Stanchart tips equities, high-yield debt
Standard Chartered Bank suggests the overall world economic outlook is positive for the rest of the year, particularly in the areas of global equities, high-yield corporate debt and government debt denominated in Asian currencies.
Steve Brice, chief investment strategist at Standard Chartered Bank, said in an interview during his visit to meet clients in Bangkok last week that this year the bank had retained a “central” or “muddle through” scenario, with a probability of 70 per cent. Meanwhile, the probability of the “strong scenario” was judged at 10 per cent and that of a “global recession” at 20 per cent, compared with 30 per cent in the previous outlook.
After his overview of the macroeconomic environment, Brice said that under the “muddle through” scenario, the US economy continues to grow by around 1.5-2.5 per cent a year. Europe remains in a slow-burn recession, while China’s policy response is sufficient to achieve a U-shaped recovery. The market implication is that risky assets go through a “market riot”-policy response-rally cycle. Risky assets do reasonably well over time, punctuated by periods of high volatility, and high-yield strategies outperform.
“Quantitative easing, or QE3, is not needed this year, but next year possibly,” he said.
He said three areas to be focused on were undervalued global equities, high-yield corporate and government bonds – specifically non-investment grade towards junk bonds – and Asian currency government debts, offering high yields.
Looking at interesting equities by sector in different countries, Brice suggested that commodities such as oil, gold and copper were favourable, as they would do well when economies recover.
Information-technology stocks in the US and South Korean markets are also interesting with good value and good return on capital, he said. For the Thai market, stocks in the banking and infrastructure sectors are in favour.
Looking at investment allocation by region outside the US, he said China, South Korea and Russia were in focus. Investing in Russia is cheap but the situation is volatile, he said.
Brice said gold was an investment that could protect against inflation. Gold will continue to enjoy strong demand over the next five to 10 years, especially from emerging markets such as China and India and global central banks. Returns on buying gold have been good.
“Investors should allocate 5 per cent of their investment portfolios to gold,” he said.
