OCBC Bank’s Wealth Management unit surveyed 16 fund managers recently for their views about the investment outlook for the next six to 12 months.
Aberdeen Asset Management, Allianz Global Investors Singapore, Amundi Asset Management, APS Asset Management, BlackRock, BNP Paribas Investment Partners, Deutsche Asset Management, Fidelity Worldwide Investment, First State Investments, Henderson Global Investors, ING Investment Management, Lion Global Investors, Prudential Asset Management, Schroder Investment Management, Templeton Asset Management, UOB Asset Management, participated in the poll.
Global recession looks unlikely
Although most fund managers polled have turned more guarded about the investment outlook compared to six months ago, 82 per cent of those who responded do not expect the economic woes in the Euro-zone and the U.S. to spark a double-dip global recession in 2012.
For one, Lion Global Investors opined that it is neither expecting a double-dip recession nor looking at strong growth. Recent better-than-expected U.S. economic data as well as Asian governments’ capacity to ease policy are positives but the overall strength of global growth is likely to be capped. Combined sovereign and bank deleveraging in the Euro-zone will inevitably impact the world economy, including Asia.
Aberdeen Asset Management also expects growth in the U.S. and Europe to stay very subdued, but thinks that the world economy should be able to avoid a double-dip recession.
Prudential Asset Management, on the other hand, believes that the “protracted issues in the U.S. economy along with the serious debt issues in Europe pose a threat to market stability and global growth.”
Most believe the Euro-zone will remain intact
67 per cent of respondents believe that the Euro area will not break up and the Euro will not collapse.
UOB Asset Management, for instance, believes that breaking up the monetary union is too costly, and it expects European leaders to “work towards fiscal union and avoid a break-up of the Euro.”
BNP Paribas Investment Partners is also of a similar view, but cautioned that “as a solution for the structural problems has not been found yet, the situation may get worse before improving.”
Schroder Investment Management is less sanguine, and believes that it is important to restructure Greek debt in an orderly manner to prevent a contagion from spreading to other peripheral economies and to provide support to the banking system.
Equities still the preferred asset class
Despite the recent volatility, more than half of the fund managers surveyed still chose equities over other assets.
Henderson Global Investors said it favours equities because it is “the asset class that has most discounted a weak outlook and therefore offers the most upside potential.”
Fidelity Worldwide Investment said that within equities, investors should focus on high-quality, defensive companies with a stable and reliable earnings stream, which pays high and sustainable dividends.
Bonds also canvassed a fair bit of votes
38 per cent of all respondents thought that bonds should have a place in an investor’s portfolio. ING Investment Management, for instance, said it expects positive returns in the fixed income space, especially in “spread” products like emerging market debt, (both hard currency and local currency), as well as global high-yield bonds or Senior Bank Loans.
A significant number of the fund managers polled identified emerging market bonds and global high-yield bonds as their most preferred fixed income segments.
One fund house that favours emerging market bonds is Amundi Asset Management, which believes emerging market bonds will remain attractive. Among these, Asian local currency bonds, in particular, may benefit from upcoming interest rate cuts.
China and U.S. equities get the thumbs up
Among equity markets, most continue to choose Asia ex-Japan as their favourite regional equity market, while China was singled out by 56 per cent of the respondents as the most promising market.
BlackRock, for one, likes China because its equity valuations are attractive and its economy looks set for a soft-landing. In addition, BlackRock also sees that there is significant scope for China to carry out monetary policy easing and fiscal expansion.
Among the developed markets, the U.S. emerged as the most favoured equity market. Henderson Global Investors said that it is most optimistic about the U.S. equities, which it deems defensive, and expects Wall Street to perform well in 2012. The fund management company also said that the U.S. Federal Reserve has a large tool kit, which it is prepared to use if the economy turns weak.
Asian currencies likely to head higher against the greenback
75 per cent of all respondents see Asian currencies heading higher against the U.S. dollar in 2012.
First State Investments believes that currencies of Asian countries that boast strong finances are likely to benefit from a weak U.S. dollar. The fund management company believes that the greenback will weaken further, given the Fed’s zero-interest rate policy that will likely run through to mid-2013, or even 2014.
Templeton Asset Management said that it continues to hold true to its conviction that Asian currencies have long-term potential against majors like the U.S. dollar, Euro and the Yen.
Gold unlikely to lose its lustre
Half the fund managers polled continue to hold a positive view on the commodity sector, while 56 per cent named gold as the most promising commodity to invest in over the next twelve months.
Lion Global Investors believes that while the gold price will not repeat its previous strong performance, it will continue to stay at high levels. Given the continued uncertainty in the global macro environment, buyers are likely to return to the market with any price pullback.
Allianz Global Investors also favours gold. The fund house opined: “We continue to see the potential for long-term upside in gold prices, as we expect more rapid monetisation of government debt and view gold as a hedge against fiat currency debasement.”
Key market risks in 2012
It is hardly a surprise that all the fund managers polled see the deterioration of the Euro-zone debt crisis as a key risk for investors in the coming year.
APS Asset Management said that the economic woes in the U.S and Europe may worsen and continue to affect sentiment in Asian markets, but it expects economic growth in Asia to remain respectable.
Deutsche Asset Management also believes that the situation in Europe “needs to be watched closely” and see youth unemployment, especially in Europe, as a significant problem.
Do you think the economic woes in the U.S. and Euro-zone will worsen and drive the world economy into a double-dip recession in the first-half of 2012?
In your view, will the problems in the Euro-zone worsen, possibly leading to a break-up of the region or even a collapse of the euro?
Which asset classes do you favour most for 2012?
On equities, which regional equity markets (e.g. Emerging Markets, Asia ex-Japan, Japan, Europe, U.S., etc.) are you most optimistic about?
Which Asia ex-Japan equity markets do you favour most?
On bonds, which fixed income segments (e.g. Asian bonds, Emerging Market bonds, high-yield bonds, U.S. bonds, European bonds, etc.) are you most optimistic about?
|Emerging Market Bonds||8|
|Global High-Yield Bonds||7|
|U.S. High-Yield Bonds||1|
Overall, where do you see the most attractive investment opportunities?
|Emerging Market Bonds||4|
|Emerging Market Equities||3|
|Asian High-Dividend Equities||3|
|Global High-Yield Bonds||3|
|Asia ex-Japan Equities||2|
|U.S. High-Yield Bonds||1|
Going forward, what are your views on Asian currencies vis-a-vis the U.S. dollar? Do you see the greenback heading higher against other major currencies in 2012?
|Asian currencies to head higher against USD||12|
|Asian currencies to head lower against USD||1|
|Dollar to head higher against major currencies||4|
|Dollar to head lower against major currencies||3|
Are you positive about the outlook for the commodity sector? Which commodities are you most positive about? Do you expect gold to trend higher over the next 12 months?
|No, not positive||2|
|Positive about gold||9|
|Positive about soft commodities||4|
|Positive about base metals||3|
|Positive about crude oil||2|
|Yes, gold will go higher||7|
|No, gold won't go higher||0|
What are the key risk factors investors should bear in mind for 2012?
|Euro-zone debt crisis deteriorates||14|
|U.S economy slows down / enters recession||6|
|China's experiences hard-landing||3|
|Asia experiences economic slowdown||2|
|Soaring commodity prices||1|
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