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Small stock 'quakes' are healthy, says BlackRock official
THE small stock corrections in the past few years, including the most recent one due to lower oil prices, are healthy, according to Jeff Shen, head of emerging markets at asset manager BlackRock.
"I live in San Francisco. We are always thinking about the big earthquake that can happen. The safest thing to avoid it is to have a lot of small quakes in between," said Dr Shen at a conference in Hong Kong on Wednesday.
He was responding to a question on whether the next financial crisis is on the horizon.
"I see the emerging market sell-off last year to be healthy. I see the momentum drawdown in a lot of hedge funds to be healthy. I see the latest drawdown in energy and the high-yield market to be healthy. You want to have small quakes to avoid a system-wide shutdown," Dr Shen explained.
Ultimately, he said the key question is whether the global economy is "turning Japanese" - slowing down and stuck in a cycle of deflation such that no amount of stimulus can help it recover. He said this is a question that nobody knows the answer to yet.
Neeraj Seth, head of Asian credit, added that what could cause a crisis is another liquidity crunch. "So you have to keep in mind what asset classes you're in, what liquidity assumptions you have," he noted.
Andrew Swan, head of Asian equities, said that India remains one of his favourite countries to invest in, while he is less positive on Asean countries like Indonesia, Thailand and the Philippines.
Lower energy prices and falling inflation bodes well for equities there, he felt. "In Asia, you want to be in those net energy importers ... India is the obvious example," he added. "Its reforms have been underappreciated by the market, and we think that the benefits of micro-reforms will become more evident in the form of higher profits in the coming months."