This timeline highlights some of the market events during the past few weeks and how the Asian Fixed Income team has navigated through the market volatility. The team also discusses some silver linings to look out for during this unprecedented time.
In the next 4 to 6 weeks, the team is not in a position to predict at what stage the spread of Cov-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 the Asian financial markets and the policy measures put in place are showing early signs of their effect 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 now, 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 like to leave investors with three positive potential outcomes as we navigate these extraordinary markets.
- Potential returns for the year could be higher than initially anticipated at the start of the year, and may be more in line with last year’s 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 particularly 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 capitalised and in better position than in 2008 to support the broader economy. That is not to say they would not feel stress - with capital buffers, they have better flexibility to maneuver through this difficult period.
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