Hong Kong and more developed Asian economies may provide the success story for 2001, according Tom ...
Hong Kong and more developed Asian economies may provide the success story for 2001, according Tom Joy, manager of the Schroder Managed Balanced fund.
He says he believes 2001 will be quite a good year on aggregate but strong performance may only occur in the latter months.
A lot of technology companies are short on earnings growth but also afflicted by earnings concerns, which he believes will have a major effect on markets in 2001.
Joy says he is cautious on most emerging market countries and Japan, the latter because it does not have the ability to move interest rates down or increase spending. Edward Bonham Carter, chief investment officer at Jupiter, says Japan has been in a bear market for 10 years and must emerge from this at some point. The group's Far Eastern Fund is currently targeting value stocks in this region.
He adds: "Earnings are at historically low levels because the pace of restructuring and economic growth is looking slow. However, some of the value stocks in Japan are looking good.
"Emerging markets have had a torrid time both on the stock markets and with their currencies.
"If interest rates come down and world growth still looks alright, then these markets should start to recover."
This would offer the prospect of a double-edged recovery, according to Bonham Carter, because they are set to benefit from both increased trade and corporate earnings as well as offering relatively cheap currencies.
However, Joy says there are too many external uncertainties for emerging market economies to shed their vulnerability.
He says: "Emerging markets tend to do well in buoyant global markets, which I do not think will be the case this year. For a start, I do not believe the cuts in interest rates will have an immediate effect on these economies."
Joy says he likes continental Europe and adds that if the euro rallies, growth should look much stronger.
Bonham Carter agrees but says valuations in Europe are looking high while economic growth remains lacklustre.
He believes interest rates are likely to be benign in Europe and restructuring looks set to continue.
"The recent euro rally indicates the currency has begun to form a floor but stock selection will be very important. At present, equities look attractive on a medium term view," he says.
Joy believes surprise markets in 2001 include Hong Kong, which is very sensitive to US interest rate movements and should benefit from the recent cut by the Fed on 3 January.
Joy also favours developed Asia but adds the fund's focus is currently centred on bonds.
The fund is overweight European and UK bonds, underweight cash and marginally underweight equities.
"Bond holdings are mainly in Europe where we have concentrated after a global emphasis and we favour them both on a currency and market view," he says.
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