Asia-Pacific banking, multi-asset outlook, and FX markets analysis

Genuine Impact
May 9 · 3 min read
Alister Sneddon, CTO

Here are the top 3 insights for May 9th, prepared by Alister, our CTO.

Today’s Brief

  • S&P Global: Asia-Pacific Banking: Despite Different Strokes, Government Lifeline Is Still Likely
  • Wellington Management: Multi-Asset Outlook — What’s really changed?
  • Neuberger Berman: FX Markets — What’s Top-Down and What’s Bottom-Up?

Asia-Pacific Banking: Despite Different Strokes, Government Lifeline Is Still Likely

  • Many Asia-Pacific countries retain the flexibility of government bailouts as a support mechanism.
  • We see extraordinary government support as the most likely form of support in a crisis for the majority of Asia-Pacific banking systems.
  • In contrast, extraordinary support for systematically important banks is uncertain in most Western Europe and North American jurisdictions where banks are more likely to rely on ALAC.
  • Resolution reforms, including for the possibility of bail-in and not bailout, have recently made significant progress in Japan, Singapore, Hong Kong, and Australia.

Genuine Scores for the top 3 Asia Pacific focused funds

  • LO Funds — Asia Value Bond, 77
  • Fidelity Funds — Asian Hi Yield, 71
  • First State Asian Quality Bond, 65

Multi-Asset Outlook — What’s really changed?

  • Favor credit over equities, and within credit, investment-grade and high-yield bonds over bank loans.
  • Within equities, lean into defensive factors, such as quality and safety, and consider emerging markets, which could outperform if China reaccelerates.
  • Our differentiated views, credit over equities, and EM equities as a hedge
  • Risks: Fed policy changes, expanded trade war, upside economic surprise

Genuine Scores for top 3 Mixed Asset funds

  • Columbia Thermostat Fund, 94
  • T Rowe Price Capital Appreciation Fund, 94
  • John Hancock Capital Appreciation Value Fund, 94

FX Markets: What’s Top-Down and What’s Bottom-Up?

  • In most strategic and tactical asset allocation processes, foreign-exchange exposures — especially emerging markets foreign exchange exposures — are implicit and go unconsidered by investors.
  • At Neuberger Berman foreign exchange has always been considered an explicit alpha source that plays an important role in an effective asset allocation process.
  • Nonetheless, because we assess each currency using bottom-up country-by-country indicators, we have long recognized that our allocation process may be missing the top-down factors behind the performance of individual currencies.
  • Moreover, the higher correlations among emerging markets currencies since the financial crisis of 2008–09 indicate the growing importance of these top-down factors.
  • In this paper we propose an intuitive top-down, five-factor model of foreign exchange returns.
  • We show that this model can be used to separate systematic from genuinely idiosyncratic return drivers in foreign exchange markets, and also to build a simple, systematic long-short strategy that would have substantially outperformed the average EM or DM currency market return over the past 10–15 years.

Genuine Scores for the top 3 Globally focused Bond funds

  • PIMCO Short Asset Investment Fund, 100
  • Pioneer Multi-Asset Ultrashort Income Fund, 99
  • DFA Two-Year Global Fixed Income Portfolio, 99

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All the best, Alister and the Genuine Impact Team

p.s. all Genuine Scores are accurate as of the 5th of April

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