KUALA LUMPUR (July 7): Equities remain a preferred asset class on a 12-month horizon, driven by optimism against the backdrop of increased economic recovery aided by the vaccination rollout and better corporate earnings growth.
Standard Chartered head of fixed incomes, currencies and commodities Manpreet Gill said the Europe and the US markets will lead the upward trend partly due to their economies beginning to recover on the back of faster vaccination roll out.
“To us, the first half (of this year) was a lot about the recovery wave being centered in the US, but now we have been seeing for the past month signs that begin to radiate outwards to the rest of the world. Currently, we think that those recovery waves have reached European shores. Last month, for example, we raised our views on European equities, euro and the UK,” Gill said at a virtual briefing on the Standard Chartered Global Market Outlook second half 2021.
However, he noted that the recovery wave has yet to arrive in Asian emerging markets, and will continue to keep an eye on the market.
In the report, Standard Chartered said the overriding mood is likely to be one of continued optimism, albeit at a more sustainable pace, as the recovery wave radiates globally.
“Economic growth is set to extend as Covid-19 vaccinations enable most developed markets to approach herd immunity by the second half, with some emerging markets following by early next year. This is likely to occur as both fiscal and monetary policies remain very supportive in most major regions,” it added.
Against this backdrop, Standard Chartered also prefers riskier assets such as US dollar-denominated bonds across emerging markets, Asia and high-yield segments.
“We believe riskier US dollar-denominated bonds remain well-placed to outperform other bonds in the second half of 2021,” the bank wrote.
It noted that government bonds in the emerging markets have both faced considerable headwinds in the first half of the year as a result of rising US Treasury yields, concerns over emerging market sovereign finances following Covid-19 related stimulus and a tightening policy bias in China.
Standard Chartered said it preferred Asia high-yield bonds over the US and European high-yield bonds as the Asia high-yield bonds offer more attractive valuation relative to US and European high-yield peers.
While Standard Chartered expects equities and riskier US dollar-denominated bonds to lead the charge in the second half of this year, it also believes gold continues to play a role in diversified investment allocations to mitigate risk of inflation.
