Investors should be brave as recession fears recede

Filed in Knowledge Base by on March 6, 2013 0 Comments


As chief investment officer of HSBC Global Asset Management, Bill Maldoando oversees the company’s investment strategies in the Asia Pacific region out of his Hong Kong office. Maldoando has been in the asset management industry since joining HSBC in 1993 as a European derivative-based portfolio manager. An expert in Asian stock markets, Bill tells ET that he’s bullish on Indian equities as current valuations of companies are very attractive. He believes equities are the best asset class for investment in 2013.

Which is the best asset class for investment in 2013?

If you look at global markets, there is strong upside for equities in 2013. For investors, equity investments are the best option compared to other alternatives like bonds, fixed deposits, etc.

What makes you so bullish on equities?

Investors should be brave at this point of time as there is very less risk of the global economy falling back into recession. The riskreward ratio is in favour of equities. Last year, a large amount of flows had come into fixed income, gold and real estate as people were scared of equities. Now, a small change of flows into equities has take markets higher.

Which sectors of the Indian stock markets do you find attractive?

Defensive stocks like consumer and health care are currently very expensive compared with banking and cyclical stocks like capital goods and metals. If defensives are expensive , they are no longer defensive. In terms of valuation, defensive stocks are 50% more expensive than cyclical stocks.

Recent quarterly earnings of India Inc were in line with expectations. Are you considering a ratings upgrade for Indian companies?

The worst of the earnings downgrades is behind us. Rather, we have seen more earnings upgrades over the recent past. We expect earnings for Indian companies to grow by around 15% in 2013. Moreover, one has to note that India has the lowest earnings volatility among any country in the world, including the US and China.

The Sensex gave a stellar 26% return in 2012. Do you believe valuations are still attractive after last year’s sharp run-up?

Indian market valuations are looking very cheap compared to other regional markets. Given the kind of corporate profitability, Indian companies are trading at attractive valuations .

What is your investment strategy when it comes to putting your money in Indian companies?

India is one of the fastest-growing economies in the world. However, looking at GDP numbers is not a good way of making investment decisions as there is no correlation of corporate profitability with GDP numbers. We are more interested in companies that are cheap and profitable and, thus, we have a stockspecific , bottom-up approach of investments.

The Indian economy is expected to grow by about 5.5-6 % in the current fiscal year. Is 8 -9 % growth a probability?

The amazing Indian demographic profile of young population will drive growth as the country is highly dependent on consumer spending, unlike China (which is more export oriented). If we remove inefficiencies in the economy like subsidy, price control, etc, we can see a very healthy growth rate going forward.

Are the recent reforms enough to bring the economy back on growth track, or are bolder reforms required?

I expect the monetary and fiscal policies to remain broadly supportive of economic growth. We are more encouraged by the fact that the government is pursuing structural reforms to sustain economic growth.

Corporates have not announced big expansion plans due to high interest rates. How do you expect future growth to come in?

The increasing loan-to-deposit ratios in most Asian countries have resulted in banks generally tightening lending standards. This coincides with European banks reducing their exposure to emerging markets as part of their deleveraging. We expect more corporates to turn to the bond markets for funding.


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