Bank Sarasin forecasts that emerging market equities will outperform in 2013 because of a positive growth surprise from China, according to an update on its asset allocation stance.

The Swiss bank said it expects cyclical factors to drive equity prices this year, promising to give higher returns in the first half of the year, with industrials, technology and insurance shares offering the greatest potential.

The trend towards high-growth dividend-paying stocks is likely to continue, it said, with emerging markets expected to outperform in the beginning of the year. Sarasin also said US equities will gain relative strength in the second half of the year.

“Risky assets will perform well in the first half, but suffer significant setbacks in the second, as global economic momentum weakens. The credit segment, benefiting most from the search for yield, offers the greatest potential over the year. We expect gains on major equity indices until mid-2013, but ending the year slightly lower than the beginning of the year. A surprisingly strong recovery in China should boost commodity prices at the beginning of the year,” Philipp Baertschi, chairman, investment committee, Bank Sarasin, said.

Away from its investment views, Bank Sarasin announced this week it had appointed former senior BNP Paribas wealth management executive Eric Morin as managing director and chief executive for Bank Sarasin in its Singapore branch, and Southeast Asia.

Bonds

Turning to the fixed income arena, the firm said that bond markets will be dominated by the hunt for yield and uncertainty about the eurozone and the economy. Peripheral and emerging market bonds will benefit, while long-term interest in safe havens is expected to increase. The search for yield will intensify, driving investors into higher risk bonds, such as high-yield or subordinated bonds from the financial sector. Economic clouds in the second half will result in lower US Treasuries and higher credit spreads generally, it said.

Currencies

The bank said that the emerging economic upswing creates a brief opportunity for cyclical currencies early in the year, and believes a rush into defensive currencies will restart in the second quarter at the latest.

Cyclical currencies that have not appreciated excessively, such as the Swedish krona, are worthwhile investments at the outset of the year. The Japanese yen is likely to be a winner in the second half, given excessive pessimism about the currency, the bank said.