Citi gives the thumbs up to Asian equities amid global recovery

Economy August 21, 2014 01:00


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CITI REMAINS positive on equities in Asian countries, including Thailand, given their cheap valuations, while suggesting more investment in banking and communication stocks and short-term bonds, in light of its estimate of this year's global growth at 3

Haren Shah, chief investment strategist for wealth management in Asia-Pacific, said yesterday the global economy has continued to improve.

Citi’s research released in April predicts the global economy expanding 3.1 per cent. Asia is expected to accelerate the most at 6 per cent this year and next.

Thailand is seen picking up 1-2 per cent this year, up from the earlier projection of 0.5 per cent, and 4 per cent next year, up from 2.8 per cent.

Political and economic stability are expected to drive growth, while exports could also help boost the economy on the back of the improvement of major economies, including the United States, Europe and China.

Investors should be longer in equities than bonds and hold short-term bonds only now. The market could be volatile due to various variables – political uncertainties in some parts of the globe, the US Federal Reserve’s unwinding of its quantitative easing programme and the estimated rises of the US interest rate in the middle of next year.

The Fed is expected to hike the fed funds rate by 50 basis points for the first time in the middle of next year.

However, foreign capital continues flowing into Asian stock markets and the Thai bourse.

This year’s mergers and acquisitions activity is expected to run at nearly record pace and that will boost investment in stocks.

“Prices of Asian stocks now stay above the past averages. But foreign investors still go into Asian stock markets with a focus on cheap stocks. Now, we will likely see money come into markets in China, South Korea and Taiwan as they continue showing good performances amid the global economic recovery,” he said.

Foreign investors remained positive on the Thai stock market. Customers should overweight banking and communications stocks. Citibank is neutral on energy stocks and underweight on consumer and property stocks.

“At the same time, if we are right and the global economy strengthens in the second half, commodities could also see positive sentiment return over the next 12-18 months,” he said.

There is a neutral view put on gold. The global economic recovery has made gold less attractive. It is expected to move to be no less than US$1,000 an ounce and at about $1,215.

The unexpected flare-up in Ukraine and the subsequent annexation by Russia of Crimea raised tensions between Russia and Western countries.

Risks remain, however, governments and central banks across the globe are expected to be cautious.