Wednesday, January 12, 2011

HSBC favours emerging markets over developed

EMERGING markets are still preferable with the bull market now moving into a calmer third year, says HSBC global head of equity strategy Garry Evans.

Despite their continued economic growth and capital inflows, this is a somewhat contrarian view, he says. 'A lot of institutional investors are starting to think developed markets will do better.'

But Mr Evans says emerging markets are now no riskier than developed ones and have better growth prospects, cheaper valuations and more robust fiscal positions.

The equities outlook for Asia is 'good but not great', Mr Evans said at a media briefing yesterday. HSBC expects both the global and MSCI Asia index to rise 11 per cent this year. With another 3 per cent dividend yield forecast, this would yield a total forecast return of about 14 per cent for 2011, he said.

The calmer year ahead suggests that a more nuanced investment approach, 'less driven by big market factors than by stock picking rotations and investment themes', be taken, Mr Evans said.

He expressed caution on China and India's equity markets due to inflation risks, favouring instead Taiwan and Korea for anticipated strong tech stocks performance, and Singapore and Malaysia, which he deems under-owned.

'Many perceive India to be a domestic demand market, but that's fundamentally wrong. Its exports-to- GDP ratio may be low, yes, but of the listed companies, much of their revenue comes from overseas,' Mr Evans said. Investors there are 'starting to wake up to the inflation risk', which is also why he is reluctant to recommend that investors go into Chinese stocks till inflation peaks.

Technology is the sector HSBC is most positive on in Asia, thanks to gadget launches, especially in the smartphones and tablets segment. It sees high potential returns on stocks like Taiwan's Hon Hai and Largan Precision, as well as Korea's Samsung Electronics.

Closer home in Asean, HSBC has raised its ratings on both Singapore and Malaysia's equity markets to overweight.

The Singapore-listed stocks which made it to HSBC's Asia Super Ten model portfolio are CapitaLand, with a target price of S$4.90, and Jardine Matheson with a target price of US$54.

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