Investors are more concerned about the European debt crisis and upcoming Italian elections than the risk of a currency war, says Tai Hui of JP Morgan.
02/20/2013| 04:00am US/Eastern
SHOWS: HONG KONG, CHINA (FEBRUARY 20, 2013) (REUTERS - ACCESS ALL)
TAI HUI, CHIEF ASIA MARKET STRATEGIST, JP MORGAN FUNDS
1. REPORTER OFF CAMERA SAYING:
'We saw recent weakness in the yen thanks to the change in Japan's policy. How do you see this impacting other Asian currencies and policy? And how should investors position their portfolio in Asia with a weaker yen in mind?'
2. TAI HUI SAYING:
'Well I think at least for the time being, in the very short term, it does put pressure on some of the Asian currencies, especially the likes of Singapore dollar, Korean won, Taiwan dollar which have a direct competition with Japanese exports. But I think over the longer haul, I am expecting the global environment, especially in Asia, to improve and that should be a positive for equity markets in this region. So I think in the short term, you may see some more pressure on, for example, Korea which have been suffered as a result of the weaker yen. But over the next 6-12 months, I do have a more optimistic view on the Asian equity markets largely due to the improving fundamentals of growth. We see more of those coming from data, but also hopefully we will start to see more earning upgrades from the analysts in the next few months.'
3. REPORTER OFF CAMERA SAYING:
'Do you see a risk of currency war? And do you see any risk to current rotation from bonds to equities?'
4. TAI HUI SAYING:
'Well I don't think that the currency war is necessarily the thing we are watching out for. If you are looking at competitive devaluation, frankly the U.S. dollars has been doing this for many years. And no one has said much about it. Obviously the yen weakness has been very fast and furious. But it seems we are hitting a consolidation phase. So I think overall the currency depreciation of selected currencies - that may not be the biggest concern this point in time. I think the European debt crisis - how to unfold - continues to be at center stage. Obviously the Italian election coming up, that's absolutely critical. China - how does the growth can be sustained going forward - I think that will also be very important from an investor's perspective. So in that sense, I think we are not expecting a rapid rotation out of bonds into equities. More likely, given recent data, it seems that investors are rotating out of cash into equities. I think that trend will continue. It will not be a straight line. But nonetheless, I think overall, we are expecting a cash reduction year. And putting more money into the equity investment space.'
5. REPORTER OFF CAMERA SAYING:
'The Nikkei 225 is at a 52-week high. How do you see that impacting China's equity markets?'
6. TAI HUI SAYING:
'Well, I think that investors are not necessarily switching out of China into Japan. In fact, if you look at lots of the fund flows data, it suggests that flowing out of money market funds or cash into equities whether it's emerging or Japan. So it's not necessarily that the strong performances of the Nikkei, it's at the expense of just China. In fact, if you look at Chinese stock market performance year-to-date, it's comparable to what's happening in Japan. So these are the top 2 performing markets in Asia. I think the reality is - there's a lot of funds still in cash waiting for investment opportunities. Clearly the Japanese policy direction is a very encouraging one and that's attracting a lot of inflows, but at the same time in China's case, very convincing, very material signs of turnaround is providing investors also with some degree of optimism as well. So I think both markets will actually see strong interest from investors this year.'