BlackRock to Capitilize on Asia Growth
Posted on September 20, 2010 at 8:09 PM
BlackRock is expecting Hong Kong to be China’s New York due to the “transformational event” of the internationalization of the renminbi. Last week, the US asset manager sent a 35-strong delegation of portfolio managers to Hong Kong to underline its optimism about the growth prospects of the Asia-Pacific region in relation to the stagnant qualities of the US and Europe. BlackRock is seeking to press the point that China’s potential greatly outweighs the relative shallowness of its capital markets. China is seeking balance and sustainability in terms of economic growth and the development of its financial markets. It is expected that the government policy and infrastructure investment to remain geared towards central and western China, accounting for 61 percent of the population, although it only generates 42percent of the GDP. The government is gearing towards tapping new energy sources, such as: natural gas, hydroelectricity, nuclear, wind and solar power. China’s strategic trading partnerships with Hong Kong, Taiwan and South Korea are key in its plan to internationalize the renminbi. BlackRock sees the developed markets continuing to struggle economically, however, its global allocation team, headed by Dennis Stattman, has increased its exposure to US equities from 13 percent five years ago to 35 percent now. This places it on a par at 35 percent with Asia (ex-Japan) equities. Given the low-interest rate position of the US Federal Reserve and a US financial system in which companies and blanks are flush with liquidity, the global scramble for yield is expected to continue. BlackRock believes economic growth in Europe will be constrained by austerity measures, while it will be structurally slower in the US that it has been in recent years. Asia’s debt markets present a picture of more robust growth and lower leverage, although they are relatively small compared with those of the US and Europe. It is forecasted that the region’s credit markets will increase 2.3 times in the next 5 years, which will require $1.2tn in funds. The funding will primarily be driven by strong GDP growth, without an assumption of increased leverage. The region’s public debt markets are still attractively priced, and a profound growth in the region’s convertible bond market is expected.