In AsianInvestor's first online survey post the relaunch of our website, voters chose equities/credit as the most likely asset class to perform best in 2010, with almost half (47%) of the 94 voters responding this way. Next came volatility/high-frequency trading (21%), suggesting some confidence in hedge-fund strategies and a belief that the markets will remain significantly volatile this year.
Around 1 in 7 (14%) went for cash, putting it ahead of sovereign fixed income (12%) and illiquids (6%), perhaps reflecting the more bearish outlook of the past few weeks, as indicated in this month's Bank of America Merrill Lynch fund-manager survey, for example.
Equities/credit taking top spot "makes sense", says Anurag Mahesh, Asia-Pacific head of global investment solutions at Deutsche Bank Private Wealth Management in Singapore. "Risky asset classes are those to be in right now," he adds.
But G3 sovereign bonds are not, particularly in the US, as central banks embark on exits from monetary-easing, says Mahesh, who prefers high-yield credits over investment-grade bonds at the moment. That's because interest rates are on the rise, which could have a negative impact on investment-grade bond valuations, he says; investing in investment-grade bonds is best done on a floating-rate basis.
Mahesh points to the US Federal Reserve's raising of the discount rate and cutting loans from central banks from 30 days to a maximum of overnight last Thursday (February 18), in moves to withdraw emergency support from the financial system.
More specifically, he prefers European to US sovereign bonds, because US rates are likely to rise before those in Europe. In Asia, he likes currencies such as the Korean won, Indonesian rupiah and Chinese renminbi. These -- along with other emerging-market currencies, such as the Brazilian real -- should do well as their economies continue to improve on a secular basis.
In terms of the other survey findings, Mahesh says: "We don't like cash, so we agree on that result. We don't see clients as being very bullish and, for us, that is a healthy situation."
As for the relatively strong response on volatility/high-frequency trading, he says volatility may well remain high this year, which could benefit uncorrelated strategies, such as equity-dispersion trades and curve-trading strategies in equity volatility, commodities and interest rates.
Many thanks to all those who voted. Please take the time to express your opinion in this week's poll, where we ask: Which will be Asia's dominant prime broker in the next decade? For those firms in contention, this is the perfect time to circulate the survey link to clients to get them voting.