Liquidity and inflation are expected to be the key issues for the global economy while emerging markets will continue to lead the economic growth in 2011, according to experts from HSBC Global Asset Management.
They say the global economy is expected to post a moderate growth of 4.1 % in 2010 and fall to 3.6 % in 20111. The low growth scenario in the developed world should continue to keep interest rates very low and financial markets awash with liquidity as a result of the quantitative easing in the US, noted Philip Poole, Global Head of Macro and Investment Strategy, HSBC Global Asset Management and Ayaz Ebrahim, Chief Investment Officer, Asia-Pacific, HSBC Global Asset Management.
Mr Poole said that given the Fed’s commitment to keep policy ultra-loose, a US double-dip looks less likely than continued moderate growth. Additional liquidity is leading to concerns about inflation and asset price bubbles in the emerging world. “In our view, valuations are not yet at levels that signal bubble territory but this is a risk that needs monitoring. Global inflation will be largely in line with 2010 with an upside bias for emerging markets. Russian equities also look attractive on valuation grounds and this is one of our preferred ways to play the commodity theme,” Mr Poole said.
Looking at Asia, Mr Ebrahim noted that Asia will continue to be supported by low interest rates, ample liquidity and strong profit margins in 2011. “In particular, we see good value in Korea and Taiwan from the valuation perspective and for their exposure to the Asian technology sector, which could benefit as investors switch to more cyclical, export-driven markets on the strength of the global recovery. Economic growth in China and India is expected to remain robust at 9.2 % and 8.5 %, respectively,” he said.
The investment themes for the bond market are also selective. Mr Poole favours corporate bonds in both developed and emerging markets for their stronger balance sheets and yield pick-up.
To hedge against rising inflation in emerging markets, investors may also consider protection measures via inflation-linked bonds. Mr Ebrahim expects liquidity to remain supportive of Asia backed by its strong fundamentals, demand for Asian credit and healthy issuance. Several Asian currencies are undervalued and have room for further appreciation, including the RMB and the Malaysian Ringgit. |
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