Pacific Money

Stocking Fillers for Asian Investors

With emerging market risks rising in 2014, analysts are predicting a mixed year for investors.

Stocking Fillers for Asian Investors
Credit: Xmas stocking via Shutterstock

“Twas the night before Christmas, when all thro’ the house/Not a creature was stirring, not even a mouse/The stockings were hung by the chimney with care/In hopes that St. Nicholas soon would be there” (The Night Before Christmas).

Asian investors have endured a seesawing year that saw the U.S. Federal Reserve delay and finally initiate “tapering”; emerging markets threatened by a feared liquidity crisis; new governments emerge in Australia and China; and a new economic policy from Japan dubbed “Abenomics.” As the region awakes to Christmas and the approaching Year of the Horse, what Asian investments might make the best stocking fillers?

Stocks: Emerging markets seen at most risk to the Fed’s reduced stimulus include Indonesia and Thailand. However, industrialized economies with greater export exposure such as South Korea and Taiwan could benefit from a strengthened U.S. economy.

As noted previously by The Diplomat, Japanese stocks are unlikely to post a repeat performance of the past year’s strong gains, while Australian equities face a tough year of slower growth and reduced monetary stimulus. Instead, Chinese stocks could see a turnaround along with the Hong Kong, Seoul and Singapore bourses.

AMP Capital’s Shane Oliver predicts improved global growth in 2014 along with low inflation and interest rates will provide “a positive backdrop for growth assets, even as bond yields gradually continue to drift higher.” However, he warns of a sharp sell-off in bond yields on Fed tapering or stronger than expected global growth, with more volatility ahead for stock investors.

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The Australian economist expects Asian shares to post a 14 percent rise in 2014 in local currency terms, doubling this year’s result but still below the 18 percent gain of 2012, with the Australian stockmarket to see a 12 percent rise. However, bonds are only expected to return around 3 percent, with property posting an 8 percent gain.

Bonds: Bill Gross, manager of the world’s biggest bond fund Pimco, has urged investors to abandon risk assets such as shares, saying cheap money policies have artificially inflated prices. “Give thanks, but not your wallet, to the Fed. Begin to de-risk, if you haven’t already,” he tweeted.

In Asia, global asset manager Schroder expects positive returns for Asian local currency bonds in 2014, helped by healthy balance sheets and relatively low gearing and leverage. Upward pressure on global bond yields “may be lower during 2014” given the Fed’s determination to keep the federal funds rate low for an extended period, according to the Malaysian Reserve.

On the downside, however, analysts have warned of further rises in U.S. bond yields, with the risk of higher global growth or a pickup in inflation further threatening returns.

Commodities: Gold has not glittered in 2013, with the precious metal diving by around 30 percent, hit by the prospect of reduced Fed stimulus along with an improving global economy and continued low inflation.

“Prices will likely remain under pressure over the short term as a combination of stronger U.S. macro statistics, higher equity markets and continued outflows of money from gold exchange-traded funds weigh on sentiment going into 2014,” INTL FCStone analyst Edward Meir was quoted as saying by the Australian Financial Review.

While the coal industry’s woes have been well documented, analysts remain optimistic on iron ore prices due to continued growth in Chinese steel production, although another resources upturn is not expected until around 2016 or 2017.

According to EFT Securities, copper, lead, platinum and palladium should benefit from a broadening global recovery in 2014.

Concerning agricultural commodities, increased global supply is expected to further dampen wheat prices, with corn and coffee considered by ETF Securities to have more favorable outlooks.

Real Estate: A preferred asset for many Asian investors due to its perceived stability, the property sector is set for further gains on 2014, helped by the re-emergence of Japan.

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According to a recent report by Urban Land Institute and PwC, Tokyo is the most favored investment market for 2014 due to Abenomics and efforts aimed at inflating asset prices. Shanghai ranks second for its investment prospects due to its “level of comfort” for investors, while Jakarta placed third despite a lack of market transparency.

Rounding out the report’s top five Asian markets for 2014 were Manila, which placed fourth due to its fast-growing economy, while Sydney ranked fifth, helped by a residential boom which has attracted solid investment from Chinese and other Asian investors.

Will Asia’s markets shrug off the effects of tapering in 2014? And which asset classes will perform the most strongly, among stocks, bonds, real estate, currencies and commodities?

Here’s hoping that Santa delivers to your Christmas stocking the best picks for the year ahead. Merry Christmas!