Citibank directs investors towards risky assets
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Cites ample liquidity in developed markets via quantitative easing
Citibank has suggested that investors refocus on risky assets such as equity from cash and fixed incomes for the second half of this year given the ample liquidity from the money injection by the central banks in developed markets.
Haren Shah, chief of investment strategies for Asia-Pacific wealth management, said yesterday that Japan had attempted to revitalise its economy by pouring money into it through quantitative easing.
Meanwhile in the United States, the Federal Reserve has sent clear signals that it is still pumping more liquidity to the system. But even if the Fed tapers its QE programme, the start of Japan’s aggressive reflation initiative could carry the global equity market.
“The equity markets could make further gains supported by the growth in earnings per share and dividend-payment increases,” he said.
Despite high valuations, equities are expected to outperform other asset classes, he noted, adding that although equities are no longer as cheap as during the financial crisis, they offer a more attractive risk-reward profile than cash or bonds in terms of dividend yields.
Low inflation and low interest rates are tailwinds for the investment in equities. However, investors should beware of the risk factors arising from the renewed debate over the US debt ceiling and earlier-than-expected tapering of QE.
The analyst said investors should emphasise listed companies in emerging markets or those in developed markets with majority business activities with emerging markets.
Citibank has favoured equities in the US and Japan and is also optimistic on cyclical Asian markets in North Asia such as Hong Kong, Taiwan and South Korea.
Thai equities are attractive for their stable earnings momentum.
Thai listed companies that have participated in the US market will benefit from the US economic recovery, he said.
Citibank expects the SET Index can maintain the target if 1,535 by the end of 2014.
Shah said gold prices might struggle to maintain their current level on the strengthening US dollar. Gold, therefore, is an underperforming equity.
Vira-anong Phutrakul, managing director for retail banking of Citibank in Thailand, said the bank had suggested that its customers invest in non-money markets in the first five months of this year, and as a result their portfolios expanded by 56 per cent year on year.
About 70 per cent of Citigold customers have invested in non-money markets such as fixed-income funds locally and abroad, equities, and commodity funds.
“The trend of low interest rates did not support the return on deposits.
“We have suggested to our Citigold depositors of 20,000 accounts that they reallocate assets to non-money markets, whose yield of investment from asset portfolios is higher than money markets by 30 per cent on average,” she said.
