A Philippines-based insurer told AsianInvestor it plans to add to equity allocations on the expectation that the asset class will outperform this year.
“We expect to increase our allocation to Philippine and emerging market Asian equities, which are the asset classes we see outperforming this year against the backdrop of flattening yield curve and above-par growth,” said Rowena Empalmado, chief operating officer and head of the investment team at EastWest Ageas Insurance.
EastWest Ageas Insurance is a joint venture between Philippines’ EastWest Bank and Belgian insurer Ageas.
“Among asset classes, we see the biggest growth potential in equities. Compared to other markets, Philippine stocks have been battered since pandemic years. Domestic stocks have shown resilience despite the pandemic crisis, and we think they are currently grossly undervalued,” Empalmado told AsianInvestor.
The Philippines economy is expected to grow by 6.2% in 2023, making it one of the fastest-growing economies in the world, according to the International Monetary Fund.
Optimism about Asian equities has been growing of late among institutional investors. “The near-term outlook for Asian equities is improving, with some of the macro headwinds facing the market in the past 18 months likely to turn into headwinds,” a Barings note released on July 27 said.
“One key example is the expected reversal of US dollar strength, which is supportive for domestic consumption in Asia.
"As a result, Asian performance laggards in the year’s first half could catch up in the coming months, while leaders consolidate their strength and build on the year’s rally. If the second half of the year sees central-bank tightening efforts wind down and earnings to guide higher, investor sentiment toward Asian equities should also improve," the report said.
Tourists are also flowing back to Southeast Asia, driven by supportive government policies and pent-up demand from North Asia, the report noted.
“ASEAN is also receiving a growing share of the world’s capital investments ranging from low value-added manufacturing to the hardware technology supply chain. The longer-term thesis of Southeast Asia as a beneficiary of supply chain diversification remains well intact, with Chinese companies extending their supply chains to the region.”
The insurer also expects to increase bond allocation, but will be very selective, considering quality, duration and liquidity as principal factors for selection, according to Empalmado.
With a higher-rates-for-longer environment, bonds have been back in play for the region’s asset owners this year.
Another rate hike paired with fading economic risks continues to be a boon for fixed income investors, as it improves bond yields and makes the asset class attractive, according to RBC Wealth Management.
“The US Federal Reserve’s latest rate hike [on July 26] was expected by just about everyone. While another rate hike remains somewhere on the table, we maintain our view that the rate hike cycle is effectively over,” the wealth manager said in a note, echoing the sentiments of several asset and wealth managers.
”2023 would be a year when central banks will likely slow down interest rate hikes, pausing and eventually pivoting towards the latter part of the year. The focus could move from fighting inflation to addressing growth,” the note said.
Empalmado said the biggest challenge for investors in 2023 is generating positive returns, “especially after a gruelling 2022 and pandemic-scarred 2021 when losses seemed to have been the norm.”
Empalmado did not provide overall asset allocations of the insurer’s portfolio.
ALTS, GLOBAL EXPOSURE
She also said that EastWest Ageas is currently not focusing on alternative asset classes, as it is still growing its portfolio.
“However, we think that infrastructure and real estate are alternative asset classes. It could perform well this year as the decline in the risk-free rate supports a revaluation,” she said.
The increasingly digital lifestyles buoyed by the ecommerce boom and persistent remote work set-up continue to create opportunities for data center players, a Cushman and Wakefield report issued in June noted.
“Along with the uptick in demand for warehouses and logistics facilities, these asset classes are seen driving healthy demand for industrial properties which sequentially encourages investments in these areas,” it said.
Like other insurers, EastWest Ageas offers unit-linked plans, which offers both insurance coverage and investments equities or bonds, to policyholders. Its investment funds include a dollar income paying fund, Asian equity fund, a bond fund, an equity fund and a balanced fund.
“Our unit-linked portfolios are managed by the trust and asset Management arm of our partner EastWest Bank,” Empalmado said.
“However, a portion of our portfolio is invested in ETFs (exchange traded funds), providing us access to global investments and the expertise of renowned global fund managers. That way, we provide more options for our clientele.”