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HSBC Global Asset Management Investment Quarterly
16 February 2012
"Entering the Year of the Dragon"
New York, NY - As we enter the Chinese Year of the Dragon, investors should look forward and focus on the attractive valuations in the marketplace, states a new report from HSBC Global Asset Management. Opportunities lie ahead for those with the courage to diversify and take some risks over the medium to long-term.
According to its latest Investment Quarterly Report, 2011 exposed medium-term value in fundamentally attractive investments and as a result, HSBC Global Asset Management favors the following themes where valuations are considered to be attractive:
- Investment grade and emerging corporate bonds and emerging markets sovereign debt
- Selective commodities (hard and soft) via outright exposure or to stocks in the sector
- Exposure to emerging consumption and infrastructure themes via both emerging and developed market stocks
The report notes that going forward investors need to be selective when it comes to their investments in readiness for hopefully an eventual return to some market stability in 2012.
Investor confidence plunged in 2011 as Europe's debt crisis escalated and U.S. politicians squabbled over deficit proposals. Currently the eurozone is teetering on the brink of recession and it may take several years to fix its problems. 'The U.S. is looking in better shape but government debt is rising and tensions are expected to remain high in the run-up to the presidential and congressional elections. Growth in Asia is likely to slow too, primarily because this region cannot entirely decouple itself from the rest of the world,' the report authored by Philip Poole, Global Head of Macro & Investment Strategy, HSBC Global Asset Management, concludes.
However, it additionally points out that slower-growth, does not equal zero growth. HSBC forecasts 8.6% and 7.5% GDP expansion for China and India respectively this year, figures well into positive territory - and growth most Western economies would be delighted to come close to. The report also argues that some profitable Asian companies are now undervalued, and as such their shares have potential to rise over the medium to long term.
Poole comments: "We currently favor the so-called cyclical sectors in emerging markets, namely industrials, materials, financials and energy as central banks in countries including China, Brazil, Indonesia and Thailand have cut interest rates (or reserve ratios) to stimulate growth as concern about inflation recedes. And many such countries still have scope to ease further and to fund development projects with bond sales, while in many Western countries rates are already near zero and public debt is significant."
HSBC Global Asset Management expects growth in emerging markets will increasingly be driven by domestic consumption and by urbanization, meaning companies providing goods and services aligned to these trends are likely to benefit and that not only will these be companies selling directly to the end consumer or government, but those further back in the supply chain, such as raw commodities producers.
In the bond markets, the flight to safety in 2011 saw investors leave corporate credit in favor of government risk and this has left the bonds of some profitable companies undervalued. Learning from the recent credit crunch, many companies in Asia and beyond have stockpiled cash, building their balance sheets as a preemptive defensive measure. Should the eurozone crisis escalate and continental European banks curb lending again, these companies will be far better equipped to fund themselves from internal resources than they were in the dark days after 2008 notes the report.
Notes to editors:
HSBC Global Asset Management
HSBC Global Asset Management manages assets totalling US$398bn, and is a leader in emerging markets funds, with $121bn invested in this asset class. Through its network of offices in approximately 30 countries globally, HSBC Global Asset Management has a worldwide client base of private clients, intermediaries, corporates and institutions invested in both segregated accounts and pooled funds.
All figures as at 30 September 2011. For more information, go to: www.assetmanagement.hsbc.com
HSBC Bank USA, National Association, with total assets of $209.3 billion as of 30 September 2011 (US GAAP), serves around four million customers through its personal financial services, commercial banking, private banking, asset management, and global banking and markets segments. It operates more than 470 bank branches throughout the United States. There are over 370 in New York state as well as branches in Connecticut, Washington, D.C., Florida, New Jersey, Pennsylvania, Maryland, Virginia, California, Delaware, Illinois, Oregon and Washington State. HSBC Bank USA, N.A. is the principal subsidiary of HSBC USA Inc., an indirect, wholly-owned subsidiary of HSBC North America Holdings Inc., one of the nation's largest bank holding companies by assets. HSBC Bank USA, N.A. is a member of the FDIC.
The information contained in this press release does not constitute an offer or solicitation for, or advice that you should enter into, the purchase or sale of any security or fund. Any views expressed are subject to change at any time.
- Neil Brazil
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