Strategists question returns on bonds as the outlook for stocks brightens
The first half of the year was a bumpy ride for global equity investors, with uncertainty over the Iraq war, the Sars outbreak and weak economic conditions taking prices to lows in March and April.
Since then, stocks have turned upwards, and further cuts in interest rates are raising questions about whether bonds will still deliver the kind of returns that have helped investors through the long bear market. The Dow Jones Industrial Average has risen 8.73 per cent and Hong Kong's Hang Seng Index has gained 3.38 per cent this year - a welcome respite after the weak performance of equities over the past three years. The biggest stock market gains in Asia have been in the Philippines, which has soared 24.14 per cent this year, and Indonesia, which is up 18.62 per cent.
Among the optimists for the stock markets are JP Morgan's Asian strategist Adrian Mowat, who declared in a recent report: 'I remain bullish.' His approach for moving further into equities is to look for stocks with a history of good dividend payments and not to take a national or sectoral path.
'As someone born in Aberdeen, Scotland, a notoriously thrifty place, I like to call the style Gasp (Growth At a Scottish Price), with that right price being a reasonable dividend yield and a 'show me the money' track record of consistently rising cash dividends,' Mr Mowat said.
Fund managers were expected to take more risk by buying more equities and moving away from safer assets such as government bonds, he said. As this happened, investors would initially be attached to high-yield stocks with a history of paying good dividends. Bonds may soon be in for a fall, according to Mr Mowat.