Sunday, February 6, 2011

Don't give up on developed markets

Straits Times: Sun, Feb 06
Internationally focused investors may still be hot on Asia and emerging markets, but a growing chorus of fund managers say investors should not ignore developed markets altogether.

This view comes amid concerns by some market watchers that valuations in emerging markets are becoming more 'stretched', making them vulnerable to a sell-off should global growth disappoint investors.

According to a report by OCBC Bank's wealth management unit, which polled 19 local and inter-national fund management companies, most fund managers are more optimistic about the economic and earnings outlook this year than last year.

Their optimism about Asia and emerging markets was especially evident, the survey found.

But the report also identified a handful of fund managers who are encouraging investors not to ignore selective opportunities in developed markets.

One of them is Deutsche Asset Management, which sees US equities doing well.

'Most American companies are truly global with a significant amount of revenue and profit accruing from the emerging economies. Also the valuations, in many instances, are cheaper than their emerging market peers,' said Deutsche Asset Management investment specialist William Barbour.

A recent quarterly Bloomberg Global Poll of 1,000 investors, analysts and traders showed they are targeting the United States as one of the best places to put their funds.

Europe has also come in as a favourite among contrarians.

Take Henderson Global Investors, which advocates that investors look at high-yielding quality stocks with sound business models within Europe.

'Most developed markets are attractive, but Britain and core Europe look interesting because performance has been held back by currency weakness and concerns about servicing some of the large budget deficits being run by several peripheral European countries,' Henderson director of multi-manager funds Bill McQuaker told The Sunday Times.

'Many investors have taken a blanket view of Europe and assumed that widely publicised and emotional news stories emanating from Ireland or Greece are the 'norm' across the board.

'If investors dig deeper, however, they will discover that German businesses are performing extremely well.'

Allianz Global Investors is also positive about Europe, saying that current valuations in the region are 'low in historic comparison and also relative to the US'.

Allianz stood out from the pack for its preference for Japanese stocks, even though economists generally remain cautious about the economic outlook in Japan, which is suffering from a strong yen and falling prices.

As for emerging markets, Allianz noted that it 'remains constructive on the investment theme 'emerging markets', even though we have an eye on potential risks - in particular, an eventual development of a new asset bubble'.

OCBC Bank's vice-president for wealth management in Singapore, Mr Vasu Menon, said that investors should bear in mind that emerging markets are very volatile and not suitable for those with a low risk appetite.

'Even those with a stronger risk appetite should exercise prudence and maintain a diversified investment portfolio, and not over-invest in emerging markets despite their strong appeal,' he said.

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