Never before for investors in India, a poll has been conducted with 35 participants from fund houses and financial advisers across Singapore, Malaysia, Hong Kong and India. The mutual fund experts from Asia share their insight on the investment climate for 2010. Here’s a snapshot of the poll results. 

Ms. Lakshmi Iyer, Head Product and Fixed Income at Kotak Mahindra Asset Management Company Ltd, shares her opinion on the growth prospects for 2010. “Countries like China, India are expected to grow at 7% plus rates next year, while slower pace of growth from developed nations which constitute a bigger share in world GDP is likely to mute the overall impact,” she says. However, the fiscal and monetary stimulus provided by central banks across the world may no longer be available in 2010. Lakshmi adds, “From the point of view of the developing world, inflation would emerge as the key concern in the upcoming year”.

Macroeconomic Outlook

• Economic power has begun shifting to Asia, most notably to the Asian economic powerhouse, China

• Moving forward, domestic consumption and investments, not exports, have to emerge as the more significant factors driving growth in Asia

• Current pace of economic recovery is likely to be unsustainable and growth in the US is likely to be anaemic in 2010

• The majority of the respondents polled believe that the massive government stimulus will continue to drive global growth in 2010, though the withdrawal of the stimulus, otherwise known as the “exit strategy”, would need to be well-executed and well-timed

Key Risks

• Government stimulus has played a key role in propping up the global economy, but once the stimulus is withdrawn, the fate of the global economy hangs in the balance

• Another key concern for many out there is the question of inflation, or for that matter, deflation. According to the poll respondents, the inflationary outlook differs for the developed and emerging markets. And for some, the spectre of inflation looks to be a longer-term threat, rather than an immediate one

Asset Allocation

Majority of the respondents to the poll highlighted equities as their top choice largely because of anticipated upside in the market brought on by the improving economic climate.   The view is supported by DBS Cholamandalam Asset Management Ltd. The fund house opines, “Equities are expected to outperform the other asset classes as the growth returns in the world economies on back of low interest rates and resumption of consumption demand. So we expect corporate earnings growth momentum to pick up led by consumer staple, banking which will lead to gains in equity market”.

• Equities have emerged at the pole position as the clear favourite for fund managers, financial advisers and investment experts with 73% of the votes

• Sectors that would lead the gains in the equity markets are: consumer staples and banking
  
• Cash (52%) holds the top spot for being the least preferred asset class to hold in 2010 for many of our respondents, while bonds (39%) comes in at the second place

• The main reason for most to underweight cash and bonds is because of its low returns and sensitivity to rate hikes

• The current stage in the investment cycle is defined by its improving growth, profit outlook, low interest rates and plenty of cash on the sidelines. This climate favours equities and other listed growth assets over cash and bonds

Top Sector: Commodities, energy and materials

As global economy recovers, respondents this year favored cyclical sectors. Top three sectors are Commodities, energy, and materials (45.4%), industrials and infrastructure (18%) and technology (12.6%). The real estate sector was the least favourite sector, with 35% of the votes.

• Construction activities have recovered in advanced countries and industrialisation of developing countries continues

• Increasing inflationary pressure and weakening dollar is beneficial to the performance of commodities stocks

Again with respect to India, the industrials and infrastructure sector will benefit from the government stimulus packages. Highlighting how the telecom sector has been a great story in the past, JM Financial Asset Management Private Ltd says, “Going forward, within the infrastructure space we expect power (excluding utilities), constructions, logistics to generate huge alpha over the next 3 years.

The FSM team works hard to ensure that investors are made aware of market movements, factors as well as investing concepts and guidelines that can help them make a better investment call. Apart from the website, FSM shows its commitment to investor education through investor forums and seminars.

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