With low interest rates set to persist, yield will become the all-encompassing priority for investors in 2011, prompting them to move out of government bonds and cash back into equities, corporate bonds and real estate, Aberdeen Asset Management predicts.
Investors have favored emerging markets in recent months, and Aberdeen expects that to continue, with developing regions “powering global growth in 2011 and beyond.”
“In 2011 and beyond, global economic growth will be powered by Asian and emerging regions,” said Mike Turner, head of global strategy and asset allocation at Aberdeen. “Indeed, we’ll see an increasing polarization of East versus West in terms of economic performance and monetary policy response. Investors may continue to worry about inflation, but thanks to anemic growth in the developed world, we think the threat is confined to emerging regions”
Corporations in emerging markets will offer strong earnings in 2011, but their valuations are rising, Aberdeen said. Thus, another emerging markets play is to invest in multi-national corporations.
Volatility will continue, however, due to sovereign debt and inflation fears. “Volatility is likely to be sustained and correlations high, lending alternative assets a greater role in smoothing multi-asset portfolio performance,” Turner said.
Among fixed income assets, current spreads suggest that the best yield opportunities are in non-government bonds and emerging market debt, particularly given a positive outlook for defaults, and in emerging markets, generally sound economic fundamentals, Aberdeen said.
Equities offer competitive dividend yields compared with government bonds, and real estate has a yield advantage, too, Aberdeen said. Rents are set to increase once a sustainable recovery arrives, and also in light of weak development activity across all property sectors in recent years.