Asian equities have been cheap with appealing dividend yields, but now they are fueled by more catalysts, Hui argued in a briefing on Monday.
“Dollar peaking out, oil and China stabilising, all of these are great catalysts for bargain hunters to come into Asia,” he said. However, once these factors are priced in or exhausted, they need earnings growth and that is not happening at the moment, he cautioned.
“If I am looking for six to 12 months, Asian fixed income should provide a better risk reward balance, which by default have lower volatilities,” Hui continued. “In the longer run for two-to-three years, and I am actually positioning for that, Asian equities look more attractively valued, and it provides the income.”
But investors need to accept the high volatility, he noted.
After the Brexit, it has been non-Asia clients tending to jump into Asian fixed income instead of equities, he added.
Hui also thinks investors can start to revisit their currency compositions to increase more local currency bonds in the region.
Some local currencies, especially South East Asian ones such as Malaysia ringgit, are “extremely cheap”.
Comparing to the currency’s 10-year average in real effective exchange rate terms, or the trade-weighted basis, the ringgit is now 2.4% lower than the long-term average. Those of Taiwan and Indonesia are also 0.7% cheaper from the average level.
Overall, his view of being relatively defensive has not been changed from three months ago.
