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Discussion on the outlook for the Asian Small Cap equities as global economic growth continues to gain ground in 2014.
Singapore- Manulife Singapore and Manulife Asset Management Singapore ( the "Asset Manager") today jointly announced the launch of a new Asian bond fund, the Manulife Funds - Manulife Asia Pacific Investment Grade Bond Fund ( the "Fund").
The Fund seeks to maximise total returns from a combination of capital appreciation and income generation through investing primarily in a diversified portfolio of investment-grade debt securities issued by governments, agencies, supra-nationals and corporate issuers in the Asia Pacific region.
Manulife Asset Management's Linda Csellak, Head of Asia Pacific Equities, discusses the outlook for the Manulife Global Fund - Asian Small Cap Equity Fund (AA) after a year of volatility in the regional markets. The Fund was recently named 'Best in Class' at Benchmark's Fund of the Year awards 2013.
"Q1 . Can you comment on the performace of the Manulife Global Fund - Asian Small Cap Equity Fund and explain some of the key factors that make this Fund "Best in Class"?.
The best performing Asia Pacific small cap and Citwyire AAA-rated Linda Csellak is clear about what she expects from her portfolio.
"The PE (of the portfolio) is always below the benchmark, and ROE is always above benchmark. I would be very disappointed if I ever checked and that was not the case," said the head of Asia Pacific equities at Manulife Asset Management.
Philip Petursson, Managing Director, Portfolio Advisory Group from Manulife Asset Management, shares his view on recent Fed comments on potential tapering of Quantitative Easing and looks at historical trends for clues as to where US markets are headed from current highs.
After reaching an intra-day high of 1687 on May 22, the S&P 500 Index retreated by as much as 5.3% on an intra-day basis through Thursday before reversing course to end the week with a modest gain of 0.8%. The bond markets were uncharacteristically more volatile with the US 10-year Treasury yield gaining 5 basis points during the week, 10 basis points on Friday to 2.17%.
- We believe that global equities will be bullish in 2013. The outlook in China is improving modestly, the US is stable and the euro zone appears to be stabilising.
- Global equity valuations are reasonable, interest rates are low and inflation is subdued. Expected earnings growth in the US and many Asian and emerging markets look healthy, except in Japan and Brazil.
- Japan may be at a turning point. The government is expected to provide further fiscal stimulus and unlimited monetary easing to end the country's 20-year deflationary spiral. Continued depreciation of the yen would benefit Japanese exporters. Japanese stocks are expected to rebound.
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Another interesting earnings season is coming to a close with 98% of companies having reported. The main theme emanating from the second quarter earnings season was that sales and earnings growth is slowing materially compared to first quarter. Aggregate sales growth was a weak 0.60% while earnings grew at an unflattering -0.01%; much weaker when compared to last quarter which saw sales growth of 5.80% and earnings growth of 6.45%. Current analyst estimates of earnings growth for 2013 of roughly 12% appear to be ambitious given the lower guidance provided by many companies this quarter.
On July 5, the People’s Bank of China (PBoC) announced a further 31bp rate cut to the one-year lending rate and a 25bp cut to the one-year deposit rate, effective July 6. This is the second rate cut in about a month, following the previous move on June 7. We share here views from our fixed income and equity teams.
In anticipation of a positive outcome from the Greece’s election, Euro, Singapore dollar and stock markets had rallied in the last few days. New Democracy, a pro-austerity and pro-European party, has managed to claim 128 seats and secured about 30% of vote share versus 18.9% in the May election. New Democracy and Pasok, another pro-austerity party, secured a majority of 162 seats in total in the 300-member parliament. The New Democracy is expected to take the lead to form the next coalition government.
Notwithstanding the pain from the existing austerity program, about three quarters of Greeks have indicated their preference to stay in the Euro area as they understand the even greater egative impact and, therefore more agony for Greeks, if the country were to leave the monetary nion.
On June 8, the People’s Bank of China (PBoC) announced a 25 basis points cut on both commercial banks’ benchmark lending and deposit rates. As the first rate cut since December 2008, the move sends a strong signal that the government will be more active in supporting demand and stabilizing growth. The cut will bring down the benchmark one-year lending and deposit rates to 6.31% and 3.25%, respectively.
The PBoC has also given banks more pricing power – banks are now allowed to charge up to 20% less, from 10% less previously, than the benchmark on loans and pay 10% higher, previously from a hard ceiling, than the benchmark to deposits.What is the significance of the interest rate move?
The rate cut is likely to boost sentiment and will help lower the cost of corporate and local government borrowing and boost credit demand at the margin. To the extent that mortgage rates will also be lowered in line with the benchmark rates, this should help home buyers as well. More importantly, the rate move is an important step toward further interest rate liberalization. The recent policy easing measures, including subsidies to promote sales of energy-saving appliances, appear to confirm the government wants to embed structural reforms in the cyclical policy easing, which is positive from a medium-term perspective. The rate cut should also benefit the cyclical sectors more than structural sectors. Interest rate-sensitive sectors will likely gain from universal easing. Property, utility, machinery, airlines and insurance should see the benefits as a result of this move.
The political impasse in Greece has rocked the global financial markets again in recent weeks and cast uncertainties over the future of the Euro area and the monetary union.
Over the past two years, Greece has repeatedly stated its intention of wanting to stay in the Euro area. But at the same time, it has systematically watered down the adjustment requests and deliberately postponed the adjustments. The latest election result has again indicated that Greeks have strong reluctance to continue the current drastic austerity measures. The austerity measures are imposed in exchange for the aid from the European Union, European Central Bank (ECB) and International Monetary Fund (IMF). With no political parties able to unite force with others to form a coalition government, a re-election has to be held. A care-taker government was sworn in on 17 May 2012 until the re-election, likely to be on 17 June 2012, is over. In the mean time capital flight from Greece continues.
The market is clouded with uncertainties on the future of not just Greece but the entire Euro area. A Greece exit from the monetary union was seen as an absurdity as the break-up cost is way too high. But now it is seen as a high probability scenario that politicians, central banks, financial markets and corporate treasuries round the globe cannot ignore.
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