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Investors returning to emerging markets, say analysts

Experts say investors are now gradually returning to emerging markets, attracted by currency stabilisation and historically low valuations.

SINGAPORE: Emerging markets are starting to see a turn-around, as analysts say investor interest is gradually returning even as developed markets continue to attract funds.

Wall Street has hit new highs in recent months as investors buy into the US recovery story. An improving outlook for Europe has also helped to draw investment funds back to the continent.

However, experts say investors are now gradually returning to emerging markets, attracted by currency stabilisation and historically low valuations.

“If you look at the price-to-earnings (P/E) relative to growth, the US stock market is trading at about two times. The P/E is running at about two times relative to index earnings growth, it's starting to get expensive,” said Lim Say Boon, chief investment officer and managing director of group wealth management at DBS Bank.

“Valuations in Asia ex Japan are just so attractive now. MSCI Asia ex Japan, price-to-earnings is one times growth. You get the same price-to-earnings as you have in terms of the index earnings growth. These are the reasons we're rotating a little bit more back to Asia to find value."

Overall, the outlook for emerging markets has improved, thanks to the recovery in advanced economies. ABN AMRO Private Banking expects slightly higher growth of 4.5 per cent in emerging markets in 2014, compared to 4.4 per cent in 2013.

While investment strategists remain overweight on developed market equities, they are now taking a more selective approach.

According to Standard Chartered bank, global equities have rallied strongly over the past six months, up some 10 per cent since the start of the year, supported by better-than-expected first quarter US and Europe earnings results.

"Our number one sector globally is the technology sector,” said Steve Brice, chief investment strategist at Standard Chartered.

“If you look at the valuations outside the social media space, old tech if you like, valuations still look relatively attractive. We're seeing very high returns on capital, equity and strong cash flow generation capability as well."

Mr Lim said: "We're moving to boring old technology stocks which have better values... We're going for industrials, car makers, and consumer staples."

Among emerging markets, investment analysts prefer China, Taiwan and Thailand but they are neutral on Singapore.

"Singapore's equity market is very asset-heavy,” said Ken Peng, investment strategist at Citi Private Bank.

“It has a lot of financial assets, a lot of real estates. So I think the sectors that are more prone to exports should do better. I think probably the industrials, is my preference."

Experts point towards value and yields, amid expected consolidation among Singapore equities in the near term. 

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