HSBC yesterday advised investors to reduce investment in emerging markets, as money has been flowing back to developed countries amid the US Federal Reserve’s plan to phase out quantitative easing measures later this year.
Because of the cash flow, from January through last month, stock markets in Japan and the US rose 32 percent and 12.6 percent respectively, outperforming stock markets in Indonesia, Malaysia, Thailand and India, the British bank said.
Investors should consider increasing investment in US and Japanese stock markets, with an eye on the two countries’ growth prospects, the bank said.
The Fed’s comment on phasing out quantitative easing reflects its confidence in the US economy, HSBC Taiwan senior vice president Steve Chuang (莊懷德) said at a press conference, adding that the US housing market is also rebounding.
“The Japanese economy has also improved significantly because of its monetary and fiscal policy, which should help support corporate profits and stock prices,” Chuang said.
However, HSBC said it preferred US stocks over Japanese equities because the yen might fall further against the US dollar and Japanese shares are more vulnerable to international capital flows.
The bank also warned bond investors of rising yields after the termination of the US’ quantitative easing policy, which would decrease the value of long-term bonds.
As for gold, HSBC expects prices this quarter to hover between US$1,200 and US$1,300 per ounce, which is close to gold miners’ costs.
“Gold mining companies might reduce production because of the weak market sentiment to prevent gold prices from further declining,” Chuang said.
Chuang attributed the fall in gold prices since April to international capital flowing out of the gold market on expectations of a rise in the US dollar. However, gold demand in China and India and from central banks around the world remains strong, Chuang said.
As for currencies, HSBC suggested investors increase their holdings of the US dollar and Chinese yuan, while reducing those of the Australian dollar, as the greenback is expected to strengthen and the yuan could rise in tandem with the US dollar.
“In order to become an international currency, the yuan has to be strong for people to be willing to hold it,” Chuang said.
HSBC expects the yuan to trade between 6.12 and 6.14 against the US dollar this year.
Chuang added that interest rates in Australia could head downward and the Australian dollar might not be as resilient given low demand for raw materials from China.