Asian investors should stick to defensive investment strategies with a focus on domestic demand and structural growth themes in Asian equities and currencies going into 2012, according to Credit Suisse.

The Swiss giant’s private banking division in Asia sees austerity programmes across the eurozone and in the US as restricting global growth and increasing political and market risks next year.

For that reason, Credit Suisse is overweight Asian equities on the back of the region's strong “structural drivers, high fiscal flexibility, resilient economic growth and earnings performance and limited direct exposure to the eurozone debt crisis”.

“Asia stands out as a relative safe haven amid the global sovereign debt turmoil, supported by massive foreign exchange reserves, healthy balance of payments and robust national balance sheets,” said Fan Cheuk Wan, head of research Asia-Pacific of Credit Suisse private banking.

The low interest environment

Wan thinks that investors should be underweight bonds and cash given the persistently low interest rate environment in developed markets.

Low interest rates in developed markets should also support the performance of gold in 2012, which is seen good portfolio diversifier, according to Credit Suisse. The price of the precious metal has been corrected and is now trading below $1,600/ounce. The Swiss bank forecasts the price to rebound to $1,750/ounce in the next three months and $1,900/ounce in the next 12 months.

Asian currencies, the Chinese yuan in particular, are recommended as diversifiers given their undervaluation and superior macro fundamentals in the region versus the developed economies. Favourite picks include the Chinese yuan, the Singapore dollar, the South Korean wan and the Indonesian rupiah.

One of the biggest factors behind underperforming Asian equities has been high inflation. Wan believes that inflation in Asia will drop from 6 per cent to 4.9 per cent in the region as a whole and from 5.6 per cent to 4.5 per cent in China next year. However, as major central banks are likely to continue money-printing programmes, inflation rates are not looking to fall steeper, Wan said.