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‘Very overvalued’ over the next 18 months: RBS
By JOYCE HOOI
12 February 2011
Investors unnerved by the correction in the market should hang on to their knickers because they are headed for a bubble, according to Emil Wolter, the head of regional strategy for Asian equities at RBS.
Despite the correction that the market has seen over the past two weeks, Asian equities still have a period of decent growth ahead of them and rising inflation will be a boon to stocks in most sectors, said Mr. Wolter. ‘We are facing a period of profit-taking after a long run. Going forward, we are in an environment of still quite-decent growth,’ he said.
Beyond the recovery phase, Asian stocks appear to be headed for a bubble somewhere around 2013, he reckoned.
‘Asian financial assets and equities will become very overvalued over the next 18 months,’ said Mr. Wolter.
For the Asian region, there is an upside potential of 15-25 per cent over the next 12-18 months, and Singapore is rated ‘outperform’ by RBS.
The increasing momentum of economic recovery in the United States - with the latest unemployment figures looking up - will also stand to benefit the Asian region.
And while rising inflation might be causing some unease amongst investors, Mr. Wolter noted that ‘inflation pressure across the region is totally consistent in any economic cycle’.
‘The real surprise is that inflation isn’t stronger.’
The three sectors that will especially benefit from rising prices are property, agriculture and energy plays, Mr. Wolter said.
His local picks included Keppel Land and OUE for the property front, as well as Golden Agri-Resources for the agricultural sector.
For the energy sector, he singled out Sembcorp Marine and Keppel Corporation. Telecommunications stocks are also expected to have a good run, while the outlook for DBS is also favourable. ‘It is positively geared towards higher interest rates,’ said Mr. Wolter.
The exception to the rule, however, is the consumer goods sector, which might come to be undone by rising inflation.
‘We’ve seen a series of profit warnings come out of the consumer sector . . . rising input costs is becoming a challenge,’ said Mr. Wolter.