New York: A US interest-rate cut may be on the horizon, but a JPMorgan Asset Management fund is shying away from emerging-market assets.
The money manager’s Global Income Fund halved its holdings of developing-nation fixed income and equities to three per cent each in the past year, opting instead to buy European corporate junk bonds and treasuries, according to its co-manager Eric Bernbaum. The $50 billion (Dh183.5 billion) strategy is sceptical about emerging Asia’s prospects due to the region’s exposure to the US-China trade war.
“The area that we’ve seen the most deterioration in — and the most weakness — is in the emerging-markets complex, particularly ex-China,” New York-based Bernbaum said by phone. “We’re thinking of areas like Korea, Taiwan, Singapore — those regions and countries that are very exposed to global trade uncertainty, disruption of supply chains and waning demand.”
Bernbaum’s call serves as a warning as traders celebrate the coming US interest-rate cut by piling into risk assets. Even if the Fed eases, Asia’s export-reliant economies must still contend with the damage wrought by the trade war, with no sign that the dispute will be resolved anytime soon.
While Washington has restarted high-level talks with Beijing, the truce is far from a game-changer, according to Bernbaum. Thorny issues such as intellectual property rights and cyber security still persist. US President Donald Trump has complained that China didn’t boost purchases of American farm products as promised by his Chinese counterpart Xi Jinping last month.
“I would say there would be no huge, ground-breaking resolution on the longer-term structural issues,” Bernbaum said. “There’s still going to be ongoing uncertainty.”
If recent data are any guide, more weakness may be in store for emerging Asia’s economies. Shipments from South Korea fell 2.6 per cent in the first 10 days of July, with sales of semiconductors down by a quarter from a year earlier, while Singapore’s economy unexpectedly contracted in the second quarter, a report showed Friday.