Asia’s emerging markets could underperform the US in the first quarter as they face the twin pressures of inflation and rising interest rates, DBS Bank (星展銀行) said yesterday.
Dismissing concerns over risks of a double dip recession, chief investment officer Lim Say Boon (林哲文) said there were no signs that another financial crisis was brewing and valuations remained reasonable.
However, the bank downgraded its rating on Asia excluding Japan stock markets to “neutral,” while suggesting investors “overweight” US stocks because of its continuing economic growth, near-zero interest rates and the effects of its quantitative easing, Lim said.
“The earlier and stronger economic recovery of Asian countries have pushed up the consumer price index. As these governments look set to raise interest rates because of increasing pressure from inflation, these stock markets are likely to underperform others in the short term,” he said.
Nonetheless, Lim remained optimistic about medium-term prospects for Asia ex-Japan stocks, saying he expected them to outperform after inflation was contained in the second half of the year.
For US equities, DBS prefers electronics stocks over financials, Lim said, adding that the bank also likes oil and raw material stocks.
The bank also has underweight ratings on the European, Japanese and Chinese stock markets, a company statement showed.