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Asia may take the lead in bull market
INVESTORS should stay in stocks because even though the bull market is ageing, a termination of the uptrend that began in 2009 is not yet imminent, said Lim Say Boon, DBS Bank's chief investment officer for group wealth management and private banking.
However, because US equity valuations are now not cheap, Asia's superior economic fundamentals should see this region assume leadership of the bull market.
At a presentation yesterday on the investment outlook for the second half of 2014, Mr Lim said that instead of an outright end to the bull market, a more likely scenario would be a significant correction, but beyond that, global equities should push higher.
"The outlook for global equities continues to be dominated by moderate growth, stimulatory monetary policies and low volatility," said Mr Lim.
"Economic growth in developed markets remains modest and inflation benign. So the US Federal Reserve is in no hurry to raise rates from near zero, even as it moves towards the end of quantitative easing (QE)."
Wall Street last week rallied to new highs after the Fed's latest Open Market Committee meeting, at which it said "a highly accommodative stance of monetary policy" is still appropriate, and that interest rates will stay unchanged "for a considerable time" after the QE stimulus ends, especially if projected inflation continues to run below 2 per cent.
Apart from the Fed, Mr Lim also highlighted the monetary accommodation by the European Central Bank and the Bank of Japan, while also pointing out that China's economic growth rate appears to be bottoming out and that India's new business-friendly government has inspired renewed confidence.
"This is not a typical environment for a bear market," said Mr Lim, adding that even if it was, it would be useful to differentiate between markets. His analysis shows that the Shiller cyclically-adjusted price-earnings multiple for US stocks at 25 is near its 2007 level, that complacency is high and that US equities are in a "grey area between greed and fear".
As a result, the recommendation is to take on more weight in Asia ex-Japan and emerging markets.
"The battle between bulls and bears in the emerging markets and Asia ex-Japan has been intensifying over the past year, with the bulls buying the dips higher and bears selling the rebounds lower," said Mr Lim.
"Something has to give. Given Asia's superior fundamentals we would be inclined to bet on a breakout in favour of the region's equities. And with that, a rotation in the leadership of the equities bull market."