Contrary to the present wisdom that investing in bonds and other fixed-income assets is less risky and generates more stable returns, fund manager Blackrock contends Asian equities are the more prudent investment choice right now.
Real bond yields have turned negative in the United States and Britain and reached an ultralow level in most developed countries. But most governments still have more than two-fifths of their pension assets in cash or in fixed income, where it is earning next to nothing or even losing money. Some have more than 60 per cent in bonds and cash, according to a Towers Watson 2012 pension assets study.
'Asia has much sounder economic fundamentals,' said Joshua Crabb, director and fund manager of BlackRock Asia Pacific Equity Income Fund. 'This is translating into higher GDP growth rates, earnings and dividends.'
Stopping inflation from cutting into the value of assets has become more pressing as Hong Kong's consumer price index rises, surging to 6.1 per cent last month.
The purchasing power of HK$1,000,000 would fall by more than 60 per cent over the next quarter century, should inflation rates stand at 5 per cent a year. Even if inflation slows to 3 per cent over that period, the same amount of cash would still lose 40 per cent of its value.
The valuations of equities in the region with high dividend yields and good fundamentals have reached a low level, which could provide the necessary inflation protection over the long term, Crabb said.