Investec strategists tip corporates and EMs for 2012

Philip Saunders and Max King, managers on Investec’s global multi-asset team, said corporate debt spreads would fall this year and emerging market equities will “return to outperformance”.

The emerging market equity rebound will come as a “peaking of inflation and interest rates should be positive for most economies”, they said.

But the strategists warned investors to “keep duration short” in corporate bonds this year, adding that spreads on government bonds are expected to rise.

They also tipped emerging market debt and currencies as a “renewed investment opportunity” and said the asset classes were more attractively valued than during the “expensive levels” reached in 2011.

The duo delivered the predictions as part of an overview of their views on seven key asset classes for 2012.

Elsewhere, they urged investors to avoid “value-traps” including bank stocks, saying quality stocks would continue to see outperformance.

“While there may be selective attractive opportunities in these areas, the best returns will be earned from high quality companies on only reasonable valuations, but with sustainable growth,” they said.

Experts have expressed concerns over a slowdown in growth in China, but Mr Saunders and Mr King said any setback in the Asian nation would be temporary. They expect the outlook for the market to improve as investors drive money back into emerging market funds.

The managers said the outlook for commodities was “subdued” but they see “plentiful” opportunities in resource stocks, such as natural gas and shale oil as global production is transforming to meet changing energy needs in a slowing global economy.

They expect volatility to remain a “permanent feature” of markets in 2012, but it was better to remain invested in spite of this uncertainty.

“Investors need to either look through short term volatility in making long term investments or use it to their advantage by buying when volatility is high and reducing when investors are complacent,” they said.

“We think it is better to be in markets and accept the volatility than miss out on long term opportunities. Market timing is not getting any easier and managers that depend on this for their returns are set for a lean period.”