BNP strategist charts `12 exciting months' ahead by Katherine Ng, The Standard HK
Although there are signs of an economic recovery, BNP Paribas Wealth Management said it does not expect the United States to exit from its stimulus policy next year.
There will be
no rate hike in 2010 and possibly beyond, said senior investment strategist Andrew Freris.
Because of such uncertainty,
equity markets will continue to be weak and volatile next year despite the Asian stock rally this year, Freris told The Standard.
"As long as unemployment stays high in the United States at near 10 percent, interest rates will not go up."
The US Federal Reserve's policy to keep rates down indicates a threat of inflation, and official interest rates look set to stay unchanged for a long time, leaving economies weak and concerned about inflation, Freris said. "It will be an exciting and volatile 12 months ahead."
China is doing better, he said, but a tightening policy has already been launched and credit will probably be
tightened in November or December. "Countries in Asia such as India and China are already increasing their interest rates unofficially and indirectly," the strategist noted. "During the past three to five months, you saw the
SHIBOR [Shanghai interbank offered rate] of two- to five-year bonds going up by about 80 to 160 basis points. Together with all the bond sales by the central bank, China has been effectively taking out liquidity."
However, when everything is factored in, Freris said some markets such as
China and India are already well-valued and investors should be cautious and adopt a strategy of small, progressive exposure to equities.
"They could take profit some of the time," he added.
Freris suggested "averaging out" and "focusing on the bigger market."
For other investment such as bonds and foreign exchange, he advised a selective mode in European and US corporate bonds which have a yield of 3.2 to 5.2 percent.
He suggested
avoiding government bonds as their yields will continue to face pressure. He also
sees the US dollar remaining weak but is bullish on the euro and yen. Next year will not be spectacular, but investors could take a
gradual exposure to equities and adopt cautious strategies and a balanced portfolio to ride the situation, Freris said.
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