Pulse on Asia

Asia's financial markets offer a compelling structural story that began more than 20 years ago.

Asia Economic Outlook

Explore PIMCO's macro insights on the Asian economy

Section:
Tag:
Date:
Expert:
Ticker:
Reset All
DELIVERING MORE

Asset Class Outlook

As at January 2019

 

CREDIT

We expect 2019 to provide interesting opportunities for active fixed income managers who can keep tabs of changing developments across sectors and take advantage of the robust issuance that has been to coming to market at attractive levels. We have a preference for high yield (HY) where valuations are particularly attractive after a sharp correction in 2018. Fundamentals should improve, with China pausing its deleveraging campaign and adopting growth stabilization measures.

 

RATES

The Bank of Japan (BOJ) is looking to normalize its monetary policy stance in the medium term. While imminent changes to policy parameters are unlikely, we expect the BOJ to look for opportunities to allow the yield curve to move higher with a steepening bias. We expect the Reserve Bank of Australia to maintain current policy in the near term as it assesses the net impact of a slowing global economy and soft domestic housing market versus relatively robust employment conditions. In emerging Asia, amid lower growth expectations and benign inflation dynamics, a potential shift in regional central banks’ policies will be key for local rates. The Fed’s signalling of a more cautious stance in March will act as an important pivot point for the region. Upside risks include greater-than-expected fiscal stimulus in China and a grand bargain in the ongoing China-U.S. trade negotiations.

 

CURRENCY

We continue to be cautious on emerging Asia local currencies in Q1 2019 against the backdrop of an expected drop in Chinese demand and Asia’s export sensitivity to the global tech cycle. Relative growth momentum globally continues to favour a strong U.S. dollar. Compared with the end of 2018, the threshold to add emerging Asia risk is improving. Portfolio flows, particularly in equities, have turned positive on the expectation that there will be a U.S.-China agreement on trade by March. The Chinese yuan is likely to remain range-bound in the near term pending the outcome of trade negotiations.

Investment Ideas