HONG KONG (Reuters) - Global investors should be overweight Asian and other emerging market stocks and bonds relative to their U.S. counterparts, a fund manager with Baring Asset Management said on Tuesday.
Stronger prospects for Asian and other emerging economies, attractive valuations and potential U.S. dollar weakness are all reasons to favour non-U.S. assets, added Khiem Do, the head of Asian multi-asset investment at Baring Asset Management.
“Equities will continue to outperform bonds and cash. Bonds we think are a little bit expensive and cyclically are not very favourable,” Do, who manages more than $400 million (200 million pounds), told a media briefing in Hong Kong.
“We are going to continue to overweight China, Asia, emerging and European equities. And within the equities portfolio, we’re going to overweight growth and cyclical stocks against very defensive stocks.”
Do said the firm’s $49.2 million Baring Asia Balanced Fund 60052817HK.LP was 70.5 percent invested in equities at the end of March, with 22.8 percent in cash and just 5.6 percent in bonds. Only 5.3 percent of the fund was invested in U.S. equities.
Baring said the fund, which is designed mainly for Hong Kong retirement schemes and invests globally, returned 23.52 percent in the year to March 31, compared with a 16.02 percent rise in its customised Asian balanced benchmark.
The fund’s largest equity holdings included Belgian-French financial services group Dexia DEXI.PA(DEXI.BR), China Mobile (0941.HK), UK gas producer BG Group BG.L, Singapore developer CapitaLand Ltd. (CATL.SI) and Ports Design Ltd. 0589.HK.
The Hong Kong-based fund manager said themes favoured by Baring in its Asian stock portfolios included consumer and infrastructure plays.
Do said emerging market stocks were trading at 12.5 times 12-month forward earnings and European shares were at 12.9 times forward earnings, compared with 15.1 times for U.S. stocks. Emerging Asian stocks trade at about 13.2 times, he said.
“If you look at the balance sheets of emerging markets and of Asia compared against the rest of the world, in fact they look quite good. So why should they trade at a discount?” he said.
“My theory is that the emerging markets and Asia should actually over the next five years trade at a premium.”
Khiem said forward price/earning ratios in China's domestic A-share market are already 30 to 35 after the Shanghai Composite Index .SSEC rose more than 130 percent last year, though he noted this is still only half the level of Japan's market at its peak.
“I wouldn’t put my mother’s money in it because I think 30 to 35 times is expensive. It is bubbly. There’s no doubt that it is getting bubbly. But is it at the peak of the bubble yet? I don’t think so,” he said.
He said Chinese stocks listed in Hong Kong were better value, with the MSCI China index .MSCICN trading at only around 15 times forward earnings.