The risks from rising rates are potentially higher in New Zealand than elsewhere given the overvaluation of equities and the housing market. We advise investors to underweight NZ equities, fixed income in general, and the NZ dollar.
China has recently opened its domestic bond market to foreign investors. At first glance this is a huge opportunity for investors. However, as with many things in China, the story is more complicated than it appears.
A number of Asian private equity real estate managers that we view favorably are likely to fundraise in the latter half of 2017 and first half of 2018. We expect that many of these managers, while performing well, will face challenges raising additional capital as limited partners question the merits of investing in Asian property. In particular, US investors perceive the market to be overheated and have concerns about foreign currency risks. In this edition of Real Asset Dynamics, we examine and analyze these concerns further.
We remain neutral on Japanese stocks despite attractive valuations and near-term earnings potential in view of daunting intermediate-term macro challenges.
India’s robust growth and aggressive reform agenda offer opportunities to those investors who are careful not to overpay for assets.
Despite its economic size, China remains under-represented in global investment benchmarks. Recently announced reforms have the potential to improve investor access and increase China’s weight in global benchmarks.
We retain our overweight to Japanese stocks, but are watching closely to ensure economic or political events do not undermine the promising case for company fundamentals.
Risks to the global economy are rising, but the New Zealand economy is relatively well placed compared to others, with many of the risks external in nature.
While a currency crisis in China can be avoided, much depends on investor psychology and how China manages the capital account.
Investors should be prepared for 2016 to look similar to 2015, with high volatility and poor returns for risk assets.