TIMING is almost always a tricky issue when it comes to investments.
Since the sub-prime crisis ballooned in the third quarter of last year, strategists' expectations of a recovery in markets have been pushed out further in time.
Most advisers now say that markets will not be out of the woods until 2009.
Two private bank strategists share their views on where you could find value in the short term.
Tan Sing Hwee, SG Private Banking regional chief investment officer, prefers to take a thematic approach to investments as the themes cross all asset classes.
'Three to five years from now, we can put a circle around this time to say this was the best time to invest. Could markets get lower from here? You have to be prepared to hold your investments and it will be okay.'
The first major theme she sees is inflation, which she says is a structural trend in the long term.
'We do not discount the possibility that in the short term inflation could trend off towards the year-end. But it will not be a huge drop.'
The bank has offered clients a number of products to help clients take advantage of and hedge against inflation.
One is in the structured products space, where clients can earn a coupon linked to inflation indices, or profit from the outperformance of one index against another.
A CPI index, for example, can be paired with an equity market index.
Other possibilities as inflation hedges are emerging market inflation- linked bonds and commodities.
She also favours new technologies in the area of alternative energy.
The second major theme is foreign exchange, led by what she sees as a trend among currencies of a 'gradual depegging' from the US dollar.
Those countries with strong current account surpluses are expected to appreciate. She expects the US dollar to strengthen against the euro but it is likely to weaken against Asian currencies.
The third theme is valuations, which she says are 'somewhat attractive' in developed markets. But this is less so for emerging markets.
The bank's 'relative preference', she adds, is Japan. She also likes Asian financials.
Funds appear to agree.
The latest report on fund flows by EPFR Global finds a shift in sentiment towards Japan, which has seen nine straight weeks of net inflows, ending a US$26 billion 15-month selling streak.
Ms Tan says that value is also emerging in distressed securities.
'Our most preferred asset class is alternative investments. We're cautious on global equity, neutral on bond. But we like the distressed story where we see a great opportunity, almost once in a lifetime.'
Deutsche Bank Private Wealth Management chief investment officer (Asia) Chew Soon Gek says that the US will dodge a technical recession, but growth is likely to be below 2 per cent.
The 'big imponderable' is oil, she said. She expects oil to remain at about US$140 for about 12 months.
'Overall, we expect that production may not be able to keep pace with growing demand, especially from Asia. So the reality is that the oil price is likely to remain elevated.'
That the global economy has held up despite the US credit crisis and rising oil price is a testimony to the rise of new growth markets.
The bank's forecast for the global economy is 3.5 per cent growth in 2008 and 2009, from 5 per cent in 2006 and 2007.
Equity market valuations are attractive, she says, with price-earnings multiples below their long term averages.
'Global equities are now trading at 13 times price earnings versus 16 times. Equities have not been as favourably valued since the early 1990s. It is crucial to monitor how earnings estimates develop with downward earnings revisions during the year, and the extent margins may fall with rising costs.'
The preferred markets are Singapore, the US, Taiwan and China H shares.
Asian markets with a high oil dependency such as Thailand, the Philippines, Korea and India look 'tactically vulnerable'.
In the bond market, her preference is for investment grade corporates over government bonds.
Local currency emerging bonds in Asia are set to be negatively affected by monetary tightening and currency depreciation.
As for the high yield market, an expected rise in default rates into 2009 suggests that it is too early to invest.
On the commodities theme, Ms Chew is positive on equity funds invested in agricultural and energy-related commodities, oil services companies and arable land.
'The structural outlook is intact for soft commodities . . . Over the past year, commodity prices continued to climb despite weak stock markets. Commodity cycles, moreover, tend to be structural and long, of which the current upswing probably still has potential upside,' she says.
This article was first published in The Business Times on 16 July 2008.
