KUALA LUMPUR (Oct 24): HSBC Global Asset Management (HSBC) 4Q14 investment outlook report revealed that corporate assets and not government bonds would offer better returns to investors in the medium to long term.
Riskier assets like equities would offer the best opportunities based on valuations and long-term fundamentals, it added.
However, it noted that the valuation gap between corporate assets and government bonds had narrowed over the past year.
The report said the relatively higher level of risk is expected to generate bouts of volatility in the short run.
Lim Eng Seong, Head of Retail Banking and Wealth Management at HSBC Bank Malaysia Bhd (HSBC Malaysia) said, “As the market moves to an environment of rising interest rates as a result of normalisation of US monetary policy i.e. withdrawing liquidity from the market in the long term, we expect a repricing of assets as risk premiums will inevitably change.”
However, HSBC Malaysia said the country’s sound macro fundamentals and government policies should help cushion the effect of volatility in the equity market due to increasing interest rates in the US.
“Malaysia’s sound macro fundamentals such as the current account surplus and low inflation will, however, help weather potential fall-outs arising from the increasing interest rates in the US,” Lim added.
HSBC Malaysia also said that government policies such as reform of fuel subsidy and the implementation of goods and services tax next year are “positive policies” to the economy.
It noted that institutional investors, particularly the government affiliated funds and corporate pension funds who dominate the Malaysian equity market make Malaysian equities expensive.
However, recent under-performance could open up opportunities.
Lim advised that investors should stay globally diversified to manage risks and returns in the Asian markets as he expects volatility to continue.
“Strong credit and stock selection will help to unlock returns in an environment where risks are being re-priced,” said Lim.