HSBC Global eyes rising profitability trend in Asia

Pedro Gonçalves
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HSBC Global eyes rising profitability trend in Asia

HSBC Global Asset Management is looking at growing opportunities in Asia as global growth is boosting profitability in the region.

"What we are seeing is a very strong trend of profitability in Asia", said Bill Maldonado, HSBC Global Asset Management's CIO for Equities globally and the CIO for Asia-Pacific during a meeting with journalists in London.

Maldonado warns that the narrative around Asia is not accurate. "We have this very healthy profit growth and yet what you hear people talking about is not the increase in profitability and the improving profitability trend but that companies are missing earning targets. These earning targets are probably too high. They were set by the same analysts who had too low earning targets going into 2017 and are now overcompensating.

The stuff that the regulator tells us is safe is not safe and it offers very poor prospective returns. That means you need to continue to be intrepid, continue to be bold where others are fearful and focus on global equities in parts of the emerging market space"

"It's a very negative take on a very positive story," he added.

 HSBC Global Asset Management's chief global strategist, Joe Little, believes that being intrepid and looking at emerging markets in Asia will bring higher returns than the text-book approach of investing in safer assets like bonds.

"When we started the year, our feeling was that the starting point was wrong. Global growth and recessions risks in the US were the dominant narrative. However, we've seen in January and the first weeks of February, very strong performance in risk asset classes," he said.

"But the principal dilemma for a multi-asset investor  is what do you do with your  money to meet your intermediate, longer term investment and saving goals. There is a very clear signal in investment markets about that at the moment: The prospective return that is available on traditional safety asset classes is incredibly poor and unattractive," he added, pointing at bunds, guilds, Japanese bonds and Canadian bonds for example. 

"The stuff that the regulator tells us is safe is not safe and it offers very poor prospective returns. That means you need to continue to be intrepid, continue to be bold where others are fearful and focus on global equities in parts of the emerging market space," he added.

For HSBC Global Asset Management's chief global strategist there are opportunities that will wield a good return like Asian equities from a longer term perspective, particularly  if the trade tensions and adverse dynamics in oil pricing are lifted.

"The other asset class that we have been looking at quite a lot is the Asia fixed income area and also EM local debts. Those are two classes that look very interesting from a 30,000 feet perspective," Little said.

According to data compiled by the National Bureau of Statistics, the value of China's economy, the second biggest in the world, reached $13.6trn last year.

"China remains a source of power for the global economy," Sheng Laiyun, a deputy head of the agency, wrote in an official "explanation" of China's economic data last week. 

Last year's growth figure was a 6.6% - above those of the G7 economies - as China accounted for around 30% of the worldwide increase in gross domestic product. In 2018, China's economic growth rate slowed to the lowest level in 28 years