It is time for private bankers to advise clients to take more risks and turn to southern Europe and China as tail risks recede, according to Societe Generale Private Banking (SGPB) Hambros chief investment officer Eric Verleyen.
Contrary to past years, investors should consider leaving Germany -due to political risks attached to volatility in the markets – as analysts’ sentiment is more positive for southern Europe assets -specifically Spain where profit growth is finally in the green,SGPB suggests.
"We have a profit recovery in the area and expect a multiple expansion driven by profit growth," said Claudia Panseri, head of equity strategy at SGPB.
"A surprise may come from Italy or Spain, not Germany," she said, as the European Central Bank is injecting money in the southern states.
Verleyen recommends investors should turn to equities in Spain, such as investments in the Inditex Group (distributor of Zara clothing stores).
From China to LatAm
Asia and Latin America are "doing better", according to emerging market strategist at SGPB Kim Marsh.
By end-2012, investors saw a shift in China’s growth picture, with the country’s GDP expected to rise 8.2-8.3% in 2013 from 7.8% in 2012.
Brazil is expected to overcome its underperformance in 2012, with a GDP growth higher than 3-3.3% with a more stabilised real, and a sustained internal demand; while LatAm is expected to post stronger growth with limited inflation pressure.
Investors should turn to emerging markets corporate bonds, with investments directed to Asia in the first half of 2013 (specifically China), and overweight LatAm investment grade bonds and consumer sectors in Brazil in H1.
Investors should then slowly shift to LatAm in the second half of the year, said Verleyen, with added high-yields in Brazil and Mexico.
High-yield risk for 2013
Investment opportunities in high-yield, riskier, assets should also be considered in Europe and the US, with direct investments and assets allocated towards short duration high yield funds, Verleyen said.
Should interest rates go up later in 2013, funds with 1.6% interest-rate risk would still bring revenues expected at around 5%.
On the equity side, Verleyen said, investors should stay put on the Euro area and Japanese equity markets.
European banks are attractive
For 2013, the word is to overweight banks and insurers’ sub corporate bonds.
"We like to invest in banks, because fundamentals have improved," said Verleyen.