Don’t panic, Asian credit markets are dislocated but you can still be invested.
This timeline highlights some of the market events during the last few weeks and how our experienced team has navigated the market volatility. We also highlight what to look out for in the weeks ahead and highlight some positives amongst all the negative news.
In the next 4 to 6 weeks we are not in a position to predict at what stage the spread of Covid-19 will be, but we do see cause for more stability in financial markets. There will be more bad news to come, especially via economic data, yet we must look through this and look for opportunities. China is a dominant part of Asian Financial Markets and the policy measures put in place are showing early signs of impact and may give us insight as to the next direction for credit spreads. Our fundamental approach to credit research is our strength over the long term. In times like this, valuations are distorted due to market disruption and for the near term may be less of a driver. Focusing on fundamental research to find the most resilient companies to invest in over the longer term, is the most prudent approach at this time. It is imperative to be cautious as we analyse the opportunities and any decision to add risk to the portfolios will be taken carefully. However, we would like to leave investors with three positive potential outcomes as we navigate these extraordinary markets.
- Returns for the year could be higher than initially anticipated at the start of the year, and more in line with last years Fixed Income returns, as yields in the portfolios increase. That said, at this juncture fixed income returns are severely challenged given the moves noted above.
- Macro outlook could turn positive over the medium term as Central Banks and Governments commit to do anything it takes to keep their economies afloat. China in particular has been proactive yet cautious to date, and has room for further economic aid given their fiscal position and that their Central Bank rates are not at zero.
- Banks are significantly better capitalized and in better position than in 2008 to support the broader economy. That is not to say they won’t feel stress, however with capital buffers as they are, they have better flexibility to maneuver through this difficult period.
This document has been prepared for informational purposes only and is only intended to provide a summary of the subject matter covered. It does not purport to be comprehensive or to give advice. The views expressed are the views of the writer at the time of issue and may change over time. This is not an offer document and does not constitute an offer, invitation or investment recommendation to distribute or purchase securities, shares, units or other interests or to enter into an investment agreement. No person should rely on the content and/or act on the basis of any material contained in this document.
This document is confidential and must not be copied, reproduced, circulated or transmitted, in whole or in part, and in any form or by any means without our prior written consent. The information contained within this document has been obtained from sources that we believe to be reliable and accurate at the time of issue but no representation or warranty, express or implied, is made as to the fairness, accuracy, or completeness of the information. We do not accept any liability whatsoever for any loss arising directly or indirectly from any use of this document.
References to “we” or “us” are references to First Sentier Investors a member of MUFG, a global financial group. First Sentier Investors includes a number of entities in different jurisdictions, operating in Australia as First Sentier Investors and as First State Investments elsewhere.
In the United Kingdom, issued by First State Investments (UK) Limited which is authorised and regulated in the UK by the Financial Conduct Authority (registration number 143359). Registered office Finsbury Circus House, 15 Finsbury Circus, London, EC2M 7EB number 2294743. Outside the UK, issued by First State Investments International Limited which is authorised and regulated in the UK by the Financial Conduct Authority (registered number 122512). Registered office: 23 St. Andrew Square, Edinburgh, EH2 1BB number SCO79063.
The First State Investments logo is a trademark of the Commonwealth Bank of Australia or an affiliate thereof and is used by FSI under licence.
Copyright © (2020) First Sentier Investors
All rights reserved.