Investors increasingly uncertain about the prospects of the Trump administration may be well advised to take a closer look at Asian markets, Fidelity International's Tim Orchard tells finews.asia.
With bond yields expected to remain low for a long time to come, investors will need to shop around for more promising investment opportunities.
Tim Orchard (pictured above), Fidelity International's chief investment officer for Asia Pacific (ex-Japan), is convinced that ‘his’ region is a safe bet: «I’m more positive on the development in Asia than at any time in the past 25 years given the progress of the reform agenda in India and China,» he told finews.asia at a forum organized by his company in London last week.
War Talks
The strong statement may come as a surprise, given that the market jitters in China of 2016 sparked concern about a global economic slowdown. Also, the war talk between an inexperienced U.S. President Donald Trump and North Korean dictator Kim Jong-Un in recent weeks has not steadied investor confidence.
And yet, the factors speaking in favor of Asian equities are both economic and political.
Attractive PE-Ratios
Orchard expects company earnings to pick up in Asia as the business outlook is more benign than it has been for several years. With an average price-to-earnings ratio (PE) of 15.3, Asian stocks (ex-Japan) look attractively priced.
By comparison, the S&P 500 equities index has an average PE ratio of 25.2 – no surprise given that the benchmark has more than trebled since the end of the financial crisis.
Underperforming and Out of Favor
«Relatively speaking, Asian stocks look more interesting,» said Orchard. «The region has underperformed and is out of favor.» The banker has more than 20 years of experience of working in Asia and has seen the early boom days of Western interest in the region.
After an initial surge to Asia, banks in recent years seem to be heading for the exits though. For example, ABN Amro, the state-controlled Dutch bank, last year agreed to sell its private-banking activities in the region to Liechtenstein’s LGT Group.
Chinese and Indian Progress
Orchard is based in Singapore, but confides that he spends more time on airplanes than in the city-state. Fidelity International in January was the first non-Chinese asset manager to receive a license to sell onshore funds in China, as finews.asia reported.
The country's first foreign-owned private fund company earlier this month launched its first product, a fund that primarily invests in Chinese onshore bond markets with an objective to achieve income and capital appreciation. The fund is available to eligible Chinese institutional and high-net worth investors.
Instability of Developed World
Orchard believes that the political development of China and India, the world’s most populous countries, will add further impetus to benign economic conditions.
«The relative political stability of the west isn’t as strong as it used to be,» he said. «My clients’ concerns are with the U.S. and Europe.»
With investors looking for stability first, China and India may become safer bets, given the chaotic leadership in Washington and the uncertainty surrounding Brexit in Europe.
Modi in for the Longer Run
Orchard by contrast praised the reforms initiated by Indian Prime Minister Narendra Modi and the steady development of the Chinese modernization program, which by all likelihood will be bolstered by the 19th national congress of the ruling Communist Party in November 2017.
The future of Modi's government seems more secure than ever. The prime minister's Bharatiya Janata Party (BJP) this spring swept to a resounding victory at the state election in Uttar Pradesh.
Behavior Not Yet Adjusted
Analysts expect the stunning success to prepare the ground for winning the next general elections in 2019 and thus to secure his reform agenda for India.
The tide of political stability may – for the time being – have turned, away from the old democracies in the West toward Asia. Investors however seem not to have adjusted yet.
