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UBS Tips Singapore And Taiwan Dollar New "Stores Of Wealth"

Ravi Seetanna

3 July 2011

Swiss bank UBS has added the Singapore and Taiwan dollar to its list of top currencies which it considers a "store of wealth", the first time it has tipped Asian currencies, according to a report.

In the bank's global outlook report for the third quarter, analysts at UBS Wealth Management Research said that the bank continues to back its “Favorite Five” currencies – the Australian Dollar, Canadian Dollar, Swiss Franc, Swedish Krona and Norwegian Krone. However it adds four new stable currencies - the Singapore and Taiwan dollar, the Chilean peso and the Czech koruna. These can be considered a safe haven against ongoing turbulence in global markets, said the bank. 

The alarming prices of Greek, Portuguese and Irish bonds, which come as no surprise given these countries’ current economic standings, illustrate that fixed income is not always a sanctuary for safe investment, says UBS. Yet the firm believes relatively safe positions can currently be found in the smaller, emerging market nations, and in particular in the commodity-producers. It warned investors that they should be selective in their fixed income and currency investments, considering only countries that have low levels of public debt.

There is a strong case for holding defensive investments in equities portfolios, given the high volatility levels being seen in the equities market, said UBS, which currently sees high dividend yielding stocks as an appealing defensive investment. The report highlighted the healthcare sector as being particularly attractive amongst the defensive sectors. “Valuations are, in our view, too low given an ageing population’s demand for healthcare,” it said.

UBS takes a more positive outlook on equities performance for the second half of the year as it looks to take advantage of attractive prices and companies with a focus on earnings generation. China and Taiwan are showing strong prospects in their equities and currency markets, according to UBS strategists, who also suggest the stocks of medium-sized companies in general may make lucrative investments due to the escalating trend in mergers and acquisitions.

“The improving profitability of companies has yielded healthy earnings and cash levels, which paves the way for embarking on outside investments. Furthermore, the current low interest rates make holding cash unattractive. This is important for an M&A cycle since all-cash-deals have accounted for 65 per cent of volumes historically,” said the report.

The global economic recovery is now “broader-based” - which could mean that a double-dip recession in the US and concerns over the European sovereign debt crisis are overblown, said the bank.

UBS has greater confidence in the economic recovery as the firm has identified a number of investment opportunities in fixed income, equities and currencies which it believes can drag the global economy out of its enduring slump.