PRIME MARKET FEEDS

Insights from UOB Asset Management*:
Quarterly Investment Outlook and Asset Allocation

Focus on earnings
The start of 2010 has been choppy for equity markets. Volatility rose as investors were confronted with uncertainty on several fronts. China embarked on monetary tightening earlier than expected, fiscal risk came to the forefront with Greece’s sovereign debt problems and the Fed surprised the market by embarking on its ‘exit strategy’.

Although policy uncertainty is likely to linger through the second quarter, we believe that the market has largely priced in these concerns. The focus of the market is likely to return to fundamentals – the recovery in the global economy and corporate earnings.

Key central banks are unlikely to hike policy rates soon as the economic recovery in the developed economies is sub-par and the large amount of spare capacity will keep inflation pressures subdued. Very low interest rates will sustain the search for yield and keep risk appetite supported.

We return to an overweight position in Equities and underweight position in Bonds. We are also overweight in Commodities. Within Equities, we have overweight positions in the US and Emerging Markets. We reduce our position in Europe and stay slightly underweight in Japan. In terms of sectors, we prefer the cyclicals – IT, Industrials and Consumer Discretionary. In Bonds, we continue to prefer Investment Grade bonds. In Commodities, we are overweight in Gold and Base Metals.

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