BLACKROCK, one of the largest asset managers in Asia, remains bullish on Asian equities and fixed income in 2018, as underlying growth in the global economy remains stable and fundamentals remain strong.

For equities, the positive outlook is based on the continued expansion of earnings, fueled by export recovery and capex discipline, attractive valuations versus other asset classes, and the still relatively light positioning of investors in the asset class.

“Our positive outlook for Asian equities is based on dynamics we see continuing, such as global reflation, and rising nominal growth, wages, and inflation; strong earnings momentum underpinned by better cash flow, cost discipline and pent-up domestic and external demand; reforms across various countries and sectors; and solid global capex and firming energy prices that support exports,” says Andrew Swan, head of Asian and global emerging markets equities at Blackrock.

For Asian fixed income, the positive outlook is based on the need for income by investors driven by ageing demographics as well as stable to improving economic fundamentals among Asian countries.

“Ageing demographics and a global savings glut remain the key long-term themes and drivers of the need for income that continues to be supportive for credit. In the medium-term, the key market drivers for the asset class are US (and related Fed) policy, China policy and broader geopolitical risks which still have the potential to move markets. However, Asia and Asian credit continue to be very well-placed,” says Neeraj Seth, head of Asian credit at BlackRock.

For equities, BlackRock is overweight in China based on its improving domestic fundamentals that translate into better earnings by corporates; Indonesia based on the continuing improvement in the domestic economy; and India based on stock-picking opportunities and rising rural income.

BlackRock is, however, cautious on the technology sector because of its expensive valuations. It is also cautious on the Hong Kong and Singapore market because of its susceptibility to negative effects from the US rate hike. It is also negative on Taiwan because of the valuations of large-cap technology stocks that form the backbone of the market.

For Asian fixed income, BlackRock is overweight on Australian US dollar credit, Chinese US dollar credit, Indonesian local currency bonds, Indian local currency bonds, Japanese US dollar credit, Malaysian FX, Sri Lankan local currency bonds and US dollar credit, and Vietnamese US dollar credit.

It is neutral on Indian US dollar credit and Malaysian US dollar credit. It is underweight Philippines and Thailand fixed income.