US equities and bonds are likely to remain strong this year on the back of low evaluations and falling risk appetite as the European sovereign debt crisis will continue to unnerve investors, Citicorp Securities Investment Consulting Inc said yesterday.
“Investors should divide their portfolio equally between equities and bonds with market unease nearly the same as during the global financial crisis,” vice president Spencer Wang (王進彰) told a media briefing.
While economic growth is critical to equity performance, the former is no guarantee of returns on the latter, Wang said.
That explained why US shares outperformed peers in China and other emerging economies last year despite its lackluster GDP growth, Wang said. In addition, cheap valuations are a more reliable guide of returns and many US equities remain undervalued after emerging from the financial crisis of 2008, he said.
The greenback, which has received a boost as a result of risk aversion since the second half of last year, remains at a distance from its peak in recent years, suggesting room for growth and lending support for a stake in US-dollar assets, Wang said.
Unlike most Asian pundits, Wang said it would be a long time before the yuan could replace the US dollar as the main reserve currency, if ever.
“I don’t think that will happen in my lifetime,” he said.
US bonds are also good investments this year given continued worries about European debt woes, Wang said, adding it is premature to invest in euro-denominated assets until the currency weakens further.