2012 may be the year for Asian equities
As rising inflation eats away at cash balances and bond yields remain low, you may be wondering where to put your money next year.
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By Melissa Tan
25 December 2011
As rising inflation eats away at cash balances and bond yields remain low, you may be wondering where to put your money next year.
In Singapore, even the longest-maturity government bonds are yielding below 2.5 per cent, below expected inflation of slightly over 3 per cent in 2012.
As a report by Barclays Wealth put it, the main challenge investors face will be ‘the hunt for yield’.
With the slower economic growth expected next year, it may be time to start thinking about moving money back into the equity markets, especially in Asia.
For one thing, valuations look cheap now and, given Asia’s resilience, appear a pretty decent buy, say analysts.
Barclays Wealth said in a report that investors can increase their exposure to China equities, then exit if there is news of significant downgrades to China’s growth and earnings, if inflation and government loan risks escalate, or if valuations are no longer compelling.
Holding riskier assets ‘should allow investors to benefit from the stability that will eventuate if we’re right about the euro not breaking up, large governments avoiding default, and developed world companies operating profitably and solvently’, Barclays Wealth said.
Fundsupermart general manager Wong Sui Jau said: ‘As investor concerns recede, the markets will rebound, hence our overweight position in equities relative to bonds.’ He is recommending an 80 per cent equity, 20 per cent bond portfolio for next year.
One way of reducing risks in a volatile market is to add defensive, high-yield stocks to one’s portfolio.
Said Mr Kelvin Tay, chief investment strategist for Singapore at UBS Wealth Management Research: ‘The stock dividends and bond coupon payments will provide a valuable income stream for investors as we expect the current environment of almost zero deposit rates, relatively high inflation to persist amidst slowing GDP growth.’
But bonds should not be completely discarded.
Analysts pointed out that corporate bonds will give better returns than government bonds, especially in Asia, as the flight to government bonds due to the uncertain economic climate has led government bond prices to rise and yields to fall.
‘Given the risks of extreme scenarios, we believe good quality corporate bonds represent a good compromise,’ said Credit Suisse Private Banking Research.
It recommended putting 2per cent into cash, 34 per cent into bonds, 42 per cent into equities and 22 per cent into alternatives, for a balanced portfolio.