US funds giant warns of global double-dip

PUBLISHED : Friday, 06 January, 2012, 12:00am
UPDATED : Friday, 06 January, 2012, 12:00am


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BlackRock warned of an increased possibility of a double-dip global recession, because of fiscal and monetary policies in Europe and the United States. The US fund-management giant referred to Washington's inability to tackle its chronic budget deficit and foot-dragging over the euro zone's sovereign debt crisis.

'A year ago we had the odds of a double-dip in 2011 at about 20 per cent. Today, we've said the odds of another global recession in 2012 are probably close to 30 to 35 per cent,' said Russ Koesterich, global chief investment strategist for BlackRock's iShares business, yesterday.

But he saw patches of sunshine in the stock markets in the CASSH - meaning the economies of Canada, Australia, Singapore, Switzerland and Hong Kong.

He expected them to grow significantly faster than other developed economies this year. 'Near-term, we hold overweight views for Hong Kong and Singapore in particular.'

The world as a whole should experience slow growth in 2012, he said.

While maintaining an overweight position in commodities and gold, Koesterich said he was overweight in equities rather than bonds in the longer term - assuming the euro-zone crisis did not worsen.

Philip Poole, HSBC's global head of macro and investment strategy, said euro-zone secession was not very likely. 'The pieces have started falling into place,' Poole said, but added it would probably take years to solve the euro-zone debt crisis.

He said the financial markets in emerging economies would continue to be enmeshed with developed economies, even as their gross domestic product growth outstripped that of developed economies.

Positive, long-term equity investment opportunities would likely come from emerging economies, Poole said. These included in areas related to consumption, urbanisation and infrastructure spending.

Bill Maldonado, HSBC's chief investment officer for the Asia-Pacific region, said Asia-excluding-Japan equities would be weak in the first quarter of 2012, but would improve in the second half, hopefully buoyed by supportive government policies.

He also said the MSCI Asia Excluding Japan Index was now trading at below its average of 1.9 price-to-book ratio, representing a good buying opportunity. 'To buy cheap is very important for investors in Asian equities,' Maldonado said, as statistics showed that buying a stock at below 1.5 times price-to-book ratio gave an 85 per cent chance of reaping a gain in a year's time. 'Valuation is the key - but it is often ignored.'

Chinese stocks, as well as stocks in South Korea, Australia and Thailand, were good value, he said.

Asian local currency bonds would also emerge as an attractive asset class, because they were supported by good corporate earnings and an expected appreciation in Asian currencies, Maldonado said.