KUALA LUMPUR (July 8): Asian credit fixed income instruments, high dividend yield counters, stocks in the new economy and foreign exchange movements are some of the potential areas that investors can look at to weather the current market volatility.

RHB Asset Management (Malaysia) Fixed Income Chief Investment Officer Michael Chang said retail investors seeking greater returns than fixed deposits — whose interest rates are expected to drop after the overnight policy rate (OPR) was cut to 1.75% yesterday — could look at bond funds, with more savvy investors leaning towards the Asian credit market.

“Asian credits are a sweet spot, as Asia, especially China, is recovering and is expected to recover further into the rest of the year and into 2021,” he said during the RHB Asset Management’s “Investing in Volatile Times: Stocks, Fixed Income or Multi-Asset?” webinar.

He noted that bonds will become even more relevant as they provide income certainty.

Within the bond space, investors should keep diversified portfolios of both local foreign bonds.

Additionally, investors should also look at foreign exchange instruments, he added.

Meanwhile, Schroder Investment Management (Singapore) Ltd Southeast Asia head of multi-asset product Reginald Tan said dividend investing is on the cusp of a strong rebound, as generally, dividend investing strongly outperforms after periods of market irrationality.

Taking a long-term view, Tan said dividend income provides a stable source of return, providing a cushion during periods of volatility, as dividend return accounts for two-thirds of long-run equity returns.

“A pick-up in economic activity and low-interest rates are positive for high dividend yield stocks,” said Tan.

He also pointed out that the Asia Pacific — excluding Japan — has the second-highest dividend yield globally at 2.6%. In first place is Europe with 3.3%.

Tan also mentioned that while Schroder was neutral on equities on the whole, there could be some promise from stocks in Europe, given that Covid-19 cases are under control in the block and the European Central Bank (ECB) has announced stimulus measures to combat the impact of the pandemic among eurozone countries.

Meanwhile, within the fixed income space, Asia high yield instruments have a yield of 10%, while Asian investment grade instruments have a yield of 2.9%.

In both cases, they are highest among the respective instrument classes, compared with those in the US, Europe and emerging markets.

For China Asset Management (Hong Kong) Ltd portfolio manager Raymond Jing, equities are still seen within a positive light.

Jing noted investors should look at stocks in the Chinese market that are in sectors driven by consumption and innovation, as the republic’s economy is transitioning its growth engine to such sectors.

“Investors should be optimistic on domestic demand sectors and leading companies. Take long views and do in-depth research on new-economy sectors,” said Jing.

For example “new economy” sectors include telecommunications, healthcare and IT.

He noted that China has demonstrated strong fundamentals in its economic recovery from the impact of Covid-19.