The Dutch pension asset manager's Asia Pacific head of real estate says his team has just had one of its busiest years ever and that 2021 is looking similarly promising.
Chew expects the US economy to avoid a recession, as strength in the US export sector partially mitigates some of the effects of the US housing downturn. Asia is expected to grow by 8% in 2008, supported by continued consumption and investment growth. The emerging economies will enjoy strong growth and partly decouple from growth trends in the developed world, but overall global growth should weaken.
In the US, the housing market is weak and credit conditions will take time to normalize, Deutsche bank notes. Global central banks are highly likely to be accommodative in policy, having the benefit of hindsight from the Japanese banking crisis.
Chew expects lower inflation and lower rates in 2008 compared with 2007. Headline inflation in the US could rise to 4% in the first half due to base effects from oil and food prices. However, it should retreat significantly as a result of weak capacity utilisation, slowing domestic demand and most importantly, the absence of a wage price spiral. Core inflation remains well-behaved at a 2 to 2.5% range.
In China, headline inflation rose more than expected due to food and fuel prices. Food supply is expected to increase and normalise in response to demand in 2008.
ôOur expectation is that headline inflation will turn out lower by year end. Underlying inflation will likely remain low in China and India due to deterioration in the terms of trade and rapid productivity growth,ö says Chew.
Deutsche Bank expects the key federal funds rate of the US Federal Reserve to fall to 3% by the end of 2008.
ôOur lower than consensus view is based on the belief that the yield curve in the US has to be positively sloped to aid a banking sector recovery,ö Chew says.
With expectations for aggressive cuts in US short rates compared to the ECB, Chew expects the Euro to strengthen beyond $1.50 in the short term. ôThe dollar may stage a recovery later in 2008 on valuation grounds, an improving current account deficit and expectations of economic resurgence in 2009.ö
The yen carry trade persists despite intermittent short-covering bouts, as Japanese domestic investors seek better return opportunities abroad. ôOur forecast is for the yen to be volatile and weaken to 120 yen over 2008.ö
Most other Asian currencies are expected to advance against the dollar due to a higher economic growth advantage over the US, large trade surpluses, strong capital inflows and the higher cost of foreign exchange intervention.
Government bond yields are low and do not offer much value at current levels, Chew notes. ôThey benefit from flight-to-quality concerns and lower short-term rates, but beyond a 12 month period, flat returns are expected.ö
Chew is constructive on equities due to positive global growth prospects with low inflation.
ôReal interest rates are low and liquidity is plentiful. Volatility spikes will be a feature with lingering credit market pressures. Profit margins may fall in developed markets, but equity prices should rise over 12 months as lower interest rates boost multiples,ö he says.
Valuations are reasonable in most countries and bear markets in equities are typically caused by overvaluation of equity markets and excessive monetary tightening, and none of these conditions is present, he adds. ôDips offer buying opportunities for emerging markets.ö
Chew continues to expect Asian and emerging market equities to outperform developed markets because of higher growth prospects, solid commodity prices and strong corporate earnings.
ôWhile valuation is no longer bargain-basement, equity risk premiums can fall further due to macroeconomic stabilisation, integration to world trade and much improved company fundamentals than a decade ago,ö he says.
Deutsche BankÆs preferred global equity themes are climate change, renewable energy, agribusiness and infrastructure particularly in the emerging markets. ôThese are enduring structural opportunities that are less tied to the vagaries of a US cyclical outlook,ö Chew says.
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AsianInvestor explains why we chose the winners of the second half of our 2021 fund manager winners, by major local markets.