Private credit might be less attractive than it was last year as investors rush into the market, but there are sweet spots to be found.
ôAt every point in a crisis, as I have experienced over the past 20 years, there comes a time when you can begin to see a silver lining,ö says the London-based Monson.
Monson, who was in Hong Kong recently, notes the world is now reliant on Asia as the engine of global demand. He is optimistic that core Asian economies, and particularly China, will manage the crisis, noting that the mainland is well positioned with minimal internal and external debt. ChinaÆs growth will be dependent on domestic demand, with exports to slow sharply due to a recession effect outside Asia, he says.
Asian economies will be helped by reduced inflation rates due to falling commodity prices and real oil demand destruction in the US, he notes, adding that while growth rates in the region will slow, stocks are undervalued.
For the 700 largest listed Asian companies, financial leveraging has fallen from 65% to 22%, the lowest level in the world, according to Sarasin. Some 40% of Asian stocks pay higher dividends than the government bond markets, with that rises to 80% for Singapore stocks.
Meanwhile, the unprecedented government actions over the past week have resulted in the creation of hybrid half-state half-private sectors that will provide interesting bond opportunities for investors, Monson says.
Sarasin recommends the high-quality corporate bond markets including: the emerging hybrid bond markets; defensive stocks (utilities, water, food, and particularly pharmaceuticals); and energy and materials (metals and mining).
Regulators keep their eyes open on tightening insurance industry by introducing more detailed risk management requirements, which could bring pressure on smaller players.
China and India are more obvious choices for AustralianSuper to consider in Asia Pacific, but the super fund currently lacks the expertise and prefers to stick to the US and Europe.
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Investors are increasingly turning to private companies and private debt in their hunt for ESG alpha, but the age-old problem of transparency and due diligence remains