Yield available in EM debt and Asian stocks - JP Morgan AM

Added 18th October 2016

Emerging market debt and Asian equities, in particular Hong Kong stocks, still offer yield at acceptable valuations, according to JP Morgan Asset Management’s latest quarterly outlook.

Yield available in EM debt and Asian stocks - JP Morgan AM

The report had some ideas on where to find high-yielding investments.

In equities, within Asia-Pacific ex-Japan, “a mix of cyclical and defensive sectors are still cheap on a price-to-book basis compared to their 10-year average”, the report said.

Hong Kong-listed utilities and cyclical stocks, such as industrials and consumer-related companies, look particularly attractive thanks to cheap valuations and high dividend yield, the firm's global market strategist Marcella Chow said at a recent briefing in Hong Kong.

Turning to fixed income, the yield for emerging market sovereign bonds in local currency, currently standing at about 7%, is among the highest across all asset class, the quarterly report said.

Asia high-yield bonds and US dollar-denominated emerging market investment grade bonds, provided yields of 6.5% and 5.2%, respectively.

In fact, local EMD has performed the best within the fixed income space by gaining, on average, 17.2% this year as of September, the report said. The figure represents 8 percentage points of price return, 7 ppts of income return and the rest from currency appreciation.

Despite the performance, “not all high-yielding opportunities are exhausted or too expensive yet", the report noted. “Across emerging Asia, key interest rates are coming down to stimulate growth and support [investment] activity.”

The firm added that an interest rate hike in the US, expected in December, might affect emerging market currencies, but historically the impact on Asian currencies has not been significant.

Edmund Yun, head of investment solutions at CIC Banque Privee in Hong Kong, however, cautions on US interest rate hikes, which might prompt investors to take profits from high-yield yet expensively valued companies. 

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