GLOBAL - The best returns in 2005 are likely to come from Hong Kong followed by Singapore and Australia, according to Baring Asset Management's outlook report for global markets and the economy in 2005.
BAM said it was cautious about the US market and had a “relatively neutral outlook” for the Eurozone, Japan and the UK.
Percival Stanion, BAM’s head of asset allocation, commented: “In our view, Asia still offers the best growth potential, and this may become more marked in the year ahead as investors become more relaxed about the outlook for China.
“Indeed, with easy monetary policy no longer the order of the day in the West, the higher growth rates available in Asia are likely to be thrown into stark relief as the year progresses.”
He added: “2004 was a year of transition and interest rates are still barely above inflation in most countries with the notable exception of the UK.
“We are likely to see increased corporate activity as companies gear up their balance sheets and higher dividends as cash flows remain strong. But the downside is that inflationary pressures could spill out from the commodities sector to other areas such as wage growth in the US and UK.”
With this in mind, BAM says 2005 could be a good year for equities but a more challenging one for conventional bond holders.
On the UK and US, Stanion said: “Although the UK market is relatively cheap and has a good dividend yield, and the mid cap sector will probably also benefit from merger and acquisition activity, many overseas earners in the FTSE100 are suffering from the weakness of the US dollar.
“Once UK interest rates start to fall and Sterling gives up ground, this headwind will reverse, but the first half of 2005 could prove difficult for UK investors.”
BAM said it favours countries around the Pacific Rim that would benefit from China’s continued industrialisation, “with the added potential bonus” of a Chinese currency revaluation some time this year.
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