LI, Tao @ Hong Kong

Market volatility this year has led to panic selling, but has also created opportunities in 2012 for long-term investors, a new report released by HSBC Global Asset Management on Wednesday claims.

The unsolved European debt crisis is the biggest investor concern this year, and gloomy sentiment in the market has led investors to rush to perceived safe havens, driving government bond yields to the lowest levels for a generation, according to the report.

While taking inflation into account, a majority of these government bonds were de facto negative in returns. Combined with negative fundamentals such as high debt levels, government bonds of developed markets do not represent good value on a medium-term basis, HSBC noted on Wednesday.

The outlook for emerging markets is brighter though.

“Driven by factors such as industrialization and urbanization, as well as more robust fiscal positions than many Western economies, our long-term outlook for emerging market economies remains strong,” said Simona Paravani, global chief investment officer for wealth, HSBC Global Asset Management.

“This suggests a positive stance towards equities, emerging market currencies and Asian bonds,” Paravani added.

Emerging markets’ stronger fundamentals have made them particularly attractive compared with developed market equities. Mainland equities, currently trading on about eight times 2012 earnings, are especially appealing, said the bank.

Worries over the international economic picture and in particular concerns over sovereign debt in the eurozone have dominated stock market sentiment in recent months and are likely to continue to do so.

However, the superior ability to combat any global weakness gives the mainland and Hong Kong an advantage compared with other developed economies, HSBC said in a report entitled “Outlook for 2012 – looking past the abyss”, which concluded that it was keen not to underplay the risks of investing in global stock markets at present and the short-term direction is in the hands of politicians.

The themes of last year continue to be highly relevant today and will once again be the main drivers of returns in 2012. The investment environment is therefore likely to remain highly challenging with a continuation, at least for a time, of the current environment, Alan Brown, group chief investment officer of Schroder Investment Management, wrote in a report on Tuesday.

He pictured 2011 as the year when the market lurched from risk on to risk off as optimism and pessimism trade punches over the key themes of the eurozone and double dip … and forecasts 2012 to be the year where both of these issues will be resolved for better or worse – while there is an awful lot riding on the outcome.

“Equity assets are attractively priced as long as we can avoid the double dip. However, any material increase in the likelihood of a double dip should be treated extremely seriously indeed,” said Brown.

litao@chinadailyhk.com
China Daily
(HK Edition 12/15/2011 page2)
http://www.chinadaily.com.cn/hkedition/2011-12/15/content_14267546.htm