HSBC Bank (Taiwan) Ltd (匯豐台灣商銀) yesterday advised investors to look toward the emerging market stocks for higher returns, as developed markets are still expected to be affected by looming uncertainties that will lead to greater volatility.
“The pace of economic recovery in the developed markets remains fragile and is highly susceptible to variables such as the upcoming US presidential race,” HSBC Bank’s Taiwan-based wealth development senior vice president Curtis Chen (陳宥辰) told a news conference.
Although expectations of a gradual US Federal Reserve interest rate hike cycle have been factored in by the markets, the looming change still poses significant downside risk, Chen said.
The US dollar is on track to strengthen in the fourth quarter and throughout next year, while central banks in Japan and Europe are under pressure to ease their monetary policies further as they have continued to fall short of inflation targets, Chen said.
Against the backdrop of a stronger greenback, Chen advised investors to reduce weighting in US stocks and seek positions in emerging markets due to improving fundamentals.
It is still too early to assess the full extent of a fallout from Brexit and its impact on the British economy, Chen added.
He said investors should be selective with high-yield bonds and switch to offerings with higher credit ratings and shorter durations.
However, he said that returns on the US energy sector’s high-yield bonds have begun normalizing after posting a significant rally in recent months, and that their default rates are projected to peak at 6.5 percent in January, before falling to 5 percent toward the end of the first half of next year.
Separately, DBS Bank (Taiwan) Ltd (星展銀行台灣) yesterday highlighted potential opportunities in Southeast Asian markets for Taiwanese businesses as the government carries out its “new southbound policy.”
Collectively, Indonesia, Malaysia, Singapore, Thailand, the Philippines and Vietnam represent a US$2.4 trillion economy with a combined population of 550 million and 5 percent GDP growth potential, DBS Bank economist Gundy Cahyadi told a news conference in Taipei.
Although the figure is lower than the 6.5 percent growth projected for China, it is higher than the 1.5 percent forecast for the US, Japan and Europe, Cahyadi said.
For Taiwanese businesses, retailers are advised to expand into Indonesia and the Philippines, where consumption is rising, while manufacturers and tech sector companies should tap into the Philippines and Vietnam, he said.
The Philippines has a working population that is more experienced with electronics manufacturing, while textile manufacturing in Vietnam is anticipated to benefit from government-backed incentives, he said.
Lesser-developed economies typically have the highest growth potential, but investments in these destinations also come with higher risks, he said.
In the long term, growth potential will be dependent on population growth, Cahyadi said, adding that apart from the Philippines and Indonesia, other Southeast Asian nations are beginning to see their working-age population grow at a slower pace.
However, Indonesia is still hampered by a lack of productivity in the manufacturing sector, where contribution from manufacturing to overall GDP growth has been on a decline since 2011, Cahyadi said.
Still, the Indonesian government is pushing for stronger investment growth by implementing further economic liberalization and tax amnesty laws as well as lessening hurdles to starting up new businesses, Cahyadi said.
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