Lower oil prices helped Asian economies cut interest rates to boost growth without fueling inflation, according to BlackRock. Countries that subsidized the oil sector were able to increase public investment without hurting their fiscal positions.
With the decline in inflation, real rates remain high, and that’s making select Asian local currency bonds interesting, the asset manager said in its mid-year investment report for the region.
Neeraj Seth, head of Asian credit, said:
“Select Asian local currency bond markets look interesting and we are positioned in markets like India and China. Real yields remain high which supports the case for further monetary easing and there is a good chance that these markets can decouple from the Fed hike cycle. The currencies have good carry and low volatility relative to the U.S. dollar and these bonds offer nice diversification potential. However, with policy divergence largely playing out in the currency markets, we are funding these positions with select non-dollar currencies.”
BlackRock expects the Fed to start raising short-term rates this year, but not before September.
On equities, BlackRock said China is moving its policy direction from the one that would jump-start the economy to a slower, less cyclical and more stable growth path.
As a result, the firm has moved its positions from cyclical Chinese stocks “to ones that will have steadier but longer term growth potentials and benefit from this changing cycle,” according to Andrew Swan, head of Asian equities at BlackRock.
For Asia as a whole, here’s what Swan has to say:
“Asia is currently subject to differing forces, leading to contrasting trends in the region and illustrating the need for a flexible approach to investment. We believe 2015 to be a transitional year, moving from a tight environment with low expectations for valuations to one that is more supportive of growth in equities in the second half.”
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