Short-termism has driven markets at the expense of long term investment thinking during a markedly volatile 2011.
However, this has created what HSBC Global Asset Management believes to be a potentially strong set of investment opportunities for 2012 for those with a longer-term perspective.
Many investors have flocked to 'safe havens' this year, forcing government bond yields to the lowest levels for a generation, which puts some in a position where returns are negative when inflation is taken into account. Combined with the negative fundamentals such as high debt levels, government bonds of developed markets do not represent good value on a medium term basis.
Glen Tonks, Head of Wealth, at HSBC New Zealand says: "To date, frequent rotations in sentiment in markets reflects the fact that officials have been applying a 'sticking plaster' approach to addressing fundamental problems - acting only when faced with severe market pressure, and only then delivering just enough to stem the tide in the short run. With this context, at the forefront of investors' minds is concern around European policymakers being able to deliver a comprehensive long term solution to deal with the Eurozone crisis."
"With strong fundamentals and high growth potential, Asia could provide an attractive investment option in the current lower valuation environment. In NZ, we have started seeing increased customer interest in emerging market currencies, such as the RMB, rather than the usual suspects the USD, GBP and EUR. This has been a twofold strategy by customers reflecting the desire to diversify currency holdings and invest into faster growing economies with currently stronger fundamentals," continues Tonks.
"These may be difficult times, but it's important to stay on track and focus on the long-term. The key messages to investors are to focus on realistic wealth goals, take a long-term approach and of course a well diversified investment portfolio. There are opportunities in turbulent times and it is vital investors stay close to their investments with regular reviews," he concludes.
Many companies are in solid financial shape, having applied their own austerity measures, thus reducing the probability of a default. These factors support the positive outlook for corporate bonds especially at the high-yield end of the spectrum, and in Asia where fundamentals are relatively stronger. Solid corporate health and very attractive valuations also support HSBC's positive view on equities in 2012, which are now trading at very attractive levels relative to history. Within equities, emerging markets looks particularly attractive, due to stronger fundamentals than developed markets.
Simona Paravani, Global Chief Investment Officer for Wealth, HSBC Global Asset Management, said: "Global emerging markets will continue to grow as increased wealth leads to higher levels of domestic consumption. Driven by factors such as industrialisation and urbanisation, as well as more robust fiscal positions than many Western economies, our outlook for emerging market economies remains strong. From an investment point of view, this suggests a positive stance towards equities, emerging market currencies and Asian bonds."
A combination of inflation and the industrialisation of emerging markets favour physical assets like property and commodities. Russian equities, currently priced lower than historical levels, benefit from the positive outlook for oil and hard commodities although political risk remains a source of market volatility.
In the export-heavy Asian countries, the global slowdown has clearly had an impact but HSBC still views the backdrop favourably, with economies offering stronger growth than the West. Inflation is showing signs of moderating and supportive fiscal policies are likely to have a bearing in 2012, which would be positive for the region's economies and equity markets.
Within Asia, Chinese equities are currently attractive, with the market trading on about eight times 2012 earnings. Rapid rises in residential real estate prices could reverse and become destabilising to parts of the economy, but HSBC believes that a soft landing is the most likely outcome.
Eric Fu, HSBC's Head of Wealth Development, Hong Kong, Retail Banking and Wealth Management, said: "In a period of prolonged volatility, as investors continue to search for yield and value, diversification and long-term investing have become all the more relevant. Before the crisis, people tended to park their assets in investments without doing anything further with their portfolios. Investors can no longer afford to take a passive role. Today, a long-term approach means staying invested through the peaks and troughs by reviewing your portfolio regularly to rebalance, capture market opportunities and mitigate further risks.
"With the help of a trusted professional advisor, both sophisticated and new investors can move from a product-driven to a financial planning-driven approach to wealth management to help achieve more balanced and sustainable growth for your hard-earned wealth."
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