In the latest edition of the Multi-Asset Perspective, our Senior Fund Manager Kelly Chung shares her thoughts on the outlook of a number of key asset classes, setting the scene for what is to come in 2019.

China / Hong Kong Equities
The year started with a weak PMI figure from China, while the US PMI Index was also lower than expected. Investors are not only worried about the slowdown in China, but also the possibility of a synchronised global slowdown. China/Hong Kong equity valuations are becoming even more attractive following a tough December 2018 and investor sentiment is improving as shown by a decline in the put-call ratio. The market will continue to be very volatile and is expected to become increasingly sensitive to both good and bad news. It will, however, start to bottom out when corporate profit expectations trough and clear policies are implemented to stimulate the economy.

China A-Shares
Investors are waiting for solid economic stimulus to be introduced by the Chinese authorities to provide clear support to the weakening economy. Domestic investor sentiment has been more bearish than offshore investors, and we believe the A-share market is another step closer to capitulation.

Asia ex-Japan Equities
While we remain cautious on Asia ex-Japan equities due to the fear of a global slowdown, a number of Asian currencies, particularly from Southeast Asia, have performed strongly to improve the macro picture. Moreover, lower US Treasury yields have helped relieve the pressure on countries that rely heavily on external debt. Indonesia, Vietnam and Singapore are the top-ranked countries within the region.

Emerging Market ex-Asia Equities
The recent weakness in oil and commodity prices, together with worries of a global slowdown, has added pressure on the asset class. On the other hand, the recent strength of EM ex-Asia currencies and lower US Treasury yields have helped relieve the pressure on countries with current account deficits, providing a level of support to EM equities.

Japan Equities
The outlook for Japan equities has weakened although we are still maintaining it at neutral mainly due to its low valuations. Rising risk aversion has caused the Japanese Yen to strengthen significantly, which has hurt the asset class. Meanwhile, weaker consumer sentiment, higher market volatility and heightened FX implied volatility are all negative factors for the Japanese market.

Asia Investment Grade Bonds
The combination of the existing risk-off environment and declining yields meant Asian investment grade bonds remain the go-to option for investors. The spread between Asia and US corporates has narrowed, making it relatively less attractive in terms of valuation. However, with average yields of around 4.5%, it remains the most favorable asset class under the current volatile environment.

Asia High Yield Bonds
Bearish investor sentiment driven by higher equity volatility, underperformance of small caps (over large caps) and cyclical sectors (over defensive sectors) have caused Asian High Yield credit spreads to continue to widen. Spreads have widened to a very attractive level and are starting to show some level of stability, while the number of defaults is manageable and unlikely to escalate further. Investor sentiment needs to recover before demand for high yield bonds, which is currently weak, picks up.

Emerging Market Debt
The macro environment is becoming more favorable for EM bonds due to lower yields and tighter EM credit spreads. The asset class continues to be weighed by heightened market volatility and weak investor sentiment.

Gold
Gold remains a good hedge during a risk-off environment, especially in the political front. Moreover, the asset class stands to benefit from the possibilities of a Fed pause and a weaker US Dollar. A strong rebound in December, however, meant valuations have become less attractive.

Multi-Asset
Multi-Assets offer lower volatility over a traditional single-asset or balanced portfolio. However, the correlation among risky assets such as equities, credits, and commodities is rising during a risk-off environment. Additional asset classes are therefore needed for better diversification.

^{The views expressed are the views of Value Partners Limited only and are subject to change based on market and other conditions. The information provided does not constitute investment advice and it should not be relied on as such. All materials have been obtained from sources believed to be reliable, but their accuracy is not guaranteed. This material contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.}

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