HONG KONG: Emerging markets will sustain high momentum to lead the global recovery in 2010, particularly countries with favorable demographics and solid fundamentals, like China and India, according to HSBC Global Asset Management.

The bank's optimism toward emerging markets was in stark contrast with its reservation toward developed economies.

"We expect that global economic growth is likely to be moderate in 2010, hindered by unsolved structural problems, particularly in developed markets with personal wealth and balance sheets to be rebuilt," said Leon Goldfeld, Chief Investment Officer of HSBC Global Asset Management (Hong Kong) in a press conference on 2010 investment outlook yesterday, which also featured a number of other investment experts.

As governments were expected to begin exiting their stimulus programs by the second half this year, Goldfeld said unless consumption and business investment pick up, the momentum of global growth will slow down in the latter part of this year.

Goldfeld said the collapse over the past 18 months brought the level of economic activity to a very low base, which provides an easy comparison when the economy springs back. This year, with the fiscal stimulus measures running out in the second half, a lack of growth drivers is forecast, though there should not necessarily be another "recession".

"Our concern is that due to the structural constraints of excessive household debt as well as the conservative stances by banks in terms of new lending, the private sector will struggle to deliver sufficient growth," said Goldfeld.

Goldfeld also predicted that official interested rates across the world would be tightened very gradually from the middle of the year, noting that bonds should provide a good opportunity against cash.

Emerging markets, on the other hand, are in a better position, with more to sustain their growth story and outperform developed markets.

Nick Timberlake, Global Head of Emerging Markets at Halbis, said positive earnings momentum is expected in the emerging economies, as they are well supported by their lower debt-to-GDP ratios, higher current account surpluses and lower budget deficits.

As Asia remains favored for its strong domestic consumption, key engines including China and India will maintain outstanding performances to support the region's growth. Experts still believe medium-term growth prospects still favor Asian equity markets over developed markets in 2010.

"With global growth poised to rebound and in the absence of inflationary pressure, we expect monetary conditions and liquidity to remain loose and risk appetite to favor emerging markets equities where earnings momentum remains positive," said Timberlake.

"As one of the cheapest markets in the world, Korean industrials are benefiting from the Asian recovery as well as from demand for their products from large hydrocarbon projects in the Middle East," Timberlake added.

Other energy and resources companies in the emerging markets, such as Russian oil companies and Chinese coal companies, are also among the preferred investment themes this year for their attractive valuations.

Ayaz Ebrahim, chief executive officer of Halbis, Asia-Pacific, advised that risk-conscious investors should take a more defensive strategy to focus on Asia's quality and dividend-paying companies, while the opportunists could look at Asian small caps, which are anticipated to outperform on the back of their strong earnings growth momentum during the recovery cycle.

(HK Edition 01/12/2010 page4)