Coutts & Co., Royal Bank of Scotland Group Plc’s wealth management unit, says it is selling emerging- market bonds and U.S. shares and may boost holdings of developing-nation stocks should the global economy improve.
Local-currency government securities in emerging markets handed investors a 9.1 percent return this year through Aug. 21, while dollar notes gained 12 percent, according to indexes compiled by JPMorgan Chase & Co. The Standard & Poor’s 500 Index (SPX) rallied 12 percent in that time, compared with a 6.1 percent gain in the MSCI World Excluding United States Index (MXWOU) of shares. That’s the biggest outperformance since 1998, according to data compiled by Bloomberg.
“We are looking to take profits in risk assets that have done well,” Gary Dugan, the Singapore-based chief investment officer for Asia, said in an interview yesterday. “U.S. equities have done particularly well,” he said, without giving specific figures about the amount the fund manager was selling. Coutts, which counts Queen Elizabeth II among its clients, had 86 billion pounds ($137 billion) of customer assets and liabilities on June 30, according to the company.
Many Federal Reserve policy makers favor a third round of asset purchases that would boost the supply of dollars unless the U.S. economy shows signs of a durable pickup, according to minutes of the Fed’s latest meeting released yesterday. German Chancellor Angela Merkel and French President Francois Hollande meet in Berlin today to try to find common ground on Greece and the wider euro-area debt crisis.
Coutts is waiting for the Group of Seven countries to become more stable before it lifts its holdings of developing- nation stocks, said Dugan. The G7 comprises Canada, France, Germany, Italy, Japan, the U.K. and the U.S.
“When we feel more comfortable with the G7, we would be big buyers of emerging-market shares,” he said. “They are very undervalued, very under-loved, a lot of people just sold out to be risk averse,” Dugan said. The equities could outperform developed-nation shares by 10-to-15 percent in “normal market circumstances.”
The MSCI Emerging Markets Index (MXEF) of stocks has gained 6.4 percent this year, trailing a 9.2 percent increase in the MSCI World Index of developed nations. Emerging-market shares are valued at 10.4 times estimated profit, compared with 13.1 for advanced-economy equities, data compiled by Bloomberg show.
Dugan said he favors Indonesian and Malaysian stocks. Malaysian Prime Minister Najib Razak’s ramped-up spending ahead of a general election that must be called by early 2013 has bolstered Southeast Asia’s third-largest economy, allowing the central bank to keep rates unchanged for more than a year. Gross domestic product increased 5.4 percent in the three months through June from a year earlier, beating the median estimate for a 4.6 percent rise in a Bloomberg survey, official data showed last week.
Indonesia’s economic growth is forecast to accelerate to 6.8 percent in 2013 from an estimated 6.3 percent to 6.5 percent this year, President Susilo Bambang Yudhoyono said on Aug. 16.
The two countries will “continue to give pleasant surprises without downside risks and they don’t have exaggerated international investment,” Dugan said.
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