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13-01-2011, 07:16 AM
Another bullish report on equities!
Business Times - 13 Jan 2011
Equities set to grab the headlines in 2011
Bonds expected to take a backseat this year; Asian and commodity stocks may fly
By LYNN KAN AND LINETTE LIM
(SINGAPORE) If 2010 was the year of corporate and emerging market bonds, then 2011 is gearing up to be the year of equities.
'The upside has become more limited for corporate and emerging market bonds, as coupons will not rise in the event of higher inflation rates, and bonds are now trading closer to fair value,' said UBS researchers. 'The opposite is true for equities that still haven't unlocked their full valuation potential.'
JPMorgan is also favouring equities over bonds, against a backdrop of accelerating global growth and peripheral Europe's sovereign debt crisis.
'The dominance of growth stimulus over inflation control across much of the world makes us overweight real assets, such as equities, real estate and commodities, over nominal assets, which are cash and bonds,' the bank said.
'After a decade of disappointing equity returns and a slow death for the equity culture, equities may again become a preferred asset for no other reason than the alternative - bonds - looks dangerous in comparison.'
If equities are generally back in favour, then commodities, cyclicals and technology are the sectors to be in, as well as Asian and emerging stocks which are set to outpace the developed markets.
Most investment banks agree that the commodity price jumps in 2010 will stretch into 2011. 'We favour commodities where supply growth is limited, such as gold, copper and corn, and where prices haven't seen exponential increases, such as cotton and silver,' said UBS.
Credit Suisse added that because prices have gotten expensive - gold has winged its way above US$1,300 per ounce, for instance - investors should adopt 'momentum investing' tactics to exploit 'significant price swings'. 'Although passive buy-and- hold investment strategies should still have some upside in 2011, we think a momentum investment strategy is more promising . . . (these are) investment strategies that shift positions and sectors more often and focus on markets where strong price movements emerge.'
Also bullish on commodities is JPMorgan, citing 'strong demand from the emerging markets, in particular China, coupled with tight supply conditions'.
As more and more smartphones and tablets get snapped up by consumers, technology stocks in Asia look promising. 'Demand in 2011 should hold up well because of the overwhelming new product pipeline,' said HSBC. 'Since we do not expect a single brand or product to dominate in the current competitive environment, component makers such as Largan will better benefit from these new product launches,' said the bank, which is 'overweight' on the Taiwanese technology sector.
JPMorgan is favouring the US technology sector. 'With Republicans taking control of the House, policies are set to become more business-friendly for US companies. Our US equity analysts believe that healthcare and technology are the sectors poised to see the most benefits.'
The consensus is that Asian and emerging market equities should fare better than advanced economies in the US and Europe. The banks said valuations in Asia are still not overstretched. Said Citi: 'If every investor and his/her dog were fully invested in Asia ex-Japan, multiples would surely be higher than they currently are, as would trading volumes.'
Credit Suisse and Citi are looking at an upside of 19 per cent and 25 per cent, respectively, from Asian stocks, while HSBC is expecting what it called a more 'modest' 11 per cent return, given concerns that earnings growth could be thwarted by weak margin expansion due to rising inflation.
The Chinese market drew mixed calls - UBS and Credit Suisse prefer China, while HSBC and Citi are 'neutral'. JPMorgan is keeping its 'underweight' rating on China. 'The shift in the Chinese growth model away from investment into consumption benefits only a small part of its MSCI benchmark,' it noted. 'In addition, 79 per cent of MSCI China consists of companies where the government is the controlling shareholder, which makes them vulnerable to policy risk.'
Taiwan and Russia are two other markets which drew votes from analysts. HSBC and UBS said that the Taiwanese market is trading at a discount, while both JPMorgan and UBS are overweight on Russian equities.
The recent US stockmarket rally - the S&P 500 has risen about 5.7 per cent since the start of December - has revived hopes of an 'American regeneration'. Credit Suisse favours innovative American corporates like Apple, those with strong branding and re-engineered business models like GM, and companies which have powered their way into new markets like Coca-Cola.
UBS noted that investors should not abandon Europe entirely, but to focus on 'economically strong core Eurozone countries' like Germany and Switzerland.
While the focus will be very much on equities, bonds are not totally written off. Said UBS: 'Within the investment-grade segment, we caution investors to limit exposure to bonds with long maturities (over 10 years), and recommend finding opportunities in the 'BBB' space, ideally those with five to seven years of maturity. We continue to like bonds of Hong Kong and Singapore conglomerates, and lower Tier-2 debt of Hong Kong banks.'
Investors should also add credit risk to their fixed income portfolios with higher-yielding corporate bonds and emerging market government bonds, said Credit Suisse, UBS and JPMorgan.
Business Times - 13 Jan 2011
Equities set to grab the headlines in 2011
Bonds expected to take a backseat this year; Asian and commodity stocks may fly
By LYNN KAN AND LINETTE LIM
(SINGAPORE) If 2010 was the year of corporate and emerging market bonds, then 2011 is gearing up to be the year of equities.
'The upside has become more limited for corporate and emerging market bonds, as coupons will not rise in the event of higher inflation rates, and bonds are now trading closer to fair value,' said UBS researchers. 'The opposite is true for equities that still haven't unlocked their full valuation potential.'
JPMorgan is also favouring equities over bonds, against a backdrop of accelerating global growth and peripheral Europe's sovereign debt crisis.
'The dominance of growth stimulus over inflation control across much of the world makes us overweight real assets, such as equities, real estate and commodities, over nominal assets, which are cash and bonds,' the bank said.
'After a decade of disappointing equity returns and a slow death for the equity culture, equities may again become a preferred asset for no other reason than the alternative - bonds - looks dangerous in comparison.'
If equities are generally back in favour, then commodities, cyclicals and technology are the sectors to be in, as well as Asian and emerging stocks which are set to outpace the developed markets.
Most investment banks agree that the commodity price jumps in 2010 will stretch into 2011. 'We favour commodities where supply growth is limited, such as gold, copper and corn, and where prices haven't seen exponential increases, such as cotton and silver,' said UBS.
Credit Suisse added that because prices have gotten expensive - gold has winged its way above US$1,300 per ounce, for instance - investors should adopt 'momentum investing' tactics to exploit 'significant price swings'. 'Although passive buy-and- hold investment strategies should still have some upside in 2011, we think a momentum investment strategy is more promising . . . (these are) investment strategies that shift positions and sectors more often and focus on markets where strong price movements emerge.'
Also bullish on commodities is JPMorgan, citing 'strong demand from the emerging markets, in particular China, coupled with tight supply conditions'.
As more and more smartphones and tablets get snapped up by consumers, technology stocks in Asia look promising. 'Demand in 2011 should hold up well because of the overwhelming new product pipeline,' said HSBC. 'Since we do not expect a single brand or product to dominate in the current competitive environment, component makers such as Largan will better benefit from these new product launches,' said the bank, which is 'overweight' on the Taiwanese technology sector.
JPMorgan is favouring the US technology sector. 'With Republicans taking control of the House, policies are set to become more business-friendly for US companies. Our US equity analysts believe that healthcare and technology are the sectors poised to see the most benefits.'
The consensus is that Asian and emerging market equities should fare better than advanced economies in the US and Europe. The banks said valuations in Asia are still not overstretched. Said Citi: 'If every investor and his/her dog were fully invested in Asia ex-Japan, multiples would surely be higher than they currently are, as would trading volumes.'
Credit Suisse and Citi are looking at an upside of 19 per cent and 25 per cent, respectively, from Asian stocks, while HSBC is expecting what it called a more 'modest' 11 per cent return, given concerns that earnings growth could be thwarted by weak margin expansion due to rising inflation.
The Chinese market drew mixed calls - UBS and Credit Suisse prefer China, while HSBC and Citi are 'neutral'. JPMorgan is keeping its 'underweight' rating on China. 'The shift in the Chinese growth model away from investment into consumption benefits only a small part of its MSCI benchmark,' it noted. 'In addition, 79 per cent of MSCI China consists of companies where the government is the controlling shareholder, which makes them vulnerable to policy risk.'
Taiwan and Russia are two other markets which drew votes from analysts. HSBC and UBS said that the Taiwanese market is trading at a discount, while both JPMorgan and UBS are overweight on Russian equities.
The recent US stockmarket rally - the S&P 500 has risen about 5.7 per cent since the start of December - has revived hopes of an 'American regeneration'. Credit Suisse favours innovative American corporates like Apple, those with strong branding and re-engineered business models like GM, and companies which have powered their way into new markets like Coca-Cola.
UBS noted that investors should not abandon Europe entirely, but to focus on 'economically strong core Eurozone countries' like Germany and Switzerland.
While the focus will be very much on equities, bonds are not totally written off. Said UBS: 'Within the investment-grade segment, we caution investors to limit exposure to bonds with long maturities (over 10 years), and recommend finding opportunities in the 'BBB' space, ideally those with five to seven years of maturity. We continue to like bonds of Hong Kong and Singapore conglomerates, and lower Tier-2 debt of Hong Kong banks.'
Investors should also add credit risk to their fixed income portfolios with higher-yielding corporate bonds and emerging market government bonds, said Credit Suisse, UBS and JPMorgan.
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