Policy divergence ends decades-long positioning for investors
Global divergences in areas such as inflation and monetary policy are causing investors to reposition portfolios with a value bias, according to abrdn.
Speaking to Money Management, Gerry Fowler, absolute return investment director at abrdn, described what he called ‘omnipresent inflections’ as there were so many shifts taking place simultaneously in inflation, growth and monetary policies.
One particular divergence was the difference between the US and China approaches to monetary policy and which was opting to tighten up.
Fowler said: “As much as the most of the world is on a tightening bias in monetary policy and trying to contain rising inflation, large parts of emerging markets such as Mexico, Brazil and China are looking to loosen policy because they don’t have those inflationary pressures and they are looking to stimulate growth.
“The contrast from last year where China was tightening monetary and fiscal policy and the US was easing monetary policy to 2022 where China is abusing monetary fiscal policy and the US is tightening is really, really distinct as a huge inflection in two major economies.
“When you get that stimulus coming through, we think it will benefit Chinese equities but also across Asian high yield bonds. We’ve got positions in Asian high yield bonds that we think are going to be particularly successful so long as China continues to ease financial conditions.”
However, he said, he was expecting growth in China to continue to weaken in the first and second quarter before the stimulus gained traction in the second half of the year.
As to how investors could manage these divergences, he said abrdn was focusing on value-orientated investments. He had been buying non-US equities with a value bias in areas such as UK, European and Japanese mining, energy and banking companies which had cheap valuations.
“Investor attention should shift from a quality and growth bias towards more value-orientated investments and towards opportunities in China and emerging markets given they are much more discounted and will be beneficiaries of easing policy.
“That’s two big shifts from where investors have been positioned for decades and that transition is underway, in our view it will be ongoing for quite some time.”
AUTHOR
Laura Dew
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