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Emerging market equities in Asia 'a good bet'
Publication Date : 18-05-2012
Equities, government bonds and investment-grade corporate bonds in emerging markets are attractive for long-term investment amid the crisis in the euro zone and low growth in developed economies, Philip Poole, global head of macro and investment strategy at HSBC, said yesterday.
The probability that Greece would have to leave the euro zone has increased, and investors now are worried about the contagion effects on Spain and Italy, Poole said yesterday at a press briefing on "Investing for a New World Order".
He suggested that equities in emerging markets like China, Russia, India, Thailand and other countries in Asean are attractive for long-term investment.
"Looking at dividend yields, many markets are attractive, in particular China and Russia are very good value for long-term investment. The point is really that there is a lot of noise and lots of uncertainties in the markets, making it very difficult to predict where they'll go in the short term," said Poole.
He said shares in China are cheap, as the market was down after investors panicked about the impact of the crisis in Greece.
He said he was pretty confident that in the longer term, if investors buy these assets at current values, they would see good returns.
Given the high government and household debt in the euro zone, it would take many years to solve the problems there - probably 10 years, he said.
The United States' recovery is on track, and he did not expect a recession there. HSBC did not expect a hard landing for the Chinese economy, Poole said.
Developed economies like the US, EU and Japan are expected to see low growth for the coming decade. The central banks of these economies would maintain their loose monetary policies, and their actions would result in the world being flooded with liquidity, he said.
Japan has implemented a loose monetary policy for 20 years, but monetary policy is not always effective, he said.
Although investors are now grabbing US dollars and US government bonds, Poole said that government bonds issued by developed economies are expensive and offer low yields. Among the asset classes of developed economies, Poole said he preferred equities.
Government bonds issued by emerging countries, whether they are denominated in dollars or local currencies, are a good bet, according to Poole.
He also suggested investment-grade corporate bonds in emerging markets are attractive.
His suggestion was based on his assumption that in the post-crisis world of 2008/2009, the shift in the centre of economic gravity away from industrialised countries to emerging markets has accelerated.
Ageing populations would restrain growth in developed countries. By 2030, elderly people would account for 30 per cent of the total population in Japan, and 20 per cent in the United Kingdom and US.
In contrast to developing Asian countries such as India, Indonesia and others have large young populations, a supporting factor for economic growth.
The challenge for emerging economies is how to generate domestic demand in order to be less dependent on developed markets for economic growth, Poole said.
"It cannot be done overnight but there are encouraging signs as China has introduced more social welfare programmes and recently cut bank reserves," he said.