Asian Emerging Market Stocks Poised to Relive Glory Days: Old Mutual

Echoes of 2003-2007.

A woman monitors prices and trades stocks at a securities exchange hall in Shanghai.

Photographer: Qilai Shen/Bloomberg

After shrugging off their U.S. election hangover, Asia's emerging-market stocks scrub up rather well. 

That is the view of Joshua Crabb, head of Asian equities at a unit of Old Mutual Plc, who draws hope from 10 to 15 years ago, when the U.S. Federal Reserve embarked on a series of interest-rate increases and Asia Pacific ex-Japan stocks stormed higher. 

"If you look at the period between 2003 and 2007 we saw a very similar scenario — a well-valued U.S. and a stronger global economy and Asia actually performed very well," Hong Kong-based Crabb said in an interview. "I think there's a similar parallel we can draw from today and it's a great opportunity to sit in Asia right now."

In the years leading up to the financial crisis, the Fed consistently raised interest rates. Stocks in emerging markets soared about 240 percent from 2003 to 2007, while the dollar was largely in a weakening cycle. In contrast, the dollar was at the peak of an eight-year rally shortly after Donald Trump's victory in the U.S. election and Asian EM stocks slid as global funds pulled out about $11 billion. 

The Fed isn't expected to follow such a sharp tightening path this time, but the general consensus is there will be two or three rate increases in the U.S. this year. The market currently prices in a 38% chance of a rate hike coming as soon as March, rising to 63 percent in May. 

Crabb said he's not bearish on the greenback in 2017, but he reckons it may not be as strong as some forecasts suggest. Expectations on inflation and growth elsewhere "may change more than the U.S. from here," he said.

Old Mutual Global Investors manages $37.6 billion in assets globally, Crabb said. 

Here are some of his other views:

  • China is "cheap" and the outlook has improved
  • In expensive markets like India there are some "good and cheap" areas as well, especially those that should benefit from domestic spending, like infrastructure 
  • Taiwan and South Korea will have some issues given their large reliance on trade, but select areas like materials will do well due to factory closures driven by China's pollution concerns
  • With the global economy improving, cheap cyclical companies should be better placed after six tough years
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