Premier chief forecasts end of Asian bond boom

Richard Muckart, chief investment officer and head of Asian equities at Premier Asset Management, warns that high bond valuations may signal the end of the boom in Asian equities.

“The peaking of bond markets has historically been a watershed for Asia,” says Muckart. “It has been a good time for Asian managers but we are coming to a crossroads. There will be a point when Asia will go out of favour.”

Although generally optimistic for the region, and China in particular, he expects the markets to be impacted by a rise in American interest rates. These will peak at about 5% later this year, with long bonds at higher levels, he says.

As a result, Muckart has reduced his Eastern Enterprise fund’s exposures to South Korea and Taiwan from about 30% at the start of the year to 21% and 16.8% respectively at February 28. Recent currency appreciations have made both economies less competitive than Japan, and Taiwan’s semiconductor industry is particularly concerning, he says.

“The government has tried to stop the export of the technology. But they are trying to put their finger in the hole in the dyke. It will not be long before the water comes rushing in,” he warns.

However, Muckart is still confident that he can find high-quality companies in Korea. Samsung Electronics was his biggest holding in February, accounting for 9% of the portfolio.

“Samsung is the Sony of this decade,” he says. “You can never write it off. It has 12 businesses and wants to be number one in eight of them.”

Muckart moved to Premier in 2000. He previously held positions at Dunedin and EFM.