Julius Baer, which has famously declared Asia as its second “home market”, issued a broadly bullish economic and market outlook for China in its year-end report yesterday, and meanwhile played down fears about the budget impasse in the US.

Sectors such as e-commerce, “green energy” and select parts of the financial sector look promising as far as the Mainland is concerned, the Swiss bank said, while it issued a cautionary note about the Hong Kong property sector.

Looming over the world economy is the focus on the current temporary shut-down to the US Federal government after the White House and Congress failed to agree to budget talks. The risk of a debt default by the world’s biggest economy has resurfaced as a potential major risk.  

But Julius Baer said the situation in Washington DC “makes good headlines as did Y2K or the `sequester’, but will go down in history as a small footnote, as they did”.

“With inflation showing no sign of picking up, and Washington’s dysfunctionality likely to hurt consumption and investment in the current quarter, the March FOMC [Federal Open Market Committee] meeting is looking increasingly like the earliest time for a `tapering’,” the bank said. As for Europe, it said there are a number of signs the region has emerged from recession; select European equities are undervalued and their businesses should profit from an improved economic backdrop.

Japan

As for Japan, the reflationary policies of the country’s government, led by Shinzo Abe, should prove positive for the stock market, Julius Baer said.

“We forecast the Japanese yen to fall to at least 105 this year, meaning that there is further upside for the Nikkei. This is our main investment call in Asia,” it said.

Since Abe vowed at the end of last year to push for a more expansive fiscal and monetary policy, the yen has fallen and the Japanese stock market has risen sharply – albeit with some pullbacks.

China

Julius Baer said in China, the country’s banks “remain as the main economic driver but allowing the private sector to set up banks and potential expansion of e-banking might change the industry landscape”.

“We are relatively more positive towards insurance and brokerage sectors which should benefit from the industries liberalisation for more product offerings. In particular, brokerage sector is the best leveraged plays to the A-share market rebound,” it said.

On a more cautious note, the bank said Hong Kong’s property sector faces a persistent “down cycle” which could affect asset turnover; the Hong Kong banking sector is also facing slowing mortgage demand and fee income on macro uncertainties.