Sunday, 28 December 2008

Fund Managers Brace for a Difficult 2009

Recovery in equity markets likely only late next year or in 2010: poll

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Guanyu said...

Fund Managers Brace for a Difficult 2009

Recovery in equity markets likely only late next year or in 2010: poll

By CONRAD TAN
27 December 2008

Major fund managers in Singapore are bracing themselves for a possible deep and protracted global recession although they expect that Asia will emerge stronger from the crisis, according to a recent poll.

Sixteen fund managers surveyed by OCBC Bank’s wealth management unit on the investment outlook for the coming year said that the worst was likely still to come.

‘Fund managers have become very guarded about the investment outlook for 2009, given the exceptional magnitude and speed at which financial markets have deteriorated in the last six months,’ said Vasu Menon, vice-president of OCBC group wealth management.

‘The consensus is that a modest economic recovery will only begin in late 2009 or 2010. Meanwhile, fund managers are warning that things are likely to get worse before getting better.’

The ongoing deleveraging of financial institutions and sharper-than-expected earnings downgrades as the economic recession unfolds are likely to keep most share prices depressed in the coming months, the fund managers said.

‘A slower macro environment, going into the New Year, will inevitably bring further adjustments to corporate earnings and profitability,’ said DBS Asset Management, according to the survey.

And despite the large amount of liquidity that has been pumped into financial systems worldwide, a ‘full-blown recession in 2009 is unavoidable’, said Allianz Global Investors.

The ongoing deleveraging of financial institutions ‘will take a long time’ to complete, said First State Investments.

Philip Capital Management said that an essential indicator of a sustainable recovery in financial markets would be the narrowing of corporate bond spreads, which are still near record highs.

Lion Global Investors said that conditions in the US housing market must stabilise before it would be confident that the worst is over.

As a result, almost all the fund managers polled were wary of calling a bottom to equity markets just yet, said OCBC.

In fact, SG Asset Management expects the pace and size of earnings downgrades to increase, due to the worsening economic outlook worldwide.

ING Investment Management said that ‘investors should focus on cash flow and dividend yield over the next few months’.

Still, ‘extreme earnings downgrades have already been priced in’, said UOB Asset Management.

And most of the fund managers are confident that the countries in Asia will recover from the crisis faster than elsewhere.

‘The fundamentals are sound, and the region could pull through quickly when the cycle turns, whereas in the West, the problems appear more structural and will take longer to recover,’ said Aberdeen Asset Management.