Investors urged to hold nerve in crises

PUBLISHED : Tuesday, 19 April, 2011, 12:00am
UPDATED : Tuesday, 19 April, 2011, 12:00am


The first four months of this year have brought some of the worst natural disasters the world has seen.

First was a major earthquake in Christchurch, New Zealand that destroyed billions of dollars' worth of properties and businesses. Then, on March 11, Japan was hit with a double whammy of a huge earthquake and a tsunami, which also triggered a nuclear radiation crisis.

The unrest in the Middle East has added another worrying factor for investors looking to park their money in safe investments.

However, according to strategists and fund managers, these disasters should not significantly affect global economic growth or derail the two-year market rally.

Britain's Barclays Wealth advises investors to remain positioned and benefit from a resilient recovery.

'While we remain optimistic about the prospects for the global economy, we still urge investors to be on their guard as we all find it difficult to respond rationally to crises, and the financial costs of over-reaction can be high. Amidst these near-term uncertainties, we recommend investors take this opportunity to stay positioned and benefit from a resilient recovery,' says Manpreet Gill, Asia strategist at Barclays Wealth.

The investment bank and fund house also suggests four investment ideas for the second quarter.

Barclays says the United States equity market has shown sustainable momentum. Economic activity indicators in the country continue to strengthen, while consumer spending is holding up. Corporate profits have enjoyed their fastest rebound on record and US consumers appear increasingly resilient. The unemployment situation in the largest economy in the world is also improving.

Secondly, the mainland, which is the second-largest economy in the world, has vowed to tackle rising inflation, which is slowly getting out of hand, and target sustainable economic growth in the coming years.

The mainland has already launched its 12th five-year plan, which seeks to address rising inequality by targeting sustainable economic growth with an emphasis on domestic demand.

Barclays Wealth believes the plan will provide impetus for the stabilisation and recovery of Chinese equities as the prime lending rate is nearing its normalised level of about 7 per cent and inflation is likely to moderate during the second half of this year in the absence of commodity price shocks.

Barclays Wealth says it favours North Asian equities, particularly the stock markets of Taiwan and South Korea. These cyclical markets look good value and are best placed for the increased focus on developed world growth.

Lastly, Barclays Wealth recommends scaling back positions on fixed income and looking towards convertibles and floating rate notes. With a continued economic recovery, central banks will eventually raise interest rates.