Markets heading back to times of tighter credit, higher scrutiny

By Ng Baoying, Channel NewsAsia | Posted: 11 March 2008 2155 hrs

SINGAPORE: Markets are heading back to a period of tighter credit and higher scrutiny of the financial industry, according to Swiss private bank, Julius Baer.

It believes there are opportunities for investors in asset classes like commodities and bonds.

According to Julius Baer, commodities like agriculture and oil will be the best bets going forward as they are a good hedge against geopolitical risk and a good alternative for paper currencies.

But not all commodities will see a run-up in value. Industrial metals such as copper and aluminium have already advanced far enough, and those with a stake in it should take profit.

Apart from commodities, Julius Baer said dividend plays should also be part of one's investment strategy.

V. Anantha-Nagasewaran, managing director of Investment Research Head, Asia-Pac & Middle East, Julius Baer, said: "There are going to be marked market problems for any asset portfolios for any client, but they need to accept that and focus on assets that will still give them a yield or some income.

"And also try to preserve capital to the extent that when things become really cheap, they can go in and buy. So we need to focus on high-yielding credit in emerging markets because emerging market equities haven't fallen."

Assets that should be given a miss include real estate, which have already peaked.

Julius Baer is basing these tips on what it sees as a large shift in global economies.

Mr Anantha-Nagasewaran said: "The kind of deregulation that had happened in the financial sector would be unwound. The capital adequacy requirements would also be revised. The ease with which triple A ratings are assigned to securitised products would be reviewed.

"S&P has already come up with its own internal regulations to create a better system for rating securitised products. The amount of securitisation, entire banking model... would undergo a lot of change. In fact, banking would turn into a more classical form of lending, rather than intermediation."

For investors who want to stay invested in the current market, Julius Baer is recommending an exposure to selected emerging market equities in Thailand, India, Russia, Brazil and Taiwan. They could also hold positions in US inflation-indexed treasuries.

- CNA/so