HSBC sees volatility creating long-term wealth opportunities in 2012
KUALA LUMPUR (Dec 19): The volatile environment in 2011 that led to short-term investments driving the markets at the expense of long term investment has created a potentially strong set of investment opportunities for 2012 for the latter.
In a statement Monday, HSBC Global Asset Management (HSBC) said that to date, frequent rotations in sentiment in markets reflected the fact that officials had been applying a ‘sticking plaster’ approach to addressing fundamental problems – acting only when faced with severe market pressure, and only then delivering just enough to stem the tide in the short run.
With this context, at the forefront of investors’ minds was concern around European policymakers being able to deliver a comprehensive long term solution to deal with the Eurozone crisis, it said.
Given the risks to the outlook, many investors have flocked to ‘safe havens’ this year, forcing government bond yields to the lowest levels for a generation, which puts some in a position where returns are negative when inflation is taken into account, it said.
HSBC said that combined with the negative fundamentals such as high debt levels, government bonds of developed markets do not represent good value on a medium term basis.
However, the opposite is true of corporate bonds, which have been sold off during the downturn, it said.
Many companies are in solid financial shape, having applied their own austerity measures, thus reducing the probability of a default, it said.
“These factors support the positive outlook for corporate bonds especially at the high-yield end of the spectrum, and in Asia where fundamentals are relatively stronger.
“Solid corporate health and very attractive valuations also support HSBC’s positive view on equities in 2012, which are now trading at very attractive levels relative to history,” it said.
HSBC said that within equities, emerging markets looked particularly attractive, due to stronger fundamentals than developed markets.
HSBC Global Asset Management global chief investment officer for wealth Simona Paravani said that global emerging markets would continue to grow as increased wealth leads to higher levels of domestic consumption.
“Driven by factors such as industrialisation and urbanisation, as well as more robust fiscal positions than many Western economies, our outlook for emerging market economies remains strong.
“From an investment point of view, this suggests a positive stance towards equities, emerging market currencies and Asian bonds,” said Paravani.
HSBC said that a combination of inflation and the industrialisation of emerging markets favoured physical assets like property and commodities.
Russian equities, currently priced lower than historical levels, benefited from the positive outlook for oil and hard commodities although political risk remains a source of market volatility, it said.
“In the export-heavy Asian countries, the global slowdown has clearly had an impact but HSBC still views the backdrop favourably, with economies offering stronger growth than the West.
“Inflation is showing signs of moderating and supportive fiscal policies are likely to have a bearing in 2012, which would be positive for the region’s economies and equity markets,” it said.
It said that within Asia, Chinese equities were currently attractive, with the market trading on about eight times 2012 earnings.
Rapid rises in residential real estate prices could reverse and become destabilising to parts of the economy, but HSBC said that it believed that a soft landing was the most likely outcome.
Eric Fu, HSBC’s Head of Wealth Development, Hong Kong, Retail Banking and Wealth Management, said that in a period of prolonged volatility, as investors continued to search for yield and value, diversification and long-term investing had become all the more relevant.
Fu said that before the crisis, people tended to park their assets in investments without doing anything further with their portfolios.
However, he said that a passive approach may not be appropriate in current market situation, adding that a long-term approach now meant staying invested through the peaks and troughs by reviewing and rebalancing portfolio regularly to capture market opportunities and mitigate further risks.
“With the help of a trusted professional advisor, both sophisticated and new investors can move from a product-driven to a financial planning-driven approach to wealth management to help achieve more balanced and sustainable growth for your hard-earned wealth,” said Fu.
In a statement Monday, HSBC Global Asset Management (HSBC) said that to date, frequent rotations in sentiment in markets reflected the fact that officials had been applying a ‘sticking plaster’ approach to addressing fundamental problems – acting only when faced with severe market pressure, and only then delivering just enough to stem the tide in the short run.
With this context, at the forefront of investors’ minds was concern around European policymakers being able to deliver a comprehensive long term solution to deal with the Eurozone crisis, it said.
Given the risks to the outlook, many investors have flocked to ‘safe havens’ this year, forcing government bond yields to the lowest levels for a generation, which puts some in a position where returns are negative when inflation is taken into account, it said.
HSBC said that combined with the negative fundamentals such as high debt levels, government bonds of developed markets do not represent good value on a medium term basis.
However, the opposite is true of corporate bonds, which have been sold off during the downturn, it said.
Many companies are in solid financial shape, having applied their own austerity measures, thus reducing the probability of a default, it said.
“These factors support the positive outlook for corporate bonds especially at the high-yield end of the spectrum, and in Asia where fundamentals are relatively stronger.
“Solid corporate health and very attractive valuations also support HSBC’s positive view on equities in 2012, which are now trading at very attractive levels relative to history,” it said.
HSBC said that within equities, emerging markets looked particularly attractive, due to stronger fundamentals than developed markets.
HSBC Global Asset Management global chief investment officer for wealth Simona Paravani said that global emerging markets would continue to grow as increased wealth leads to higher levels of domestic consumption.
“Driven by factors such as industrialisation and urbanisation, as well as more robust fiscal positions than many Western economies, our outlook for emerging market economies remains strong.
“From an investment point of view, this suggests a positive stance towards equities, emerging market currencies and Asian bonds,” said Paravani.
HSBC said that a combination of inflation and the industrialisation of emerging markets favoured physical assets like property and commodities.
Russian equities, currently priced lower than historical levels, benefited from the positive outlook for oil and hard commodities although political risk remains a source of market volatility, it said.
“In the export-heavy Asian countries, the global slowdown has clearly had an impact but HSBC still views the backdrop favourably, with economies offering stronger growth than the West.
“Inflation is showing signs of moderating and supportive fiscal policies are likely to have a bearing in 2012, which would be positive for the region’s economies and equity markets,” it said.
It said that within Asia, Chinese equities were currently attractive, with the market trading on about eight times 2012 earnings.
Rapid rises in residential real estate prices could reverse and become destabilising to parts of the economy, but HSBC said that it believed that a soft landing was the most likely outcome.
Eric Fu, HSBC’s Head of Wealth Development, Hong Kong, Retail Banking and Wealth Management, said that in a period of prolonged volatility, as investors continued to search for yield and value, diversification and long-term investing had become all the more relevant.
Fu said that before the crisis, people tended to park their assets in investments without doing anything further with their portfolios.
However, he said that a passive approach may not be appropriate in current market situation, adding that a long-term approach now meant staying invested through the peaks and troughs by reviewing and rebalancing portfolio regularly to capture market opportunities and mitigate further risks.
“With the help of a trusted professional advisor, both sophisticated and new investors can move from a product-driven to a financial planning-driven approach to wealth management to help achieve more balanced and sustainable growth for your hard-earned wealth,” said Fu.
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