Emerging-Market Government Bonds Favored, Invesco Says

David Chao, Asia Pacific ex-Japan strategist at Invesco, discusses the Chinese government’s efforts to support the economy and the real estate market, and the outlook for the nation’s technology stocks. He also talks about the dollar, and explains why he’s “overweight” emerging-market government bonds. He speaks with Shery Ahn and Haidi Stroud-Watts on “Bloomberg Daybreak: Asia.”

We’re not expecting lenders to move on the loan prime rate though given that really nothing happened with the mlf last week so when are you expecting this policy support to start helping equities in the broader market well i think right now policy makers are really more focused on ensuring that some of the property market woes don’t spread into the wider banking

Industry and i think that that could come in the form of greater credit support both in terms of making it easier for households to get mortgages and um and easing some mortgage restrictions and also some assistance with developers getting some financing for for their existing projects so i think that’s that’s in the near term for the second half of this year i

Continue to expect you know further policy rate cuts perhaps once more on the on the triple r rate um and then perhaps even a small cut in the loan prime rate as well we have seen at the rally here in the u.s markets really after a a lot of negativity was already priced into the earnings any sort of upside surprises really helping markets especially in the tech

Sector we’ve seen a lot of regulatory hurdles in china as well would you touch those right now well i think from an earnings perspective chinese earnings estimates might still have to come down a little bit more and we’ll see that perhaps during the the second quarter earnings uh cycle but i think that investors will certainly want to be positioned for next year’s

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Earnings which are looking to be quite solid especially from a low base effect from a china tech perspective i think that we’ll continue to see piecemeal regulatory measures come out of beijing but i think the bulk of the regulatory measures have already been undertaken and i think that it’s possible that um that we could see a bit of of relief for investors

Looking to get involved in chinese internet and tech companies when it comes to dollar strength that’s been one of the headwinds for broad asian equities are you expecting that to be alleviated a little bit given that we have seen this pull back over the past three days that’s right i think that dollar strength i think that narrative will certainly start to

Wane once investors get a much better sense of peak fed hawkishness and i think that could potentially come this month i don’t think that there are expectations among fed funds futures that that interest that the policy rate is going to rise by more than 75 basis points and if that’s the case i think the dollar strength could start to fade perhaps even starting

As early as next month what are the other big risks for the asia pacific because this is broadly a region where we are still hopeful that there might be patches of growth well i think that the biggest risk is to the apac region is from global macro weakness and potential recessionary risks and i think that really stems from europe first perhaps already slipping

Into stagflation and then perhaps followed by the us which could see a recession perhaps in the next few quarters now that’s certainly not a done deal and i think that it’s possible that central banks can negotiate still a a relatively softer landing now for asia’s export-oriented economies that could potentially be a significant hurdle as there there could be

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Uh decreased demand for their products david i’m surprised that in one of your calls you’re calling for overweight on em government bonds when this chart on the bloomberg clearly shows that we continue to see those em debt risk premia rise we have seen of course the warnings come from the imf kristelina gurgieva herself talking about a third shock of tightening

Potentially coming and potentially more default so how do you position in such an uncertain environment sure i think that it’s um it’s an environment where we have to be selective about even within asset classes even within em bonds certainly em countries that are net energy exporters will do better in this environment and also certain em countries that have uh

More fiscally sound balance sheets should also do well but certainly that entire asset class right now uh is on sale and we’re starting to see significant yields um that are at much more interesting levels now than say you know just a year ago so i think that investors should stay broadly diversified and em bonds is em government bonds is one of the devices that

Diversifies that i think should be looked at talking about those commodities exporters in the em space we have seen a little bit of pressure on that side as well and it will just get worse if we actually do in fact see a recession for the u.s chinese demand waning as well so how do you factor in where commodities are at this point and where you see them in the

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Next year well i think that commodities broadly speaking are are continuing are continued to be an asset class that investors should continue to look at but i would say that when it comes to energy if we look at the supply side and the investments capex investments made for energy and oil over the past decade there’s been significant underinvestment so i think

That the supply side for oil continues to make it an interesting investment now when it comes to agriculture i don’t think that we’ve seen perhaps the bottom of the current scarcity so i think that agriculture continues to be a very interesting investment opportunity as well

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Emerging-Market Government Bonds Favored, Invesco Says By Bloomberg Markets and Finance