Lincoln Private Investment Office will favour emerging Asian markets in both equities and bonds over troubled developed markets in 2017, the firm's chief investment officer has said.
Fred Hervey predicted bond sell-offs and overvalued equities would continue to be a problem for developed markets in 2017.
By contrast, he said emerging Asian markets in both fixed income and equity "look exciting".
“Compared to their developed market counterparts, emerging Asian debt and equity markets look exciting," he said.
"Led by structural growth markets like India and China, these regions are undergoing substantial reform, while the growth of the middle class is fuelling economic growth and huge amounts of investment.
"Central banks in these regions have a huge amount of monetary policy firepower left to deploy, with interest rates too high in many countries. And from a valuation perspective, there are areas of considerable value."
However, he pointed out that the the "extreme volatility" to which these markets are prone called for active strategies.
Mr Hervey said there was "little discernible value", meanwhile, in developed bond markets, with a trend towards increased inflation a potential "disaster" for heavy investors in conventional debt.
"We have positioned portfolios with no conventional debt, with a preference for alternative and emerging market debt," he said.
He was also downbeat about developed equity markets, saying ultra-loose monetary policy had pushed too much money into equities, making them expensive.
"Add growing political discord in the US and Europe into the mix, and we see major headwinds for these markets in 2017," he said.
"We are underweight in developed markets, reducing exposure throughout the year as political risk has continued to increase, and within this we have maintained a preference for value over growth: like the fall in bond values, we believe that this story has further to develop."
In Japan, meanwhile, Mr Hervey said a weakening yen resulting from 0 per cent interest rates on government bonds could have positive implications for Japanese manufacturers, making their exports more competitive.
james.fernyhough@ft.com
