Mon, Oct 26, 2015 - Page 13 News List

Citicorp sees funds flow to US, Europe, Japan

POSITIVE OUTLOOK:The firm shrugged off concerns that China’s slowing economy would have an impact on the return Staff reporter on equity investment, citing precedents in Japan

By Ted Chen  /  Staff reporter

In light of lingering uncertainties caused by the US Federal Reserve’s anticipated interest rate hike, Citicorp Securities Investment Consulting Inc (花旗投顧) last week said that while there are no standout fourth-quarter investment destinations, global funds would likely flow into the developed markets of the US, Europe and Japan.

The Fed’s ambiguity on raising interest rates is widely believed to be an indication that the pace of economic growth in the US is slower than expected, and has since sent investment sentiment tipping toward pessimism, Citicorp Securities vice president Spencer Wang (王進彰) told a media briefing on Wednesday.

“The Fed will likely delay planned rate hikes until the first quarter of next year due to the lack of growth momentum in US private consumption and lending,” Wang said. “However, on the other hand, pervading cautionary sentiment have prevented US stocks from being overvalued.”

Wang said the US economy looks healthy and the Fed’s rate hike might be limited to 25 basis points.

US household debt as a proportion of disposable income has improved to 107 percent as of the end of last year, from a high of 135 percent in 2007, paving the way for a rebound in private consumption.

In addition, among US businesses, loan interest payments as a proportion of earnings improved to 15 percent last year compared with 18 percent in 2008, indicating lower default risks across the private sector, according to Citigroup.

Apart from the US market, Wang also holds a positive outlook on eurozone stocks due to low inflationary pressure and improving shareholders’ equity, as well as on equities in Japan, which he attributed to recent deregulations on equity investment by Japan’s post office and pension funds, in addition to continued stimulus policies.

Meanwhile, Wang recommended investors look to improve valuation of H-shares — equities of companies incorporated in China that are traded on the Hong Kong Stock Exchange, and other yuan-linked products to cheap valuation.

He said prices of Chinese shares have been pushed lower by tumbling Chinese real-estate stocks, as compared to a decade ago, while the price-earnings ratio of domestically-listed Chinese stocks have tumbled from 11.7 times to 8.4 times, and the ratio for overseas-listed Chinese stocks fell to 11.7 times from 14.7 times.

As Beijing steps up pace in the privatization of state-run enterprises and assets, the private sector is expected to be stimulated, allowing improvement in investment prospects in local equity markets, Wang said.

He shrugged off concerns that China’s slowing economy would have a negative impact on the return on equity investment, citing precedents in Japan.

“Despite an anemic 0.9 percent GDP growth rate between 1998 and 2010, Japan’s markets still yielded average annual returns of 17 percent during the period,” Wang said.

He advised investors to invest yuan-linked financial instruments that bet on business growth, because foreign exchange derivatives trading often result in losses for investors, based on his observations.

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