Emerging market equities to outperform bonds in the long term

It's something Singaporean investors must consider.

Based on its latest Investment Quarterly, HSBC Global Asset Management (HSBC) reveals that emerging markets including China, India and Indonesia will continue to outperform developed world economies where on-going fiscal pressures, weak consumption and unemployment rates remain high.

Here's more from HSBC:

HSBC expects that emerging markets will continue to grow at a healthy differential relative to the developed world in 2013 and 2014 yet at a slower pace than in the 2000s as a number of the larger economies begin to mature and China, in particular, struggles to grow led by consumption rather than net exports and investment.

In this context, emerging market equities are poised to outperform bonds in the long term, supported by strong and sustainable corporate profitability and the appreciation potential of emerging markets currencies.

Herve Lievore, Senior Macro and Investment Strategist at HSBC Global Asset Management said, “As emerging markets have outgrown the developed world, their global influence has also increased, resulting in a shift in the centre of the global economy. Investors should be wary of caveats which include the on- going euro zone crisis, US fiscal adjustment, risks to China’s growth outlook and potentially asset price bubbles from excesses that will inevitably get in the way from  time to time.”

Bill Maldonado, Regional Chief Investment Officer, Asia Pacific at HSBC Global Asset Management said, “The take-over by emerging markets as the global growth engine drives investors to focus on emerging markets and look for long term investment opportunities. We continue to favour emerging market equities especially those in Asia including China and India, due to low valuations and supportive corporate profitability. Corporate bonds, in particular high yield bonds look more attractive than government bonds as they offer higher yield.”

In Asia, HSBC continues to hold the view that China is likely to achieve a soft landing. Economic reforms and liberalisation are expected to continue with a focus on boosting domestic consumption with the new leadership now in place. In the short term, the bias of monetary policy is probably slightly more restrictive than it was a few months ago given that inflation has ticked up, but is not, in HSBC's view, enough to derail growth.