Much ink has been spilled on the prospect of China's growth slowing a few tenths of a percentage point below 6.5% but investors invest in companies, not GDP growth, noted Andy Rothman, San Francisco-based investment strategist with Matthews International Capital Management LLC, in an interview. And 6% growth at the Chinese economy's current scale provides more opportunities for investors than 10% growth for a much smaller economy a decade ago, he said.
While the global economy's "two engines of growth" — as HSBC Global Asset Management described the U.S. and China in a Dec. 13 report — are likely to slip into a lower gear, for the most part analysts expect both economies to remain relatively robust.
That confidence should survive the lump of coal investors received from tech behemoth Apple Inc. on the first trading day of the new year in the form of a Jan. 2 cut in the company's earnings estimates, attributed to weak Chinese demand for the company's flagship iPhone products, said Mr. Rothman.
In that slower but still healthy environment, stocks and bonds in the Asia-Pacific region should attract greater attention from value hunters, reversing some of the flows into U.S. markets prompted by the past year's turbocharged, tax-cut-fueled growth over the first three quarters of 2018.
For the year ended Dec. 31, benchmark equity indexes in Hong Kong, Tokyo, Seoul and Manila all dropped by more than 10%.
Shanghai and Shenzhen's A-shares markets — with the added distraction of President Donald Trump's focus on China in his quest to tilt global trade toward the U.S. — fell by 25% and 34%, respectively.
"A number of growth-sensitive asset classes have become significantly cheaper over 2018, and we think they now offer good value — especially Asian equities and emerging market equities," said Bill Maldonado, HSBC Global Asset Management's global CIO equities and CIO, Asia-Pacific, in the firm's report.
Some asset owners in the region share that sentiment, even as the recent uptick in global market volatility has left them looking for more reassuring economic data for the moment.
The big gap now between emerging market and developed market equities could spell a good investment opportunity, but the potential fallout from the recent spike in global market volatility bears watching, said Jang Dong-Hun, chief investment officer of the 11.8 trillion won ($10.4 billion) Seoul-based Public Officials Benefit Association.
Further clarity on Chinese policymakers' success in stabilizing that country's economy in the face of headwinds now could set the stage for shifting to an overweight from a neutral emerging markets weighting vs. an MSCI All Country World index benchmark, Mr. Jang said.
Asian bond markets, meanwhile, suffered as well in 2018 — a year where credit spreads, currencies and interest rate differentials all moved against regional paper — and some babies got thrown out with the bathwater, said Teresa Kong, a San Francisco portfolio manager with Matthews International.
Chief among them were Asian and Chinese high-yield bonds. Ms. Kong noted that the spread of Asian high-yield bonds over U.S. Treasuries has widened to 590 basis points now from 440 basis points at the start of the year, a level that implies a 7% default rate for issuers — more than triple the current rate of 2%. While the default rate is likely to pick up over the coming year, the current spread is discounting a considerably ugly market environment, making this a "very good time" to invest, she said in an interview.
That's even more true for investors taking an active approach, said Ms. Kong, noting that in two decades of managing emerging market and high-yield bonds not one of her portfolio companies has suffered a default.