Strategy

Whither Now For Investors? Credit Suisse Gives Its Tips

Tara Loader Wilkinson, Editor Asia, 28 June 2012

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As the eurozone crisis unfolds and concerns grow over a Chinese slowdown, the one question on investor's lips is where to put their money.

As the eurozone crisis unfolds and concerns grow over a Chinese slowdown, the one question on investor's lips is where to put their money. Yesterday at a media forum in Hong Kong, experts from Credit Suisse Private Banking research outlined their recommendations on how to navigate the global uncertainty in the markets.

The Swiss bank recommends investors to be overweight equities, credits and commodities and underweight government bonds and cash during the second half of this year.

For equities as an asset class, Credit Suisse Private Bank says emerging market growth themes, policy easing plays, high dividend stocks and domestic cyclicals continue to offer attractive opportunities with valuations of Asian equities staying at 2008-2009 crisis levels. Fixed income offers investment opportunities in credits, particularly in emerging market and high yield bonds.

European risks priced in

Vis-a-vis the situation in the eurozone, Credit Suisse expects the the region to muddle through the crisis, with European policymakers taking more decisive policy actions to support growth and drive fiscal integration.

“We have maintained a cautious tactical view (1–6 month investment horizon) on equities in the first half of this year," said Fan Cheuk Wan, head of research for Asia-Pacific at Credit Suisse Private Bank.

"The political uncertainties in Greece and the banking crisis in Spain are the immediate sources of concern. Despite these risks, after an 11 per cent decline in the MSCI World Index [of equities] from the March-high, Credit Suisse Investment Committee upgraded our tactical equity rating to overweight on 6 June as we believe monetary policies in developed and emerging countries now stand ahead of the next wave of easing and European risks are better recognised. As a result, the value on offer in the global equity markets has improved substantially,” she added.

Asia well positioned to withstand global uncertainties

Credit Suisse expects Asia to remain well positioned to weather the global uncertainties, thanks to the region's policy flexibility on the monetary and fiscal front. "First, budget deficits are mostly low in Asia, with some countries even recording budget surpluses. Second, most countries have current account surpluses, and foreign reserves are high as a percent of GDP compared to the 2008 and 1997 financial crises. Finally, inflation is currently moderate from a historical perspective, and is likely to fall further in coming months as oil and global food prices have declined," said Chew Soon Gek, head of strategy and economic research in Asia-Pacific at Credit Suisse Private Bank.

Chew sees scope for monetary policy easing, not only in China and India, but also in other Asian economies. But most Asian central banks are expected to leave policy rates unchanged, unless economic growth momentum deteriorates much further.

Most central banks have not fully reversed the interest rate cuts during the global financial crisis. In the Philippines, interest rates are now as low as during the depths of the 2008 global financial crisis, and in Indonesia they are even lower than in 2008.

Credit Suisse Private Banking Research sees more scope for monetary easing in Thailand, South Korea and Malaysia should event risks unfold.

China on track for a soft landing

China’s 2012 GDP growth is expected to exceed the government’s growth forecast of 7.5 per cent, which is typically a floor. “With falling inflation, aided by falling food and energy prices, plus sluggish macro data in Q2 2012, we believe the Chinese government would roll out more pro-growth policies in the coming months as the policy priority shifts to growth stabilization,” according to Chew.

Credit Suisse expects a decisive policy response of further reserve requirement cuts of 100 basis points, accelerated approvals for infrastructure projects and another cut in lending rates by 25 basis points, after weak April and May data.

"Property policy fine-tuning measures being implemented should result in lower mortgage rates and down payments for loans. More targeted credit easing, infrastructure-led fiscal stimulus and property policy fine-tuning is on the way, and the fiscal stimulus is likely to be about half the scale embarked on in the 2009 period,” Chew said.

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