In the report’s articles, three of our Investment Heads not only highlight the value they see in their respective areas but also spotlight the dynamics at play in pricing that value out.
Ooi Boon Peng (CIO for Fixed Income) has made the case for slow but stable US growth, low inflation and moderate rises in US interest rates in 2017.
That suggests the conditions for a further move to risk in both bonds and equities seems more than likely. Indeed he sees good yield value in Asian bonds, but is remaining nimble nevertheless.
A common thread running through both Kevin Gibson’s (CIO for Equities) and Nick Ferres’ (Head of Multi Asset Solutions) articles is the extent to which mispricing occurred as investors fled the growth related cyclical stocks (e.g. the banks, industrials and consumer discretionary) towards the “safer” stocks (i.e. those stocks less impacted by slow growth such as utilities, telecommunication services and consumer staples).
Kevin sees this in Asia, the emerging markets and Japan. Nick sees it throughout the global markets. Both are overweighting the cyclical stocks, particularly the banks, as a result.
The paradox is that today, in many instances those shunned cyclical stocks not only often offer the better value but also the higher dividends.
It is very easy to make the case for high dividend stocks, particularly within Asia, but this has been the case for several years.
If Kevin and Nick are correct, the cheap cyclicals - especially those offering high dividends - could well be the next asset class to rally and to price out a glaring valuation anomaly.
To spell it out, the cyclicals could be next in line, hot on the heels of high yield bonds, low volatility and then emerging market equities.
Will this occur in 2017? Are investors ready to take the plunge in 2017 having tentatively dipped their toes in the waters of 2016’s higher risk lake?
It is shaping up like it. And all three of our Investment Heads are ready to “spice up” their portfolios.
To read the articles by the Investment Heads, access the full report available here.
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