AllianceBernstein’s outlook for 2015
AllianceBernstein portfolio managers and economists expect that the investment playing field of 2015 in Asia and Australia will require fancy footwork—sidestepping macro risk while at the same time uncovering hidden investment gems.
The team provides an outlook for 2015 covering the regional economy, Asian fixed income, Asian equities and Australian equities.
Macro Overview: Dispersion to continue
“A key macro trend for 2015 will be a continuation of the dispersion seen during 2014—that is, the disparities between various countries or economic regions in terms of growth and monetary policy, and corresponding differences in the direction of many financial markets,” said Guy Bruten, Senior Economist—Asia Pacific and Anthony Chan, Senior Economist—Asia.
“One generalisation that may safely be made is that the subdued growth outlook and the fall in oil prices will help hold inflation in check, and give central banks room where necessary to keep monetary policy accommodative,” said Bruten.
“China’s ability to avoid a hard economic landing will be seen as increasingly important. Our view is that China is likely to make a ‘long’ landing, by muddling through to recovery in two to three years—assuming that the government makes no policy mistakes,” said Chan.
“One potential source of upside surprise during 2015 could be India and Indonesia, and the extent to which they—in the context of continuing weakness in the euro-area and Japan—could lead to an investor re-rating of Asia,” added Chan.
Asia Fixed Income: Low risk, high liquidity
“Our Asia-Pacific fixed-income strategy going in to 2015 will be conservatively positioned with regard to risk and liquidity, in anticipation of further market volatility,” said Hayden Briscoe, Director—Asia Pacific Fixed Income.
“It will be relatively light on credit with greater emphasis on more liquid sectors such as government bonds and currencies, with some use of currencies as a proxy for credit and interest-rate exposures. We will selectively own government bonds in markets such as China, Indonesia, South Korea and New Zealand which offer positive real yields.
“Despite being positive on the long-term appreciation of the renminbi (RMB), we successfully hedged 50% of our portfolio with a put option early in 2014 in anticipation of the currency’s deprecation. We are now once again long the RMB.”
Asia Equities: Contrarian opportunities
“Our Asian equities portfolios are entering 2015 with a focus on value opportunities in China and cyclical stocks in India, while de-emphasising markets in South East Asia where valuations, in our view, have become too high. The strategy is a reflection of the big run-up in defensive and South East Asian stocks from 2009 to 2014,” said Stuart Rae, Chief Investment Officer—Pacific Basin Equities.
“The skew in valuations caused by this flight to safety has created a contrarian buying opportunity in cyclical stocks and North Asian markets and we have positioned our portfolios accordingly. A contrarian style can capture opportunities in depressed markets that are beginning to turn around. India is an example of how quickly that can happen.”
Australia Equities: Stock selection is key
“Australia faces a number of challenges in 2015, arising mainly from the end of the commodities boom and the need to rebalance the economy so that industries outside the mining sector drive growth,” said Roy Maslen, Chief Investment Officer—Australian Value Equities.
“Our outlook for the Australian economy has been more downbeat than the consensus for some time, and we expect the Reserve Bank of Australia to lower the cash rate during 2015. Corporate Australia, however, is in good shape, with balance sheets and cash flows generally strong, providing scope to build attractively valued portfolios.
“Given the macro nature of the risks, the most promising investment opportunities lie in careful stock selection rather than in taking sector bets and we prefer stocks where the underlying businesses have multiple operations, some of which are performing well while others have turnaround potential that could lead to a substantial lift in earnings. On these criteria, we see opportunities in the building materials, airlines and finance sectors.
“To maintain exposure to equities, while limiting potential market drawdowns, we see opportunities in infrastructure, REITs and healthcare stocks that offer price stability, quality earnings, quality balance sheets and reasonable valuations. Our research suggests that, given the relatively small size and concentrated nature of the Australian equities market, investing outside the benchmark—in offshore markets, for example—can enhance the risk-smoothing attributes of a portfolio,” said Maslen.
