Outlook and implications for Asia-Pacific investors: PIMCO

PIMCO Publications notes:

First, as Asian economies transition from savers to spenders and from exporters to consumers, they are contributing meaningfully to the narrowing of global imbalances - a potential driver of sustainable regional growth.

Second, Asian fiscal and monetary policymakers - from Japanese Prime Minister Abe to People's Bank of China (PBOC) authorities in Beijing - are keenly focused on tailoring economic policies to specific objectives, including Japan's goal to reflate to its 2% inflation target and China's efforts to see the yuan included in the IMF's special drawing rights (SDR) basket of currencies. On this theme of economic policy, we expect the opening of the Chinese capital account to be a seminal part of the secular economic story, with significant implications for investors around the world.

Some of the risks noted in our secular outlook will likely have an impact on the Asia-Pacific region: We need look no further than Chinese equity markets over the last few weeks to see that enormous volatility exists; indeed, the possibility of bursting bubbles, and even recessions, cannot be ruled out. Moreover, while many Asian economies are focused on increased regulatory oversight, convergence between regulatory frameworks has been limited, creating challenges in cross-border initiatives.

Given these long-term themes and risks, we see several implications for Asian investors to consider:

1. Explore better betas and customized multi-asset solutions
2. Combine secular sovereign and corporate "winners" with the strength of the U.S. dollar
3. Be thoughtful about income
4. Consider alternatives and harvest illiquidity premiums
5. Keep a secular eye on India
6. Gain strategic (not just tactical) exposure to China