Schroders head of Asian equities King Fuei Lee feels markets are as irrational today as they were back in 2006 and 2007 which has led him to become wary of the risks of another market crash.
Lee, who manages the $2.2bn (£1.3bn) Schroder ISF Asian Equity Yield fund, says: “It feels like 2006 again and quite a few indicators are telling us things are not looking right.
“The important thing is to recognise we are seeing more signs for market irrationality and to prepare portfolios accordingly. People should be preparing their portfolios and becoming more defensive.”
In particular, Lee notes similarities between current equity markets and the environment in 2006 – with comparisons in equity markets trading at heightened levels and emerging market debt spreads at post-financial crisis lows pointing to greater investor complacency in his opinion.
Additionally, the way in which investors are pricing risk is not representative says Lee who points to the fact that US and Spanish 10 year bond yields are priced the same now – despite significantly different economic strengths.
Lee has picked out two areas he sees as having valuable defensive properties; Hong Kong property developers and Australian miners.
“Hong Kong property is an attractive sector and interest rate sensitive sectors do not tend to do well in these environments. If you look at it, some of the valuations on the stocks trade at a discount typically across the cycle,” says Lee.
“Also, some of the bigger Australian mining names appear attractive. People always think about commodity prices with mining stocks but the whole perception that price will be driven by commodity prices is unreasonable.”