(Reuters) – A second wave of COVID-19 infections could trigger a retest of the low hit by the equity markets in March, said Mark Konyn, AIA group chief investment officer in Hong Kong.
“The market is still pricing about a 30% chance of revisiting the March lows,” Konyn told told the Reuters Global Markets Forum on Thursday.
He added that AIA, which has $284 billion of assets under management as of December 2019, was watching China closely as it reopens after sweeping lockdowns.
Konyn said that AIA had increased its equity positions in mid-March ahead of an expected rebound, while moving allocation from government bonds to corporate credit.
“This has since rotated back to the dollar market in Asia as we saw more issuance,” Konyn said.
Following are edited excerpts from the conversation:
Q: How have you churned your portfolio in the coronavirus crisis, and what major shifts do you see coming as lockdowns start getting reversed?
A: We have made changes over the past months. We increased equity positions in mid-March ahead of the dramatic rebound, and took advantage of wider U.S. IG spreads also. These have been the major changes with an allocation from govvies to credit. This has since rotated back to the dollar market in Asia as we saw more issuance.
Q: How have your cash positions changed? Have they reduced post the rebound as you deployed more?
A: We typically do not hold a lot of cash structurally as we benefit from strong underlying cash flow from our business.
Q: Any particular sectors on the equity side?
A: For sure. It depends in which part of our business. Generally, we have been focused on common themes — technology, online retail, healthcare. China equities exposure has helped, also.
Q: Could you also tell us sectors that you’ve reduced exposure to?
A: Some of the industrials, financials, leisure.
Q: Would you say the equity markets have bottomed out? Or will there be more pain?
A: The market is still pricing about a 30% chance of revisiting the March lows. There is a degree of pessimism on earnings, and a lack of clarity with little or no guidance. Cost cutting will mitigate to some extent. The critical time is the next three months as we learn how the restrictions affect behaviour and also how relaxation can be managed effectively. We are watching China closely as they reopen.
Q: What might trigger the retest?
A: Another wave of infection is top of the list. A weaker consumption return than expected could [also] push markets lower. The bigger risk and unknown is the former. That is the expectation.
(Reporting by Divya Chowdhury; Editing by Kim Coghill)
