustained this low level for a longer period

Interest rates:

  • US Federal has maintained a dovish monetary policy stance post December 2018. The US inflation is likely to hover below the 2% mark, keeping any increase in interest rates by US federal policy on hold2.

  • A dovish US federal monetary policy has also eased policy stance in Asian countries, with most countries seeing interest cuts in the beginning of 20193.

  • As a result, global growth is recovering post a slowdown in 2018. Global growth expected to take cue from US numbers, increasing from 3.5 to 3.7% in Q2 of 20191.

  • China economy is also witnessing positive growth, in its target range of 6 to 6.5%4. China policy stance remains accommodative.

Correlation of earnings and equities5:

  • Widening global growth/rate ‘jaws’ are generally conducive for equity performance – historically Asian equity performance has correlated itself to the spread between growth/rate jaws.

  • A better macro environment helps stabilise earnings outlook. We expect earnings growth to recover positively, which in the long run, is the main driver of market returns.

  • Equity valuations have achieved fair value levels from previously oversold levels.

Our outlook:

  • Our Global and Asia bull/bear indicator is at moderate

  • With a lower return potential across asset classes – we maintain a fairly pro-risk stance in asset allocation

  • Sectoraly - Capital goods, Telecom, Media and Financial services are overweight

  • China is witnessing a recovering economy and good earnings growth. With foreign investors being underweight in China equity and anticipated high foreign inflows, China ‘A ‘shares can be favoured.

  • India GDP growth is likely to witness an increase with RBI continuing with an accommodative monetary policy and likely further interest cut. India equity earnings are thus favourable. India equity valuations are also fair when compared to the macro backdrop making them favourable for trading

  • All in all we favour reasonably priced earnings growth.

1Goldman Sachs Global Investment Research
2Federal Reserve. Bloomberg. Goldman Sachs Global Investment Research
3Haver. Goldman Sachs Global Investment Research
4CEIC, Haver. Goldman Sachs Global Investment Research
5Factset. Goldman Sachs Global Investment Research

Sectors mentioned may or may not be the part of portfolio.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

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