I'm more optimistic on Asean stocks
Mr Marc Lansonneur, regional head of investment teams and market solutions at Societe Generale Private Banking in Singapore, gives his perspective on market conditions and new investment opportunities.
How do you see the current general market environment?
Although overall, the macro fundamentals still look positive, the past couple of months have dealt a blow to emerging markets.
International monetary conditions tightened because of talk that the US Federal Reserve will taper or scale back its stimulus, commodities are moving out of their supercycle, and China's economy is slowing down.
This is a triple whammy, revealing that underlying factors may not have been quite as rosy as the market thought.
Whereas expectations for early this year favoured emerging markets over developed markets, developed markets are looking more and more like the turtle which outran the hare, edging past their emerging-market counterparts one by one.
So you're quite negative on emerging markets?
There are positive fundamentals to look at, such as growing domestic consumption and large infrastructure plans recently announced in countries like Mexico and the Philippines. Success in these markets could lift growth potential, and, in turn, fuel a rise in asset prices.
Similarly, China's fall from grace as the global growth powerhouse may be exaggerated. Her measured move towards structural reforms at the expense of near-term growth may be the right strategy for sustainable growth after all.
There seem to be signs of economic recovery in the United States and Europe. How can investors best position themselves to take advantage of it?
As the economy and rates return to normal, we keep a more positive stance on stocks and high-yield corporate bonds, rather than government and investment-grade bonds.
We stay overweight on US stocks, where we continue to favour cyclicals and financials. After the recent equity and bond sell-off, euro-zone assets now appear more attractive, but volatility is here to stay.
Should investors get out of emerging markets, then?
Emerging-market assets should continue to be under pressure. We think that a powerful shift in the thematic drivers of global emerging markets is occurring.
Therefore, we suggest buying developed-market equities at the expense of emerging-market stocks.
Going into the fourth quarter, what are the key risk factors for investors? Some upcoming bumps in the road might include renewed noise around the US debt-ceiling debate later this summer, fuelling concern - unwarranted, in our view - about a repeat of 2011.
There is also uncertainty about the successor to the Fed chairman, Mr Ben Bernanke - Ms Janet Yellen or the potentially less-stimulus- supportive, less-consensus-building Larry Summers.
How should my portfolio be balanced right now?
In such a volatile market that is driven in the short term by technicals and flows more than fundamentals, it is wise to keep a larger amount of cash for available opportunities.
The recent equity-market correction is offering attractive points of entry on selective names in the US, Europe and Asia.
For a classic balanced-risk portfolio, we would advise 45 per cent equity, 30 per cent credit, 20 per cent cash and 5 per cent commodity exposure.
As for the cash portion, we favour US dollars, which should gain against most currencies by the year end.
Within Asia, which equity markets do you favour?
We tend to be more optimistic on stocks from Asean countries, especially Thailand and Malaysia, as they would most likely benefit from Japan's improving economic growth.