Growth issues favoured as inflation fears recede
Global investors should buy bonds and move into growth stocks over cyclical counters as fears of rising inflation prove to be unfounded, according to SG Securities.
Global equity strategist Bijal Shah said United States cyclical stocks had already started to slow, which investors should take as a signal to sell these counters.
'The interest rate sensitive sector is already slowing . . . and that means you should sell your cyclical manufacturing stocks and buy growth stocks,' Mr Shah said.
Fears of higher inflation would subside next year, causing bond yields to fall, he said.
'If inflation fears prove to be unfounded, you could see big rallies in bond markets,' Mr Shah said.
Large developed economies such as the US, Japan and Germany were suffering from overcapacity, which meant inflation would not rise.
Mr Shah expects any increase in US interest rates at the Federal Open Market Committee meeting on Tuesday to be the last until at least the end of next year.
The market has already priced in an increase of 25 basis points.
If the Federal Reserve was too hawkish on inflation, it could push up unemployment by the middle of next year.
Restructuring of the US economy to replace labour with technology was also helping to keep wages down and maintain low inflation.
'US employees do not fear being replaced by Mexicans but being replaced by machines,' Mr Shah said.
Such moves would boost technology stocks, which meant investors would have to overweight the US market to gain exposure to the sector.
'The US is really the only place where you can get strong technology plays,' Mr Shah said.
Hong Kong was expected to see a robust turnaround with the economy growing at between 4 and 5 per cent next year on the back of export growth in the mainland.
The SAR would also gain if Beijing joined the World Trade Organisation.
'I can't really see big negatives on the horizon [for Hong Kong],' Mr Shah said.