The investment management firm cited the global search for yield, redrawing of global supply chains and shift towards sustainable investing as major trends that have raised its confidence in an improved outlook towards Asian credit and equities.
The firm is «constructively positive» on Asian equities going into 2021, given that demand is underpinned by structural characteristics that haven’t gone away: demographics, investment insfrastructure and sustainability, but it does not anticipate a straight rise ahead, Nicholas Chui, BlackRock portfolio manager for global emerging markets equities, said at its 2021 Asia Investment Outlook briefing on Thursday.
«Many Asian economies are closer to pre-virus activity levels helped by the earlier lockdowns, more testing and tracing of infections, and societies’ preventive measures,» BlackRock said, noting that it has started to position portfolios for what it believes will be a cyclical rebound. It also said that a full-fledged recovery in Asia would need the developed world participation, and the effectiveness and control of vaccinations remain to be seen.
The firm is most overweight in Indonesia and India, which it called «carry economies» that stand to benefit from improvising liquidity and fiscal stimulus. It is also overweight on the IT sector – in particular upstream players in semis and memory, which stand to benefit from high entry barriers, 5G-related demand and U.S. efforts to curb China’s access to technology. However, it is cautious towards Hong Kong due to depressed business and consumer confidence as tensions remain, as well as healthcare, where there is a risk of profit-taking sell-offs because of how well the sector has performed.
Fixed Income Outlook
BlackRock said it is overweight in China, India and Indonesia but is cautious on China high-yield industrials, China technology, media and telecoms, and India quasis with tight valuations.
The need for income, improving macro backdrop, and stable corporate fundamentals are the key factors that will drive demand, Neeraj Seth, BlackRock head of Asian credit, said.
The firm advised investors to go higher in the risk spectrum with credit and equities and hold more cash to hedge rather than just government bonds, go outside their core markets for income/diversification, and assume more illiquidity and/or leverage to boost returns.
