Customers turned out in full force at OCBC Bank’s Premier Banking investment seminars in January to hear experts’ views on the outlook for stock and currency markets this year, as well as some opportunities that lie ahead.
Mr. Lim Fang Suan, a senior portfolio manager with Lion Global Investors, spoke about the outlook for equity markets at the English language seminar, while Mr. Emmanuel Ng, a currency economist from OCBC Bank’s Global Treasury unit touched on the currency trends for this year.
Ms. Wee Wei Min, the Head of Treasury Advisory at OCBC Bank’s Global Treasury unit, also shared some ideas on how investors can use Dual Currency Returns and Equity-Linked Notes to capitalise on investment opportunities.
A separate seminar was also conducted in Mandarin.
To read the highlights of the investment seminar and view interviews conducted with experts on their views, simply click on the links below.
Mr. Lim believes these measures are likely to remain in force for the time being, as the recovery that took root in the second quarter of last year is still weak.
The U.S. housing sector, where the crisis originated, is also displaying signs of recovery, while U.S. consumer spending and retail sales are slowly turning around. The U.S. unemployment rate has peaked at about 10 per cent, and is likely to remain at this level for some time before coming down in the next 12 to 18 months.
"The domestic economies of other countries are also starting to show some signs of recovery. Perhaps, over the next two to three years, we will see signs of stronger growth in the global economies," Mr. Lim added.
Asia ex-Japan should continue to outperform
Asia was relatively less affected by the global economic slowdown, with emerging economies such as China and India recovering much faster than the rest of the world.
Mr. Lim expects Asia ex-Japan markets to continue outperforming on better growth prospects.
The base case scenario, Mr. Lim maintains, remains positive for equities in 2010, but cautioned that investors need to be also mindful of the risks.
He expects government policies to remain conducive for now, with inflation muted in the developed markets. Thus, central banks are not likely to raise interest rates any time soon, and perhaps only towards the end of the year.
Asia's growth will hinge on China and the latter's ability to sustain its growth momentum.
Asian bourses did well last year, and Mr. Lim expects them to continue to outperform other major markets, as valuations are relatively inexpensive.
Some cyclical and defensive sectors to consider
With abundant liquidity, Mr. Lim expects to remain invested, but with an eye on volatility, as uncertainties continue to loom on the horizon.
"It will be important to focus on longer term prospects. We will focus on cyclical sectors like energy, banks and materials, and to counter the volatility, we will invest in defensive areas like staples, telecommunication and healthcare," said Mr. Lim.
What will happen when stimulus measures are removed?
A key concern right now on investors' minds is what will happen to markets when the stimulus measures are removed. Mr. Lim adds that some of the measures imposed for the U.S. will expire in the second half of this year, after which it is still unclear if the private sector will have recovered sufficiently to offset the boost that was provided by fiscal and monetary stimuli.
Private sector demand in the U.S. could still be weak due to de-leveraging, weak bank lending and unemployment.
Concerns about asset bubbles
Asian economies, which were less affected by the global economic downturn, saw huge inflow of funds, because of the unprecedented interest rate cuts and fiscal stimulus measures undertaken in the developed markets. As a result, there are concerns that asset bubbles are building up in this part of the world.
Mr. Lim thinks that a bubble could be brewing in China and sees the recent steps to raise the reserve requirements of Chinese banks as a pre-emptive action to prevent significant fallout.
Inflation and earnings are other risks to bear in mind
Mr. Lim is also keeping an eye on inflation which he says could pose problems if commodity and food prices increase sharply. In such an instance, central banks will have to tighten their monetary policies, which may not be positive for stock markets.
The other risk is earnings disappointments. "We expect earnings growth of 28 per cent in 2010, and if that doesn't materialise, analysts will downgrade their earnings outlook and markets will come down," added Mr. Lim.
Signs that recovery is underway
Reflecting upon the same period last year, Mr. Lim recalled that things had looked pretty bleak then. Stock markets appeared headed for a depression, but unprecedented policy measures – huge stimulus spending by governments and aggressive interest rate cuts by central banks – helped markets to recover.
According to Mr. Ng, signs of a U.S. economic revival late last year resulted in the greenback gaining strength against other major currencies.
Better-than-expected U.S. economic data led to expectations that the U.S. Federal Reserve (Fed) may hike interest rates, causing the U.S. dollar to gain a fair bit of momentum against currencies like the Euro and the Australian dollar, for example.
What crippled the U.S. dollar in 2009 were the extremely low interest rates and the unprecedented amounts of quantitative easing by the Fed to keep the financial system afloat.
However, as quantitative easing measures are withdrawn by the Fed, U.S. interest rates will head higher and that will provide the greenback with support. This could take place towards mid-2010.
In the meantime however, the currencies that benefit from economic recovery, such as commodity linked currencies, are likely to remain in play at least in the first half of the year.
Mr. Ng believes the growth theme is strong in Asia, which means currencies like the Indonesian Rupiah and the Indian Rupee will be favoured, as they are not excessively exposed to the export sector.
For the first half of this year, he expects to see some dollar weakness because the investment community will continue to buy into other Asian currencies and the dollar will be a victim of that. However, the U.S. dollar can be expected to post a modest recovery in the second half, although it could resume its secular downtrend in 2011 as central banks diversify their foreign currency reserves away from the greenback.
To take advantage of the currency trends and equity outlook for 2010, the last speaker, Ms. Wee, highlighted some Dual Currency Return investments or Equity-Linked Notes that investors can consider.
Some U.S. dollar weakness seen in the first half
Turning to currency markets, Mr. Ng believes that investors should stick to recovery plays for now and stay invested in currencies that support this theme. The economic recovery is still nascent and is likely to gather pace.
Interview videos with our industry experts
Important Information
Any opinions or views of third parties expressed in this material are those of the third parties identified, and not those of OCBC Bank.
The information provided herein is intended for general circulation and/or discussion purposes only. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person.
Without prejudice to the generality of the foregoing, please seek advice from a financial adviser regarding the suitability of any investment product taking into account your specific investment objectives, financial situation or particular needs before you make a commitment to purchase the investment product. In the event that you choose not to seek advice from a financial adviser, you should consider whether the product in question is suitable for you. This does not constitute an offer or solicitation to buy or sell or subscribe for any security or financial instrument or to enter into any transaction or to participate in any particular trading or investment strategy.
OCBC Bank, Singapore Island Bank (SIB) and its respective associated and connected corporations together with their respective directors and officers may have or take positions in the securities mentioned in this report and may also perform or seek to perform broking and other investment or securities related services for the corporations whose securities are mentioned in this report as well as other parties generally.
No representation or warranty whatsoever (including without limitation any representation or warranty as to accuracy, usefulness, adequacy, timeliness or completeness) in respect of any information (including without limitation any statement, figures, opinion, view or estimate) provided herein is given by OCBC Bank and it should not be relied upon as such. OCBC Bank does not undertake an obligation to update the information or to correct any inaccuracy that may become apparent at a later time. All information presented is subject to change without notice. OCBC Bank shall not be responsible or liable for any loss or damage whatsoever arising directly or indirectly howsoever in connection with or as a result of any person acting on any information provided herein.
The information provided herein may contain projections or other forward looking statement regarding future events or future performance of countries, assets, markets or companies. Actual events or results may differ materially. Past performance figures are not necessarily indicative of future or likely performance. Any reference to any specific company, financial product or asset class in whatever way is used for illustrative purposes only and does not constitute a recommendation on the same. The contents hereof may not be reproduced or disseminated in whole or in part without OCBC Bank's written consent.
The contents hereof are considered proprietary information and may not be reproduced or disseminated in whole or in part without OCBC Bank's written consent.
Singapore dollar deposits held by or for an individual or a charity in accounts listed in OCBC Bank's Insured Deposit Register (available at www.ocbc.com/policies) will be insured in accordance with and for up to the limits specified in the Deposit Insurance Act.
