Investors should consider enhanced allocation for riskier assets, including high-yield corporate bonds and equities, as the world is moving back to a reflationary path and volatility caused by expected Fed interest rate hike will only be short term, a leading economist said.
Monetary easing policies in many countries and a rebound in oil price both show better growth momentum, while rising German Bund yields support the idea that global deflationary fears are now behind us, said Richard Jerram, chief economist at Bank of Singapore.
Bank of Singapore, the private banking arm of OCBC Bank, prefers high-yield bonds over investment grade debt and cash in both developed and emerging economies, Jerram said at a media briefing in Hong Kong Monday.
Diversification and good research are necessary to ensure high returns in the current environment, he said.
As for equity investment, developed markets offer better prospects over Asia Ex-Japan, according to Marc Van De Walle, global head of products at Bank of Singapore.
Investors should look at stocks of US banks and European listed firms with domestic recovery themes, and also take positions in Japanese companies that are improving their corporate governance and engaging in shareholder-friendly buybacks, he said.
Bank of Singapore gives Asia Ex-Japan equities an overall negative rating due to unsatisfactory export data, high debt level and potential money outflow after Fed rate hikes and a stronger US dollar.
In the region itself, North Asia markets are considered to better than those in the south.
Jerram said that Bank of Singapore has a “neutral” rating for Hong Hong’s H-share market now, down from “overweight” in April when the A-share favor spilt over to Hong Kong.
That said, valuations are still seen reasonable, compared to A-shares.
“Despite poor macro fundamentals, it is hard to see the link between economic performance and the capital market in China,” said Jerram, adding that he expects more monetary easing from the Chinese central bank to back the recent rally.
The central bank could cut its policy rate by 25 basis points two more times this year, while the reserve requirement ratio (RRR) for commercial lenders may also be lowered by 50 basis points twice.
In other comments, Jerram said the renminbi is likely to depreciate moderately to 6.4 against the US dollar if the IMF decides to accept yuan as the fifth element in its international currency basket.
But the economic impact of the inclusion will be limited, he added.
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