Strategy

Push-me pull-you

Two contrasting influences are dominating the outlook for Asian markets - we analyse them and how Asia trusts are positioning their portfolios in response...
Thomas McMahon
Last update 03 July 2019

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Since the start of 2018, investors in Asian equities have had a torrid time, with the region underperforming global stock markets. Perhaps reassuringly for investors, the drivers of this underperformance have not been economic fundamentals but more unpredictable factors, which are external to the economies and markets of the region – namely, the ongoing trade dispute between the US and China, and expectations for the US federal funds rate (the global economy’s risk-free rate). However, this does make it harder to read what the future has in store for the region and the trusts that invest in it.

Interestingly, despite the poor returns from markets and the growing negative news flow (concerns about the demand for smartphones have been another factor weighing on markets), managers of trusts investing in this region remain bullishly positioned, with a few exceptions. As we show below, on average investment trust managers have retained their strong bias to economically-sensitive companies and sectors. We consider the possible scenarios that could develop from here, economically and financially, and the ramifications for the different trusts in the sector.

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