Emerging Markets Still a Buy for Nissay Asset After Trump, Fed

(Bloomberg) -- A hawkish rate cut by the Federal Reserve and President Donald Trump's imposition of new tariffs on China create a buying opportunity for Asian emerging markets.

That's the view of Nissay Asset Management Corp.'s Toshinobu Chiba, who says with the much-awaited policy decision out of the way, he plans to buy more Indonesian, Philippine and Indian bonds, as those countries offer relatively higher yields and have more room to reduce rates to support their economies. In the run-up to the decision, Chiba cut risk by keeping more neutral positions, he said.

“Any dips stemming from a muddled Fed decision is a buying opportunity,” said the chief fund manager for Nissay's fixed-income investment department, who helps manage the equivalent of about $119 billion in Tokyo. “Given the latest statement, the Fed is likely to deliver one more rate cut before the year-end, which will continue to be supportive for emerging markets over the next six months or so.”

Read: Powell Says Fed Cut Not Start of Long Series, Jarring Markets

While Fed Chair Jerome Powell downplayed speculation that the first interest-rate cut in more than a decade was the start of a sustained easing cycle, the search for yield in a world with $14 trillion of negative-yielding debt is luring investors to developing-nation assets.

Though Asia's emerging-market assets looked set to come under pressure following Trump's decision to impose a 10% tariff on a further $300 billion in Chinese imports, that will offer even better entry levels to buy, Chiba said. Most of Asia's emerging currencies weakened Friday, with both the rupee and rupiah declining more than 0.5%.

“I'm sticking to my strategy even though it seems like President Trump is getting tougher on China,” Chiba said in a phone interview following the announcement. “The Fed has room to lower rates if this weighs on the economy further and Asia's developing markets still remain relatively attractive across global emerging markets.”

Here are some of the strategies and views Chiba is taking:

• Plans to boost Indonesian bonds to an overweight position of about 3% versus his FTSE Asia Government Bond Index benchmark, 1.5% for the Philippines and 1% to 2% for India. He had trimmed those holdings to around 1% overweight closer to the Fed's decision
• Holds long rupiah, rupee and peso positions against the Singapore and Hong Kong dollars and also partly against South Korea's won
• Is bearish on the won amid signs that the semiconductor industry has peaked out as shown by some inventory data in Taiwan
• Closed his underweight position in the won against the baht recently, to switch to short won against the offshore yuan, as the Thai currency became relatively expensive
• Sees the manufacturing, non-manufacturing and property sectors in China as relatively stable, while the country's financial system remains a concern
• Says emerging market interest among Japanese investors, including those who are more conservative, has grown recently as negative-yielding debt rises globally, led by those in developed markets

To contact the reporter on this story: Yumi Teso in Bangkok at yteso1@bloomberg.net

To contact the editors responsible for this story: Tomoko Yamazaki at tyamazaki@bloomberg.net, Cormac Mullen

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