After a dovish speech by US Federal Reserve chair Jerome Powell at the Fed’s annual Jackson Hole Symposium helped solidify expectation that it will cut rates at its September meeting, wealth managers highlight investment opportunities in Asia.

Confidence that US rate cuts are on the way soon was bolstered on Friday by US Federal Reserve chair Jerome Powell at the Fed’s annual Jackson Hole Symposium. In his speech, Powell said that the time has come for policy to adjust. He highlighted how confidence has grown now that inflation is on a sustainable path, back to the central bank’s 2 per cent target.

Powell also signalled that the focus for policymakers is shifting from taming inflation to supporting maximum employment – the second part of the Fed’s mandate. Following the recent rise in unemployment, Powell said that the Fed does not seek or welcome more cooling in labour market conditions.

Mark Haefele, chief investment officer at Swiss UBS Global Wealth Management, said his comments are consistent with his view that the Fed will cut rates at each of its three remaining policy meetings this year – with the possibility of a 50-basis-point move if incoming employment and consumption data is weak.

Haefele said he has been advising investors to position for a global rate cutting cycle, which the Fed is poised to join. The impact of a more dovish Fed, however, is being felt well beyond the US. Along with the recent weakness in the US dollar, Fed easing should allow Asian central banks to overcome the threat of disruptive capital flows and ease policy themselves – as the Philippine central bank did in mid-August.

Overall, Haefele expects the region’s policymakers to cut interest rates by around half as much as the Fed, translating to 25 to 50 basis points of cuts on average this year, and another 25 to 50 bps next year. That should improve the economic outlook for the region and risk assets.

For investors, he sees opportunities across asset classes. He highlighted how the Fed interest rate cuts and a weakening US dollar are historically positive for Asian equities. In the past six Fed easing cycles, MSCI Asia ex-Japan delivered median returns of 10 per cent in the 12 months following the first cut, with regional equities outperforming the US in episodes when the dollar weakens by 5 to 10 per cent. Haefele sees a similarly positive economic backdrop this time around, bolstered by healthy earnings growth. Around 60 per cent of Asia ex-Japan companies have beaten expectations midway through the second quarter season.

In addition, with the index trading at a 27 per cent discount to global equities on a 12-month forward price-to-earnings basis, the recent volatility has presented investors with a good opportunity to rebuild exposure. More specifically, he likes lower-rate beneficiaries, including high-dividend yielders in ASEAN and Singapore real estate investment trusts. He also likes structural growth leaders – including India and alpha opportunities in China. Finally, Haefele  sees buy-the-dip opportunities, in oversold markets like South Korea for example, as well as Japanese banks and select artificial intelligence (AI) beneficiaries.

Haefele believes that medium-duration investment grade bonds present the best opportunity in Asian credit. The recent moves in rates have boosted Asian investment grade returns to 2.6 per cent since the second half of the year. He expects this part of the market to deliver another 2 to 3 per cent in total returns through the rest of the year. Following the material shift down in both the front and longer-end of the yield curve, he prefers to position in Asia investment grade bonds of up to five years. These are likely to be less volatile than longer duration bonds, and he thinks they will benefit relatively more from potential Fed rate cuts.

He likes segments such as select Asian bank tier 2s, local currency Indian government bonds, and Indonesian and South Korean investment grade bonds. In Asia high yield, Haefele believes that a substantial portion of the performance in 2024 has been front loaded in the first six months of the year; he advocates for a bottom-up approach focusing on fundamental improvement stories.

Haefele recommends hedging Chinese renminbi exposure amid an otherwise positive outlook for APAC currencies. With an imminent Fed cutting cycle setting the stage for further broad dollar weakness, he forecasts 1.5 to 3 per cent upside over the next six to 12 months for APAC currencies.

Analysts at Japan’s Nomura Holdings also believe that the time has come to add to ASEAN stocks. Nomura is going to upgrade two of its preferred markets in ASEAN, namely Malaysia and Indonesia, to overweight from neutral. Nomura believes that there are local supportive factors too. It funds these by downgrading MSCI China stocks to a neutral, from its long-held tactical overweight which has been a disappointment for Nomura.