Asian equity and credit markets will be well placed in 2018 thanks to a number of global economic and political tailwinds, according to BlackRock.
In the 2018 BlackRock Asia Investment Outlook note, head of Asian and global emerging markets equities Andrew Swan and head of Asian credit Neeraj Seth both held “positive” outlooks on Asian equity markets and Asian credit for the following year.
The positive outlook for Asian equities was based on a continuation of certain “dynamics” already in place, Mr Swan suggested.
This included “global reflation – rising nominal growth, wages and inflation; strong earnings momentum underpinned by better cash flow, cost discipline and pent-up domestic and external demand; reforms across various countries and sectors; and solid global capex and firming energy prices that support exports,” he said.
Similarly, Asian credit markets were also “very well placed”, supported by “ageing demographics and a global savings glut”, according to Mr Seth.
“In Asia, sovereign and corporate fundamentals remain supportive and valuations remain attractive on a risk-adjusted basis, underpinned by a strong technical backdrop,” he said.
“Growth rates in Asia remain higher than the rest of the world while inflation remains contained and current accounts are overall in surplus; India and Indonesia have made significant progress in reducing their current account deficits since 2013.”
Mr Swan also extolled India for its “substantial reform progress”, ranging from demonetisation, the curbing of tax evasion and corruption to tax reforms and the digitisation of its financial system.
“We expect India to shift its focus towards growth as a national election looms in 2019,” he said.
Citing data from Haver Analytics, Mr Swan said, “India’s central bank has slashed policy rates to 6 per cent, the lowest since 2010, thanks to the big inflation slowdown to just 3.3 per cent now from near 13.4 per cent in 2010.”
As well as India, Mr Swan added BlackRock favoured Indonesia, Thailand and China, and would “remain overweight China” given “improving domestic fundamentals” as it, too, was shifting to reform with a focus on the quality of growth rather than the quantity of growth.
“The pace, breadth and timing of the growth cooling will matter for [emerging markets] and risk assets,” he said.
“Headlines for October activity and investment data in China were below consensus expectations, yet we don’t believe they captured fully how much the economy has slowed.
“We see increasing opportunity in onshore versus offshore financial and energy stocks, given greater choice and lower valuations.”
The Chinese reform agenda could have some effect on credit markets in the short term, according to Mr Seth.
“A slower growth trajectory in China amidst the reform agenda and ongoing financial deleveraging could introduce near-term volatility,” he said.
“But in our view, this increases the quality and sustainability of growth in the long term.”