BL: Dump U.K. Stocks to Buy Emerging Asia Shares, Julius Baer's Lee Recommends
By Shiyin Chen
March 24 (Bloomberg) -- Investors should get out of the U.K. as it tackles its fiscal deficit and buy stocks in Asia’s emerging markets on expectations China will allow the eventual appreciation of the yuan, Bank Julius Baer & Co. said.
The Zurich-based bank, which oversees $142 billion of assets, this week advised investors to switch to markets including China and Indonesia, and is “tactically positive” on Thailand after its valuation lagged behind regional markets.
“If there’s one country that we’re extremely negative on, it’s the U.K. because of all the structural problems that they still have to grapple with,” said Lee Boon Keng, Singapore- based deputy chief investment officer at Julius Baer. “China is a megatrend and the recognition that China wants to play a leading role economically in the world sets the tone.”
A recovery in Asian stocks has outpaced the U.K. in the past year, with the MSCI Asia-Pacific excluding Japan Index climbing 71 percent compared with a 44 percent gain in the FTSE 100 Index. Concern that central banks worldwide will withdraw stimulus to curb inflation and widening budget deficits in Europe has capped gains this year, with the two gauges rising less than 5 percent.
The pound fell this year against all 16 of its most-traded peers tracked by Bloomberg amid concern the U.K. will struggle to narrow a budget shortfall that’s close to that of Greece.
‘Daunting Task’
The U.K.’s deficit is set to reach 12.6 percent of gross domestic product, the government said, compared with 12.7 percent for Greece. Efforts to tackle the shortfall may be complicated by an election that must be held by June, Lee said.
“One of the biggest problems the U.K. has is that it’s pretty much on its own, whereas Greece, as part of the Eurozone, has a lot of levers to pull,” he said in an interview today in Singapore. “It’s a small economy having to stand on its own, having to solve all of its problems. That is a daunting task.”
The prospects for China’s economy looks brighter given the prospects for personal income growth and with the yuan set to become the world’s reserve currency over the next two decades, Lee said. Further declines in share prices in China, India and other parts of Asia would be an opportunity to add to holdings in those markets, he said.
The Shanghai Composite Index has dropped 6.6 percent this year, the fifth worst performer among 93 indexes tracked by Bloomberg globally, after the People’s Bank of China twice ordered lenders to set aside more funds as reserves. Bombay Stock Exchange’s Sensitive Index is little changed in India, after the central bank raised borrowing costs last week for the first time in two years.
“You have to be mindful of the downward pressure that’s going to be exerted on asset prices in this part of the world as it embarks on restrictive policies,” Lee said. “But Asia is a ‘buy on dip’ proposition. If prices go down another 10 or 15 percent, you should be adding to your portfolio.”
In China, Julius Bear favors “centrally supported banks” that will benefit from growing incomes in the nation, as well as insurance stocks, Lee said. The investment company also likes renewable energy shares such as China Longyuan Power Group Corp., the nation’s biggest wind-power producer.
To contact the reporter on this story: Shiyin Chen in Singapore at schen37@bloomberg.net
Last Updated: March 24, 2010 03:49 EDT
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If you take anything I say as advice, you're crazier than I am.
