KUALA LUMPUR: Equities, which were the best performing asset class in 2014, will still be the ideal investment choice this year as the global economy is still poised for growth and interest rates are likely to stay low, said Eastspring Investments Bhd chief investment officer Chen Fan Fai (pic).

Citing sources from the International Monetary Fund, Chen told the Alliance Bank 2015 Investment and Market Outlook Forum on Saturday that projections are positive on global growth even though the figures have been revised downwards since October 2014 to 3.5% from 3.8%.

“In October, analysts were more positive on the global economic outlook but come January this year figures were tapered down. The key point, however, is that the global economy is still growing.”

And between equities and bonds, Chen said global equities look poised for better returns compared to bonds.

“Given the scenario where there is still growth and low interest rates, which are likely to stay low for quite some time, it is a very ideal period for risk assets such as equities,” he said.

He also said there is a case for investing in bonds for income, though investors might see subdued returns in terms of capital gains.

Equities, he noted, were the best performing asset class in 2014 and had gained over 20% returns in the US, while Asia as a whole gained 10%-12%. Malaysia, however, underperformed and was down by 2% in returns, said Chen.

Meanwhile, commodities were the worst performing asset class last year, mainly due to slowing global growth.

“The main reason for this decline is that global growth isn’t as strong as it used to be and we’re actually approaching the tail end of the commodity cycle,” he said. He attributed this to slowing consumption from emerging economies, such as China.

Regionally, Chen said Asia was the preferred investment destination as it had better valuations.

“We like Asia the most because the earnings are there and valuations are lower,” he said.

Chen described the US as a comfortable choice for investors but said he much preferred Asian markets in terms of relative performance.

He added that most Asian markets are in the fair value range with Korean and Indian markets having the most encouraging forecasts.

Expanding on Malaysia, Chen said there is a possibility of a rebound in the Malaysian market in the short term as valuations are inexpensive and that stock market prices have come down.

Chen, however, cautioned that Malaysia is likely to face more headwinds due to its weakening currency though Asia as a whole stands to benefit from cheaper oil prices.

“There will be a bounce for Malaysia but, on a relative basis, our neighbours will do better. [So] while valuations are fair, we are neutral on Malaysia in our regional funds as it faces multiple macro headwinds. In such an environment, stock-picking is key.”

Chen advised investors to focus on sectors such as construction and technology, which stand to benefit from sectoral upturns. He also recommended utility companies with visible and resilient earnings and US dollar or raw material beneficiaries, such as glove counters.

Chen said investors should not keep cash as it is the worst possible option.

“Of all the asset classes, cash is the least preferred due to its low returns. You can get better income buying bonds and [when cash is] compared against equities — it is a no-brainer,” described Chen.

The forum also featured other notable investment experts such as Alliance DBS head of research Bernard Ching and The Edge Media Group executive chairman Datuk Tong Kooi Ong.

This article first appeared in The Edge Financial Daily, on January 26, 2015.