Top 4 Investment Opportunities In 2015

Date: February 12, 2015

Asian markets performed reasonably well last year. More than half outperformed Wall Street, and most of them ended 2014 in positive territory.

Indices Price as of 31 Dec-14 2014 Performance (%)
China A50 11,517.68 62.2
Shanghai Composite 3,234.68 52.9
CSI 300 3,533.71 51.7
Nifty 8,282.70 31.4
Philippines SE Index 7,230.57 22.8
Jakarta Composite 5,226.95 22.3
Thailand SET Index 1,497.67 15.3
Hang Seng China Enterprises Index 11,984.69 10.8
Nikkei 225 17,450.77 7.1
STI 3,365.15 6.2
ASX 200 5,411.00 1.1
Hang Seng 23,605.04 1.3
KOSPI 1,915.59 -4.8
KLCI 1,761.25 -5.7
MSCI AC Asia Pacific Index 137.87 -2.5
Dow Jones Industrial Average 17,823.07 7.5
S&P 500 2,058.90 11.4

Source: Bloomberg

Looking ahead, policy divergence is expected to be one of the key themes. The US Federal Reserve is expected to hike interest rates in 2015, which will be the first time since 2006. On the other hand, the European Central Bank (ECB), Bank of Japan (BOJ), and People’s Bank of China will continue on a path of further policy easing. This should see the greenback strengthen further, as well as prompt some volatility and present local investment opportunities.

Here is a deeper look at some of the key markets:

US

The labour market and manufacturing sector have been showing signs of traction, with readings from non-farm payrolls steadily improving and staying above the 200,000 mark for nearly a year.

Besides the improved employment outlook, lower oil prices are likely to help drive consumer spending, which will ultimately benefit consumer discretionary stocks. Improved consumer sentiment will fuel hiring that will further lift the overall economy.

Possible headwinds to look out for include a stronger US dollar and eroding overseas earnings for multinational companies. However, with US inflation expected to stay benign and excess capacity around the globe, rate hikes are unlikely to creep in before the middle of 2015.

Eurozone

The ECB’s US$1.3 trillion quantitative easing (QE) programme rolled out in January has prompted renewed weakness in the euro .This is expected to have a positive impact on European equities. A weaker Euro could be beneficial for European businesses, particularly exporters. This will help exports become more competitive and also stimulate overseas earnings.

However, with export demands from outside Europe accounting for a significant part of corporate earnings, a lot hinges on the recovery of global demand. This places the spotlight on China, which is the Eurozone’s second biggest trading partner. With China possibly bracing for slower growth ahead, it is shaping up to be a bumpy ride for European equities.

Japan

A range of catalysts are set to lift Japanese equities in 2015.

Firstly, the Japanese yen is set for further depreciation with Prime Minister Shinzo Abe receiving a mandate from the December snap elections to push ahead with Abenomics. A weaker currency typically boosts equities as exporters such as automakers get a lift from overseas earnings.

Secondly, the consumption tax hike, which was scheduled for October 2015 but postponed by 18 months, will be positive for consumer sentiment. Potential beneficiaries include retail and consumer discretionary stocks.

Thirdly, local equities will get a boost with the portfolio shift by Japan’s US$1.3 trillion Government Pension Investment Fund to riskier assets. Part of the reallocation by the pension fund will involve raising its share of domestic stocks from 12 percent to 25 percent.

The long-term risk is that uncertainty over fiscal reform and an effective growth strategy remains, which may eventually weigh on investor confidence.

China

Chinese stocks have had a good year, benefiting from relatively low valuations and lifted by investor speculation of stimulus measures.

2015 is poised to be a tougher year as most market watchers predict slower growth ahead for the Asian giant, which will be the new normal. This could sap some of the market optimism, it will also be against the backdrop of a rising debt burden and property sector slump.

According to China’s house price index, the drop in new home prices worsened in December to 4.3 percent from a dip of 3.7 percent in the previous month. A further slide will weigh on other related industries such as furniture and construction, as well as industrial commodity prices and mining stocks.

Singapore
Banks typically have a huge impact on the Straits Times Index (STI) due their significant weightings on the index. The good news is that the impending interest rate hike could be a major upside catalyst, as banks are set to benefit from higher interest margins.

Fundamentally, local banks have been doing well with DBS Group Holdings, Oversea-Chinese Banking Corporation, and United Overseas Bank recently outperforming analyst expectations in third quarter earnings, according to Bloomberg data.

More retail investors could also turn their attention to banking stocks, thanks to new exchange rules rolled out in January. Lot sizes were adjusted to 100 shares per lot, down from the current 1,000 shares. This lowers the entry level of investment in relatively higher priced blue chips, which could spur more buying interest.

This article is contributed by IG

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