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Stock prices are ‘lofty’ — strategists recommend these fixed income plays instead

The Fearless Girl statue is seen with a face mask outside the New York Stock Exchange during the COVID-19 pandemic in New York, the United States, April 27, 2020.

Michael Nagle | Xinhua via Getty

Strategists are recommending investors focus on the fixed income part of their portfolios, considering the continued volatility in equity markets spurred by the coronavirus pandemic and its economic fallout.

“I think at this point, we still like fixed income,” Tai Hui, chief Asia market strategist at JPMorgan Asset Management, told CNBC’s “Street Signs” on Thursday. In particular, he highlighted corporate credit and select emerging market fixed income.

“The hunt for yield is still very much ongoing,” Hui said, adding that fixed income is “the core part” of asset allocation at the moment as valuations in equities “look lofty.”

Meanwhile, Standard Chartered Private Bank’s Steve Brice said Asian-U.S. dollar bonds are probably the “best risk-reward” at present, describing them as a “much less volatile” area.

“The yield’s around 4%, so it’s not super stellar in some ways,” Brice, who is chief investment strategist at the firm, told CNBC’s “Squawk Box Asia” on Thursday. Still, he added that given the volatility in the asset class as well as the notion that Asia is seen as first in and first out — from both a growth as well as coronavirus perspective — the risk premium is expected to fall.

Beyond that, Brice said the firm also likes emerging market bonds denominated in dollars. These, he said offer a “significantly higher yield” at around 7%, though many uncertainties remain around the emerging market space at the moment. He warned continued volatility in the short-term is “very likely.”

‘Very challenging’ equities environment

Asked about the prospect for equities, Standard Chartered’s Brice said the environment is “very challenging” at present.

Examining the fundamentals for corporate earnings and growth outlook, he said: “Even in our recovery phase, you know, we’re not going to see GDP get back to pre-crisis levels by the end of this year by any stretch.”

We’re not going to see GDP get back to pre-crisis levels by the end of this year by any stretch.

Steve Brice

chief investment strategist, Standard Chartered Private Bank

“We do feel there’s a risk of a pullback later as it becomes very clear that this is going to be a prolonged recovery rather than a V-shaped recovery process,” Brice said.

Meanwhile, JPMorgan’s Hui said the firm likes equities in Asia, China as well as tech in the U.S. He warned, however, that these are “much longer-term plays rather than just the next three to six months.”

“Very much we’re focusing more on the fixed income world, where we do want to control our volatility in the portfolio but also to generate income and interest for investors,” Hui said.

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