Asia to lead shares up in year ahead

File picture: Alex Grimm

File picture: Alex Grimm

Published Jun 26, 2014

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Asia will spearhead gains in global equities in the coming year as ample central bank liquidity boosts shares, according to a worldwide Reuters poll that pointed to more modest gains for developed markets.

The vast majority of the more than 250 analysts and investors polled this week predicted virtually all of 21 stock indexes globally would rise.

Stocks have largely rallied this year, with many indexes at or close to record highs.

But with the global economy chugging along grudgingly at best, analysts said the main reason for a further rise was ultra-easy monetary policies offered by major central banks.

“Central banks of major economies will likely maintain an accommodative stance over the short run, providing sufficient liquidity for equities until the global economic recovery fully materialises,” said Chang Hee-jong, analyst at Hana Daetoo Securities in Seoul.

That flow of cheap cash has pushed up both equity and government bond prices, leaving only negligible, or in some cases even negative, real yields on bonds and making shares more attractive.

“Ample liquidity as well as the lack of attractive alternative investments play in favour of risky assets such as stocks,” said Gregorio de Felice, chief economist at Intesa Sanpaolo in Milan.

Last week, Federal Reserve Chair Janet Yellen signalled US interest rates would remain low through 2016 and suggested stocks are not currently outside of historical norms in terms of valuation.

That emboldened many fund managers who view the stock market rally has more life left in it.

 

ASIA TO STRIKE BACK

India aside, Asian shares have been the worst performers among the 21 indexes covered but, reflecting confidence in these markets, analysts expect them to recover strongly.

The majority of all end-June 2015 forecasts for Asian indexes - including Japan, China, South Korea, India, and Hong Kong - project strong increases compared with Wednesday's closes.

In contrast, the fairly hefty gains seen in major Western stock markets this year are expected to slow markedly as expectations for robust economic growth dwindle.

The US S&P 500, which has surged 6 percent to hit several record highs this year, is expected to gain only a modest 2 percent from here to year-end, although that would mark a new record.

Similarly, most major European indexes are expected to add only around 4 to 5 percent before the year is out.

“We are past that stage where we are looking at countries separately. Investors are saying I want high yield in stocks, so where do I go? I go to the emerging markets,” said Owen Nkomo, executive partner at Inkunzi Investments.

Developed stock markets rallied last year when investors fled emerging economies as they prepared for the US Fed to reel in its stimulus.

But while the Fed has already halved its monthly bond purchases, with more tapering to come, China's central bank is widely expected to ease policy - a move that would boost its economy and the region.

“The People's Bank of China is gradually shifting to easing its policy, which would benefit Hong Kong stocks as well,” said Daniel So, strategist at CMB International Securities Limited in Hong Kong.

The Shanghai Composite Index is expected to chalk up 11 percent gains before the year is out and Hong Kong's Hang Seng Index will climb almost 9 percent.

China's economic performance, however, has been patchy at best with exports lagging and further signs of rapid cooling in the property market.

India's BSE Sensex, which has bucked the Asian trend and is already up 20 percent this year on optimism over reforms from the new government, is set to jump another 10 percent by the end of December.

Brazil's Bovespa stock index has also gained this year, up about 4 percent, but analysts said upcoming presidential elections would decide how the market ends 2014.

An expected win for incumbent Dilma Rousseff in the October vote would put the index down 4 percent but if she loses, analysts expect a 16 percent gain. - Reuters

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