Friday, July 6, 2012

Investors faced calculated risks as inflation erodes cash value, say analysts

SINGAPORE: With inflation eroding the value of cash, investment strategists like DBS Private Bank's chief investment officer said there's "a pool of impatient liquidity".

But not all investors are equal. They said those with a shorter time frame will do well to look at safer assets like bonds, while those with a longer outlook should take calculated risks in the stock markets.

With high inflation eating into low interest rates, it's bad news for Asia's savers.

Holding cash in a bank is loss-making, with returns of around -4 per cent in Singapore and Hong Kong.

That's why investment strategists said despite volatile markets, it's costly to sit on the sidelines.

Geoff Lewis, executive director, Global Strategist, J.P. Morgan Asset Management, said: "Investors shouldn't pay too much attention to the eurozone break up scenario. It's not a 20-30 per cent chance, it is a tail risk.

"So they need to be invested in risk assets, and now that sentiment is so poor, this will be a good time to be picking up quality high dividend stocks in emerging markets in Asia, in the US, adding them to their portfolios for the longer term."

But investors need to choose carefully from a variety of instruments, such as stocks, commodities and high yield corporate bonds.

This will very much depend on their investment time frame.

Chief investment officer of DBS Private Bank Lim Say Boon said: "Value is not unlocked in three months. Value is unlocked over years. So if you have a multi-year time frame - say two, three years - I think the pullbacks that we are likely to see, over not just this quarter, but over coming months - these would represent great opportunities to buy on the fear. In times of fear, the markets will forget on the long-term trend and focus on the short-term cycle."

In the short investing time frame of three to six months, strategists are still recommending exposure to safer assets like bonds.

Chief investment strategist, Asia Pacific, Citi Private Bank, John Woods said: "Our high yield (Asian bonds) has done extremely well, it outperformed high grade bonds, returning around 12 per cent year to-date but it tends to be a bit more volatile. Some of these are China property names, some of the Indonesian oil producers. We like the sovereign risk in the high yield sector but we find some of the volatility a bit too scary for our clients so as such we are only overweight, rather than very overweight."

Investors with a longer time frame of 12 months will do well to look at riskier assets like equities and commodities.

These assets have come under selling pressure over the past year, and their prices are below historical levels.

Lim Say Boon said: "In the US market, the spread between US equities earnings yield minus ten-year US treasury bond yield - or if you like, the relative value of US stocks relative to US government bonds - this is the best value in 40-50 years. And we're also seeing a very favourable yield gap for stocks in Singapore as well. A favourable yield gap for Asian ex-Japan equities in general."

Martin Koh | 86666 944 | R020968Z
Sherry Tang | 9844 4400 | R020241C
Senior Sales Director
DTZ Debenham Tie Leung (SEA) Pte Ltd (L3006301G) | | | |

No comments:

Post a Comment