Investors should show courage and diversify

Investment Quarterly, a report by HSBC Global Asset Management, said it favoured investment grade, emerging corporate bonds and emerging markets sovereign debt.

It also believed selective commodities through outright exposure or to stocks in the sector will be attractive, together with exposure to emerging consumption and infrastructure through both emerging and developed market stocks.

Philip Poole, global head of macro and investment strategy for HSBC Global Asset Management, said: “We currently favour the so-called cyclical sectors in emerging markets, namely industrials, materials, financials and energy as central banks in countries including China, Brazil, Indonesia and Thailand have cut interest rates or reserve ratios to stimulate growth as concern about inflation recedes.

“Many such countries still have scope to ease further and to fund development projects with bond sales, while in many western countries rates are already near zero and public debt is significant.”

The 37-page report also said that investor confidence plunged in 2011 as Europe’s debt crisis escalated and US politicians squabbled over deficit proposals.

It added that the eurozone was teetering on the brink of recession and warned it may take several years to fix its problems. The US was looking in better shape but gross government debt was rising and tensions were expected to remain high in the run-up to the presidential and congressional elections.

The document also added that growth in Asia was likely to slow, but added that slower growth was better than zero growth. HSBC forecasts 8.6 per cent and 7.5 per cent in gross domestic product expansion for China and India respectively this year.

It also said some profitable Asian companies were now undervalued so their shares have the potential to rise in the medium to long term.

Chris Bowmer, chartered financial planner for Northamptonshire-based Fortitude Financial Planning, said: “Diversification into risks presumably means taking more risk than now because diversification is actually the best risk reducer.

“Why would one take more risk than one needs to? Taking extra risk to gain extra return would only be needed where the return expected from the current investments will not be enough for the required outcomes. And why would anyone be holding investments that will not do what they need?”