Bangkok--17 May--HSBC
***Shift of economic gravity to emerging markets accelerating***
***Emerging markets equities to offer growth and potential currency appreciation***
In it latest IQ (Investment Quarterly) global market outlook HSBC Global Asset Management highlights that the combination of improving macroeconomic data, strong company earnings and accommodative central bank policies have contributed to an upward trend in equity markets in recent months but adds the global economy and especially western developed markets still face
a number of headwinds including the need for austerity, multi-year de-leveraging and high oil prices.
Growth differentials between the developed and emerging markets remain wide and this is expected to remain the case. Over the last quarter global growth for 2012 has been revised slightly lower to 2.6%, compared to 2.7% last December. Growth in China and the eurozone continue to be revised down while in the US growth has been revised upwards to 2.3%, from 2.1 % last December.
Philip Poole, Global Head of Macro & Investment Strategy at HSBC Global Asset Management, says: “We prefer equities to bonds, with dividend yields likely to remain attractive relative to bond yields. We believe equity portfolios should be diversified to emerging markets on relative growth prospects and on prospective real currency appreciation against most developed world currencies.”
Poole adds that while the ongoing challenges facing investors in 2012 will likely create volatility, they should also create opportunities. He says: “We will continue to take modest active positions in our wealth portfolios globally to take advantage of short-term market opportunities, while managing the risk for clients in line with their expectations and long-term goals.
“We believe that the global financial markets crisis of 2008/2009 was a watershed event and that we are moving towards a new world order. In this post-crisis world, the shift in the centre of economic gravity away from industrialised countries to emerging markets has accelerated. We expect emerging economies to continue to enjoy a positive growth differential relative to the developed world which will struggle to grow under a burden of debt. Indebtedness is generally much less onerous and demographics more supportive in emerging economies.”
This quarter IQ takes a look at India. Population and income growth combined with rapid urbanisation all point to strong economic growth over the medium-term, driven by consumer spending, it says. However, investors in the Indian stock market had a difficult time last year, as the central bank tightened monetary policy aggressively to slow the economy and get inflation under control.
Bill Maldonado, Chief Investment Officer, Asia-Pacific and Strategy Chief Investment Officer, Equities for HSBC Global Asset Management, said: “With growth in Asia driving emerging market economic activity and discounted equity valuations despite strong balance sheets and macro-economic prospects, we maintain our 12-month positive view on Asia ex Japan equities. The Indian equity market is at an attractive level from a valuation perspective with equity valuations well below five and 10-year averages of forward earnings but investors need to take a long-term view as it is likely to remain volatile. Chinese equities and cyclical stocks, such as consumer-driven stocks are also expected to offer potential opportunities based on valuation and profitability metrics.”
IQ also focuses on the growing Dim Sum bond market as it asserts the asset class could be
a good investment for global investors for a number of reasons. Firstly, it gives easy access to the Chinese currency, which has the potential to appreciate in the years to come. Secondly, the bond market is an interesting asset class in its own right. It is a short duration, high quality market with a competitive yield. HSBC Global Asset Management believes that the market will double in size during 2012.
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