Asia's debt-to-equity ratio and safer company balance sheets are making a convincing case for DWS to increase its exposure in the region as well as broader emerging markets.
Speaking at the Financial Standard Chief Economists Forum in Sydney yesterday, DWS chief investment officer for Asia Pacific and head of emerging market equities, Sean Taylor, said Asia's debt-to-equity ratio currently sits under 30% - a marked improvement in the past three years.
"In 2016, people stopped lending to emerging markets and they started to reduce their debt and focus on costs," Taylor said.
Meanwhile, the debt-to-equity ratio in the US has gone from 30% to about 65%. Taylor said there's not much more US companies can do by generating earnings as "they're already too efficient."
|Sponsored by Legg Mason|
Invest in A-REITS? Try real assets, think Property Plus.
He added that if you look at credit and sovereign ratings, emerging markets balance sheets are better than they were in the past.
"China and Asia are much bigger and more secure, and on the company level - debt to equity has reduced a lot," Taylor said.
One of the issues long term in the US is that it has been generating earnings from share buybacks and balance sheet management. On the other hand, emerging markets grew their debt after China started to slow and it had a really bad impact on earnings. They were growing into falling returns, Taylor said.
While valuations aren't a reason to buy, they give you an indication of where the market could get to, the chief investment officer said.
Overall, his position is that global growth will hold up and the US isn't going into recession.
"We think there'll be some sort of trade deal [between the US and China] but it won't be the most important thing. It'll be a technology challenge going forward," he said.
"If our view is right on growth, then we think risk is mispriced. It's mispriced because of the trade issues and the short-term fall in revisions of GDP, PMIs and earnings. We think you should position that by buying emerging markets."