Mr. Lim believes these measures are likely to remain in force for the time being, as the recovery that took root in the second quarter of last year is still weak.

The U.S. housing sector, where the crisis originated, is also displaying signs of recovery, while U.S. consumer spending and retail sales are slowly turning around. The U.S. unemployment rate has peaked at about 10 per cent, and is likely to remain at this level for some time before coming down in the next 12 to 18 months.

“The domestic economies of other countries are also starting to show some signs of recovery. Perhaps, over the next two to three years, we will see signs of stronger growth in the global economies,” Mr. Lim added.

Asia ex-Japan should continue to outperform
Asia was relatively less affected by the global economic slowdown, with emerging economies such as China and India recovering much faster than the rest of the world.

Mr. Lim expects Asia ex-Japan markets to continue outperforming on better growth prospects.

The base case scenario, Mr. Lim maintains, remains positive for equities in 2010, but cautioned that investors need to be also mindful of the risks.

He expects government policies to remain conducive for now, with inflation muted in the developed markets. Thus, central banks are not likely to raise interest rates any time soon, and perhaps only towards the end of the year.

Asia’s growth will hinge on China and the latter’s ability to sustain its growth momentum.

Asian bourses did well last year, and Mr. Lim expects them to continue to outperform other major markets, as valuations are relatively inexpensive.

Some cyclical and defensive sectors to consider
With abundant liquidity, Mr. Lim expects to remain invested, but with an eye on volatility, as uncertainties continue to loom on the horizon.

“It will be important to focus on longer term prospects. We will focus on cyclical sectors like energy, banks and materials, and to counter the volatility, we will invest in defensive areas like staples, telecommunication and healthcare,” said Mr. Lim.

What will happen when stimulus measures are removed?
A key concern right now on investors’ minds is what will happen to markets when the stimulus measures are removed. Mr. Lim adds that some of the measures imposed for the U.S. will expire in the second half of this year, after which it is still unclear if the private sector will have recovered sufficiently to offset the boost that was provided by fiscal and monetary stimuli.

Private sector demand in the U.S. could still be weak due to de-leveraging, weak bank lending and unemployment.

Concerns about asset bubbles
Asian economies, which were less affected by the global economic downturn, saw huge inflow of funds, because of the unprecedented interest rate cuts and fiscal stimulus measures undertaken in the developed markets. As a result, there are concerns that asset bubbles are building up in this part of the world.

Mr. Lim thinks that a bubble could be brewing in China and sees the recent steps to raise the reserve requirements of Chinese banks as a pre-emptive action to prevent significant fallout.

Inflation and earnings are other risks to bear in mind
Mr. Lim is also keeping an eye on inflation which he says could pose problems if commodity and food prices increase sharply. In such an instance, central banks will have to tighten their monetary policies, which may not be positive for stock markets.

The other risk is earnings disappointments. “We expect earnings growth of 28 per cent in 2010, and if that doesn’t materialise, analysts will downgrade their earnings outlook and markets will come down,” added Mr. Lim.

Close

According to Mr. Ng, signs of a U.S. economic revival late last year resulted in the greenback gaining strength against other major currencies.

Better-than-expected U.S. economic data led to expectations that the U.S. Federal Reserve (Fed) may hike interest rates, causing the U.S. dollar to gain a fair bit of momentum against currencies like the Euro and the Australian dollar, for example.

What crippled the U.S. dollar in 2009 were the extremely low interest rates and the unprecedented amounts of quantitative easing by the Fed to keep the financial system afloat.

However, as quantitative easing measures are withdrawn by the Fed, U.S. interest rates will head higher and that will provide the greenback with support. This could take place towards mid-2010.

In the meantime however, the currencies that benefit from economic recovery, such as commodity linked currencies, are likely to remain in play at least in the first half of the year.

Mr. Ng believes the growth theme is strong in Asia, which means currencies like the Indonesian Rupiah and the Indian Rupee will be favoured, as they are not excessively exposed to the export sector.

For the first half of this year, he expects to see some dollar weakness because the investment community will continue to buy into other Asian currencies and the dollar will be a victim of that. However, the U.S. dollar can be expected to post a modest recovery in the second half, although it could resume its secular downtrend in 2011 as central banks diversify their foreign currency reserves away from the greenback.

To take advantage of the currency trends and equity outlook for 2010, the last speaker, Ms. Wee, highlighted some Dual Currency Return investments or Equity-Linked Notes that investors can consider.

Close