Fund Managers Cautious Over Geopolitical Issues
International fund managers are confident over the long-term
prospects of equities, but are recommending that investors stay
cautious in the coming weeks as geopolitical issues could keep a lid
on gains.
28 July 2006
HONG KONG (Dow Jones)--International fund managers are confident
over the long-term prospects of equities worldwide, but are
nevertheless recommending that investors stay cautious in the coming
weeks as geopolitical issues could keep a lid on gains.
Fund managers suggest on average a slight overweight on equities
globally, unchanged since April, the latest monthly Dow Jones
Newswires survey shows. They suggest moving to neutral on cash from
a slight overweight last month, and are keeping their full
underweight recommendation for bonds.
A potential slowdown in global economic growth, stemming from rising
U.S. inflation and interest rates, has been largely factored into
share prices, they say, which should lessen the possibility of a new
selloff in equities.
Economic concerns have been replaced, for the meantime, by worries
over geopolitical events that tend to prolong market consolidation,
such as Israel's incursion into Lebanon, Iran's nuclear ambitions,
and the recent North Korean missile tests.
JF Asset Management, which manages around US$500 billion worldwide,
believes investors "should ignore all the noise and stay focused on
the underlying fundamentals" but acknowledges that it's still too
early to aggressively add riskier assets, such as emerging market
shares or non-investment grade bonds. "Markets remain vulnerable to
bad news," the fund manager said.
Within a global equities portfolio, fund managers continue to favor
European and Japanese shares and avoid non-Asian emerging markets.
On average, they suggest a full overweight on European and Japanese
shares and a slight underweight in non-Asian emerging markets.
"European equities are benefitting from an increase in mergers and
acquisition activity, outsourcing, and restructuring efforts by
companies," says Standard Life Investment, which manages around
GBP120 billion worldwide.
The positive long-term outlook for Japanese shares is supported by
improving economic data, including stronger employment and
consumption, Standard Life Investment says.
Each month, Dow Jones Newswires surveys fund managers on portfolio
weighting recommendations for the succeeding months, with most
looking at a 12-month horizon. July's survey was taken over the past
10 days.
The respondents for this month's survey were Allianz Global
Investors, Credit Agricole Asset Management, First State
Investments, Henderson Global Investors, HSBC Halbis Partners, JF
Asset Management, Manulife Funds Direct, Schroder Investment
Management, and Standard Life Investments, and UBS Asset Management.
Outlook Improves for Thailand & India
Within Asia-Pacific, the fund managers' outlook has improved for
Thailand, Malaysia and India and deteriorated for South Korea.
On average, the fund managers suggest moving to neutral in Thailand,
Malaysia and India from a slight underweight last month. They
suggest the opposite for South Korea.
Fund managers believe that Thailand is in store for some welcome
political stability following King Bhumibol Adulyadej's surprise
Friday endorsement of a decree that paves the way for fresh general
elections on Oct. 15. The country has been led by a caretaker
government since parliament was dissolved in February, ahead of
April elections that were later annulled.
"Thailand is the cheapest market in the region on most valuation
parameters," says Nicholas Brooks, London-based senior economist at
Henderson Global Investors, which manages around US$150 million
worldwide.
Analysts estimate the average price-earnings ratio of Thai shares at
around nine times forecast 2007 earnings.
Malaysia is attracting attention because of its improving economic
growth momentum. The country's gross domestic product expanded by a
faster-than-expected 5.3% in the first quarter from a year earlier,
driven by stronger manufacturing and agriculture output.
Fund managers who shunned India in May and June due to high share
price valuations are starting to come back, as increasing corporate
capital spending and a good monsoon season are expected to boost the
overall economy, says Gregor Logan, London-based deputy chief
investment officer at New Star Global Investment Funds, which
manages around US$31 billion worldwide.
Concerns over global demand for technology products continue to
hound South Korea.
"Despite cheap valuations, the (South Korean) market could remain in
a trading range in the very short-term," says HSBC Halbis Partners,
which manages around US$270 billion in assets worldwide together
with three other investment management units of HSBC Holdings PLC
(HBC).
Singapore is still the fund managers' top pick in the Asia-Pacific
region. They suggest a slight overweight for that market, which they
consider among the most defensive in the region because of its
steady economic growth.
Elsewhere in the region's stock markets, fund managers suggest a
slight overweight in Japan and Hong Kong, and a slight underweight
in Taiwan, Indonesia, the Philippines, and New Zealand, and a
neutral in China and Australia.
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