Straits Times: Sun, Dec 19
You could call 2010 the year that investors became increasingly upbeat about Asia's growth outlook, but less bullish about prospects for the global economy.
With the United States and Europe mired in weak growth, all eyes were on emerging markets, notably developing Asian economies.
Early in the year, commentators quickly signalled their confidence that Asian powerhouses such as China and India would close the gap with the West, and that this would indeed be 'Asia's century'.
Amid this optimism, there were, of course, the occasional scares.
Markets here got skittish with the spread of Europe's sovereign debt problems, and worried that the US - still the world's largest economy - was headed for a double-dip recession.
'In this period of transition for the global economy, 2010 can be remembered for the volatility that characterised the financial markets in the past year,' said Mr Norman Villamin, RBS Coutts' head of investment strategy for Asia.
Despite fears of another financial Armageddon a la 2008, the Asian growth story was not to be derailed.
Global investors poured vast sums into assets in this part of the world, and the strong foreign buying helped South-east Asian stocks soar to multi-year highs.
The gains were magnified by a weakening US dollar, as the Federal Reserve stepped up its 'quantitative easing' measures - jargon for printing money to try to boost spending in the ailing US.
The easing of monetary policy in Western countries to bolster growth spurred demand for raw materials, as investors sought to protect wealth through purchases of hard assets such as gold and silver. Both their prices hit record highs this year.
'Resources and commodities did very well as prices climbed sharply, both on the back of a weaker US dollar and resumed demand from emerging market countries, especially China and India,' said Mr Sani Hamid, director of wealth management at Financial Alliance.
Going into the new year, investors should bear in mind that risks facing the global economy are still higher than would be considered normal.
'The US, for so long the engine of world economic growth, is in the camp of the weak economies, while China and its South-east Asian neighbours are in the camp of the strong economies, as are commodity exporters like Canada, Australia and Brazil,' said Mr Kelvin Tay, chief investment strategist at UBS Wealth Management Singapore.
'The fracture line between weak and strong economies runs through Europe - with Britain, France and the Mediterranean countries struggling, while Germany, Switzerland and Scandinavia are pulling ahead.'
This has consequences for the selection of fixed income and currency investments, which should be placed in stronger economies, Mr Tay said, adding that equity exposure should continue to be directed to the world's stronger growth regions.
Asian currencies have climbed against the US dollar this year, as the region's growth outpaces that of the rest of the world.
Central banks from China to India and Australia have raised interest rates to curb inflation pressures, while countries such as South Korea and Indonesia have adopted measures to slow the flow of speculative money.
'Although some Asian central banks introduced capital control measures this year to stem the inflow of foreign capital and limit their currencies from appreciating too aggressively, we think it is unlikely to be effective,' said Mr Christian Nolting, Deutsche Bank Private Wealth Management's lead strategist for Asia-Pacific.
Mr Norman Villamin, RBS Coutts' head of investment strategy for Asia, expects Asian currencies to not only continue strengthening against the greenback next year, but also 'broaden to include other key developed market currencies'.
Mr Lim Say Boon, DBS Private Banking's chief investment officer, said there are a few ways one can ride on the US dollar weakness.
'You can short the US dollar or you can buy gold as a hedge against US dollar weakness. Alternatively, you balance US portfolios with a basket of Asian ex-Japan currencies, including the yuan.'
One way to get exposure to China's currency, the yuan, is to buy yuan-denominated stocks on the Shanghai and Shenzhen stock exchanges, but this is not available to all.
Access to the so-called 'A-shares' market in China is limited to Chinese nationals and qualified foreign institutional investors approved by Chinese regulators.
Alternatively, you can buy Chinese yuan assets listed outside mainland China - including Hong Kong's China Enterprises Index, Chinese equity funds and Chinese stocks listed overseas.
Meanwhile, rising inflation expectations and strengthening local currencies will enhance the purchasing power of Asian consumers.
Therefore, investors should be looking at top Asian consumption stocks such as China Resources Enterprise, Samsung Electronics, Singapore Airlines and Wilmar, said
Ms Fan Cheuk Wan, Credit Suisse private banking's head of research for Asia-Pacific .
Partly owing to the fragility of the US dollar and strong economic growth from emerging economies, commodity prices are expected to soar further next year.
Many global commodities are priced in US dollars, so a weaker greenback makes them more attractive to buyers using foreign currencies.
'I believe we have reached the point where any weakness in the US dollar will now be compensated by a rise in price of the asset at hand,' said Financial Alliance's director of wealth management Sani Hamid.
Hedge funds and institutional investors will put more money into commodities next year, said a new Barclays Capital survey. It said copper will likely enjoy the biggest gain next year, followed by grains and crude oil.
Mr Christian Nolting, Deutsche Bank Private Wealth Management's lead strategist for Asia-Pacific, cites rising incomes and standards of living in Asian countries as factors which should boost demand for food.
This bodes well for soft commodities and agriculture, he says.
Credit Suisse Private Banking's head of research for Asia-Pacific, Ms Fan Cheuk Wan, recommends stocks like China Coal, Jiangxi Copper, Rio Tinto and Sinopec.
Since the implosion of the technology bubble a decade ago, companies in the tech sector now have much healthier balance sheets and strong cash flows.
But many investors still have a negative outlook on technology as an investment after the nasty experiences of the bubble bursting in 2000.
As a result, tech stocks are still relatively undervalued, even though many of the companies in this sector have little debt and a lot of pent-up demand from years of underspending.
'As we enter the new year, the technology sector looks attractively valued when compared to most other sectors,' says Mr Stuart O'Gorman, Henderson Global Investors' director of technology investment.
He believes technology will take on a more prominent role in emerging markets, as rising wages cause firms in these markets to consider the productivity benefits of greater tech spending.
AMP Capital Investors' head of investment strategy, Dr Shane Oliver, agrees with the assessment, saying tech stocks 'are a strong positive theme for 2011'.
Among commodities, gold is singled out, with analysts tipping the yellow metal to perform well next year after touching stratospheric highs in recent months.
'Gold is a great hedge against many different risks - inflation or deflation, it remains a safe store of value in either environment,' says Mr Brent Smith, chief investment officer for Franklin Templeton Multi-Asset Strategies.
The gold price on the last trading day of last year stood at US$1,085 an ounce, but is now trading at between US$1,300 and US$1,400 an ounce.
Over the next couple of years at least, analysts expect the price to keep rising. With gold at record levels, experts recommend that retail investors buy gold if it dips in price.
'We would advise investors buying into gold at levels below US$1,250 per ounce and having not more than 12 per cent of their total assets in gold,' says Mr Kelvin Tay, chief investment strategist at UBS Wealth Management Singapore.
EMERGING MARKET STOCKS
Emerging market stocks are a more debatable investment theme, with bulls and bears locked in dispute over the current risk-reward potential of this asset class.
Deutsche Bank strategists John-Paul Smith and Neil Wedlake wrote in a recent research note that emerging market stocks no longer appear cheap after a decade of outperformance.
They said that developing economies may slow over the next decade without shifting dependence from exports to domestic demand.
The MSCI Emerging Markets Index has risen an average of over 12 per cent a year since the beginning of 2001.
However, Dr Mark Mobius, chairman of Templeton Asset Management, insists that emerging stock markets are in a bull phase.
'We continue to be able to selectively find what we believe to be attractively valued stocks on an individual basis in most emerging markets,' says Dr Mobius.