Strategist: ‘Asian Asset Boom’ Has One More Round To Go

Well now, apparently, “just increased certainty around the direction of U.S. rates” is a bull thesis for EM all by itself.

I mean, there’s something to that – you don’t really want “decreased” clarity around the direction of U.S. rates – but the second bullet point in the latest missive from Bloomberg’s Mark Cudmore comes across as uncomfortably close to suggesting that somehow a more hawkish Fed would be good for emerging market flows (and flows into risk assets more generally) simply by virtue of the “certainty” that would come with having a better idea about what it is they’re going to do. I’m not sure we want to go down that road.

Additionally, the timing of what you’ll read below leaves a little something to be desired given the miss on China’s October PMI, but with all of that said, the following is worth a skim because God knows it hasn’t paid to be skeptical on the way to fading the rally in anything with an “EM” prefix, so why start now?

Via Bloomberg

• Clarity around the next Fed chair, and hence the rate path, should provide a boost to global assets, particularly emerging markets
• As argued in this column on Monday, it’s hard to see any nominee who doesn’t lead 10-year Treasury yields to fall. But even just increased certainty around the direction of U.S. rates will likely be a catalyst for fresh inflows to riskier assets globally
• The world economy remains exceptionally supportive. The year remains on track to see the fastest expansion since 2011, the IMF reckons. And next year is meant to be better again
• High- frequency data confirm the momentum. For the past two months, JPMorgan’s Global Manufacturing PMI has recorded the highest readings since at least October 2014
• Asia remains at the forefront of this positive story. Almost all the fastest growing economies in the world in 2018 will be in Asia. The economies of India, the Philippines, China, Vietnam and Indonesia are all set to see expansions exceeding 5%
• We’re roughly halfway through reporting season and global equity earnings still look supportive, even if Europe is a little weak. Results have been particularly strong in Asia, where data compiled by Bloomberg show earnings of MSCI Asia Pacific Index companies beating estimates by an average of more than 12%
• FX performance plays a critical role in impacting total returns for the global investor and the prospects for Asian FX looks very bright. According to IMF purchasing-power-parity metrics, the most undervalued currencies in the world are all in Asia: INR, IDR, MYR, PHP and THB
• And all the lowest volatility ones as well, according to 1- year implied vols: SGD, THB, TWD, CNH and PHP
• It’s been a great year for global equities and emerging markets assets, particularly in Asia. There’s a least one more solid round of this theme still to play out