Risk appetite 'set to rise' despite euro

“The major risk is still Europe. Disintegration of the European Union is the highest risk. It would lead to risk aversion globally,” said SCB’s Steve Brice.
Should the euro zone break up, the short-term effect would see equity markets fall around the world and currencies, including the baht, weaken, he added.
However, despite worries over euro-zone fragility, the probability of an actual break-up is low as members are desperate to ward off the nightmare scenario of bank runs, frozen accounts, massive depreciation of new currencies, and insolvency in the face of ballooning foreign-currency debts.
And though risk is still attached to the Thai equity market, which is expected to perform in line with global equity markets, Brice remains positive on Thailand.
“After a bumpy first quarter, we will likely see risk appetite rise,” he said, adding that riskier trading strategies may bear fruit in the wake of more quantitative easing (QE).
Standard Chartered expects Europe, which is already in a recession, to restart QE this month, while the possibility of “QE3” from Washington may depend on US economic figures. “If the [latest] US economic data comes in stronger, QE3 may not be required,” Brice noted. Meanwhile, China is likely to ease its fiscal and monetary policies in 2012. Given the most likely scenario of a muddle-through year in 2012, Brice favours Asian equity markets (excluding Japan’s) on a 12-month basis, given the low ratios of public debt to GDP, as well as strong economic growth forecasts.
Globally, defensive-sector stocks and high-yield debts are also recommended amid uncertainties in growth. Defensive sectors include energy, consumer staples, telecommunications and utilities.
Aside from likely increase in demand for oil, “energy is also a hedge against the situation in Iran and valuations are very cheap around the globe”, said Brice.
Despite high volatility and erratic shifts in investor sentiment over global developments, gold remains one of this year’s investment favourites.
“We are bullish on gold, and risks are on the upside,” Brice said.
Strongly influencing gold prices this year will be the high debt levels in the West, negative real interest rates, strong demand in China and India, demand from central banks, and likely scrap supply, he added.
“Equity surveys also estimate gold supply will go down in three to four years,” likely raising upside risk on metal prices, he cautioned. For the portfolios of investors with a moderate-risk profile, a 5-per-cent holding in gold was recommended.
Standard Chartered forecasts the price of the precious metal will reach US$1,975 per ounce in the fourth quarter of 2012. HSBC estimates gold will average $1,850 this year and $1,800 in 2013.
HSBC also expects rising geopolitical risks, commodity price volatility and investor confidence to weigh on gold prices this year.