Global investors are reassessing their US-heavy portfolios and looking at undervalued equities in Hong Kong and mainland China to “provide defence” amid geopolitical tensions, according to global investment advisory Cambridge Associates.
Advertisement
“One of the surprising things this year is that despite the Trump tariffs being very aggressive towards Asia, particularly China, actually equities [in the region] have outperformed,” Aaron Costello, the firm’s head of Asia, said in an interview this week.
“Even after recent gains, Chinese and Hong Kong stocks are still attractive from a valuation perspective and can provide defence in this environment, especially compared with US stocks, which are quite expensive.”
He added that with valuations still compelling and interest rates falling in the region, the case for diversifying away from US equities was getting stronger.
The sentiment followed Washington and Beijing’s agreement on May 12 to reduce most tariffs. The breakthrough indicated that the US administration may be open to striking broader deals and eased some of the geopolitical risk that had kept foreign investors on the sidelines.
Advertisement
Hong Kong’s Hang Seng Index has risen about 15.9 per cent so far this year, supported by monetary easing and signs of policy coordination between Beijing and Washington. The index is currently valued at around 10.5 times projected earnings for the year, compared with the S&P 500’s 22.5 times and the Nikkei 225’s 19.3 times, according to Bloomberg data.
Costello said institutional portfolios were starting to tilt away from US markets, with Asia benefiting from both relative value and early signs of policy support. The Boston-based firm, which managed US$610 billion in clients’ assets, said global investors were more interested in non-US assets, despite most of the buying this year coming from local and mainland investors.