Asia Navigator, April 2019: Search For Yields
Hello, the topic this month after the very strong cross asset returns in 2019 is the search for yield, and in short we would advise investors to keep calm and carry on. Why? Four reasons.
Firstly, Central Bank dovishness: We don't believe the Fed will have any rate hikes in 2019 as we saw as well confirm by them in March.
Secondly, the ECB also will not likely be raising rates until the 2020. We think there is a relatively low probability of recession, that's even with a moderate inversion of the yield curve, because we’re starting to see China growth pick up as well as USD to get better. Finally, trade tensions are also finally trade tensions are also ebbing.
Thirdly, we’re also seeing an improving liquidity and financial conditions which are driving asset markets.
And fourthly inflows; for example to EM bonds, have doubled of last year pace already at this point of the year.
Where would we look, for opportunities and markets from here? Clearly, bond markets and credit spreads have already tightened, however, EM and Asian bonds have an attractive real yield differential, which is going to drive income investors as well as China easy measures will put a cap on default rates in China.
Within equities, after the rally, we’ll also look at dividend growth, and dividend yield stocks. Dividend growth is important to driving returns and having sustainable dividend yield policies, thirdly, regarding to FX, selected commodity currency and carry currencies we do like, as well, in this environment, for total return.