Markets may hate uncertainty, but in the unfolding economic crisis, any hope of a quick return to the comparative predictability of a pre-Lehmans world is best left unstated.
For equity analysts and investors, one of the few sure things is that the down cycle has some way to run. And, as a result, institutions and individuals must be ready to reappraise strategies and rethink their stance on acceptable risk and target returns.
'In the current market environment, with high volatility driven by fears over a range of macro and political issues, no equity sector is immune to share price falls,' says Alexander Kobler, head of investment products and services, Asia-Pacific, for UBS Wealth Management. 'However, certain sectors exhibit defensive qualities and can provide investors with solid returns over the medium term.'
Specifically, what Kobler looks for are companies offering a high-dividend yield combined with low payout ratios. Other signs are a strong balance sheet and a history of paying dividends throughout the economic cycle.
More broadly, and that means in a global context, he now sees Asia, ex-Japan, equities as offering most attraction. 'The valuations are undemanding and at levels below the historical average,' he says. 'That said, in a period of subpar global economic growth, we continue to favour the defensive sectors such as consumer staples, telecoms and selected reits [real estate investment trusts].'
Another trend to tap into is the growth of Asia's middle class, particularly on the mainland. This is seen to be driving sales of luxury goods, which remain strong despite concerns about other parts of the mainland economy.
In terms of stocks not considered 'buys', Kohler is equally forthright. 'For some time, we have been cautious on the Hong Kong banks, but we are now increasingly bearish on the outlook for the developers within the property sector,' he says. 'Notwithstanding the relatively attractive yields, we see headwinds in the form of rising mortgage rates, increased supply, and slower demand from mainland buyers.'