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15-07-2014, 08:45 AM
Shares 'attractive even after 5-year rally'
Mok Fei Fei
The Straits Times
Tuesday, Jul 15, 2014
Shares have staged an impressive recovery since the dark days of 2008 and the global financial crisis, but they still have plenty of life in them, according to a global banker.
Mr Angus Parker, the London-based head of developed equities at HSBC Global Asset Management, noted that predictions about the demise of equities are greatly exaggerated: "The markets have done very well and clearly they are not as attractively valued as they were, say, two years ago.
"There was a lot of equity risk premium in the market two years ago, people were fearful, with a lot of focus on Europe because of the sovereign debt crisis, so investors were being rewarded with big potential returns in Europe.
" Even though the risk premium is being eroded, Mr Parker believes there are still buying opportunities, even in the United States.
"You now see valuations in the US that are consistent with long-term averages, but there's still an opportunity for earnings pick-up, which might drive markets further.
" This is already being borne out out on Wall Street, which saw record numbers as the Dow Jones Industrial Average crossed the 17,000 mark for the first time on July 3.
Moreover, central banks in developed markets such as Japan and the euro zone are still committed to pumping money into their financial systems to ensure their fragile economic recoveries do not falter. Such stimulus programmes, particularly Japanese Prime Minister Shinzo Abe's cure for the economy (a plan known as Abenomics), will continue to boost stock markets.
"The growth might not be in a straight line - often, you get these periods of consolidation - but I think the forces of liquidity are very powerful," said Mr Parker.
"A five-year progression seems a long stretch, but we're coming from very, very low levels." The three-pronged approach of Abenomics - or what the Japanese premier termed as the three arrows of the plan - comprises loose monetary policy, increased fiscal spending and growth-fostering structural reforms.
Mr Parker pointed out that the plan represents "an unprecedented and radical experiment" that is "certainly a departure from the traditional approach".
These previously unseen measures give rise to the hope that the so-called "lost decades" of deflationary activity seen in Japan since the 1990s can finally be reversed. While it is unclear how Abenomics will end, Mr Parker said one comforting certainty is that the Japanese government will not roll back its stimulus measures for now.
"For the foreseeable future, there's going to be continued provision of liquidity, and that should encourage the animal spirit of companies and investors alike."
Mr Parker, who manages a global equity volatility fund that was launched last month, picks a mix of higher-growth cyclical and less volatile defensive stocks. He favours shares in the consumer and health-care sectors, including airlines.
"Volatility hasn't died. Perhaps it's gone to sleep... If you look at the other investment choices today, they're not great, are they?"
He noted that locking in cash to achieve greater certainty could result in negative real investment returns, so "you really have to turn to equity markets to get any decent returns".
feimok@sph.com.sg
This article was first published on July 13, 2014.
http://business.asiaone.com/news/shares-...year-rally
Mok Fei Fei
The Straits Times
Tuesday, Jul 15, 2014
Shares have staged an impressive recovery since the dark days of 2008 and the global financial crisis, but they still have plenty of life in them, according to a global banker.
Mr Angus Parker, the London-based head of developed equities at HSBC Global Asset Management, noted that predictions about the demise of equities are greatly exaggerated: "The markets have done very well and clearly they are not as attractively valued as they were, say, two years ago.
"There was a lot of equity risk premium in the market two years ago, people were fearful, with a lot of focus on Europe because of the sovereign debt crisis, so investors were being rewarded with big potential returns in Europe.
" Even though the risk premium is being eroded, Mr Parker believes there are still buying opportunities, even in the United States.
"You now see valuations in the US that are consistent with long-term averages, but there's still an opportunity for earnings pick-up, which might drive markets further.
" This is already being borne out out on Wall Street, which saw record numbers as the Dow Jones Industrial Average crossed the 17,000 mark for the first time on July 3.
Moreover, central banks in developed markets such as Japan and the euro zone are still committed to pumping money into their financial systems to ensure their fragile economic recoveries do not falter. Such stimulus programmes, particularly Japanese Prime Minister Shinzo Abe's cure for the economy (a plan known as Abenomics), will continue to boost stock markets.
"The growth might not be in a straight line - often, you get these periods of consolidation - but I think the forces of liquidity are very powerful," said Mr Parker.
"A five-year progression seems a long stretch, but we're coming from very, very low levels." The three-pronged approach of Abenomics - or what the Japanese premier termed as the three arrows of the plan - comprises loose monetary policy, increased fiscal spending and growth-fostering structural reforms.
Mr Parker pointed out that the plan represents "an unprecedented and radical experiment" that is "certainly a departure from the traditional approach".
These previously unseen measures give rise to the hope that the so-called "lost decades" of deflationary activity seen in Japan since the 1990s can finally be reversed. While it is unclear how Abenomics will end, Mr Parker said one comforting certainty is that the Japanese government will not roll back its stimulus measures for now.
"For the foreseeable future, there's going to be continued provision of liquidity, and that should encourage the animal spirit of companies and investors alike."
Mr Parker, who manages a global equity volatility fund that was launched last month, picks a mix of higher-growth cyclical and less volatile defensive stocks. He favours shares in the consumer and health-care sectors, including airlines.
"Volatility hasn't died. Perhaps it's gone to sleep... If you look at the other investment choices today, they're not great, are they?"
He noted that locking in cash to achieve greater certainty could result in negative real investment returns, so "you really have to turn to equity markets to get any decent returns".
feimok@sph.com.sg
This article was first published on July 13, 2014.
http://business.asiaone.com/news/shares-...year-rally
Research, research and research - Please do your own due diligence (DYODD) before you invest - Any reliance on my analysis is SOLELY at your own risk.