Fund flows are expected to move into emerging-market equities in the second half as consumer demand and investment opportunities in these economies continue to entice investor appetite, says Credit Suisse.
Woods: Consumers driving growth
Equities are anticipated to outperform other asset classes in the last six months of 2018 in emerging-market economies, with the technology, financial and energy sectors expected to remain in an upward growth trajectory, said John Woods, chief investment officer for Asia-Pacific at Credit Suisse.
China and Singapore are the top investment destinations in Asia, Mr Woods said.
Consumers in emerging markets continue to gain strength, he said, while the four main areas of investment opportunity are identified as consumer discretionary, consumer staples, e-commerce and healthcare.
For technology, investment opportunities lie in electric vehicles, health tech, artificial intelligence, virtual and augmented reality, and the 4.0 industrial sector, Mr Woods said.
"As there are expectations that the US dollar will stabilise for the rest of 2018, fund flows are projected to move to other asset classes, especially in equities of high-growth areas," he said.
"Equities in emerging markets will benefit from the trend, but the bank still underweights fixed-income securities due to how further interest rate hikes still remain. We expect the US Federal Reserve to raise its interest rate by around two more times for the rest of this year, and at least two times next year."
Mr Woods said government bond yields are likely to rise further, given steady economic growth and signs pointing towards higher inflation.
There could also be a reversal in the depreciating trend among Asian currencies as macro-fundamentals remain supportive, especially if trade tensions were to de-escalate, he said.
For risk factors, investors should remain alert to the potential impact of global trade frictions and other geopolitics risks, according to Credit Suisse.
Italy's domestic political situation is an example of a geopolitical risk, Mr Woods said, noting that the Italian economy remains strong in spite of its shaky politics.
Regarding the ongoing Sino-US trade tensions, Mr Woods said the US could possibly make concessions in the same way it has towards Mexico and Canada.
In the event that tensions still persist, "it is China instead of the US that has more to lose", because China would incur a heavier trade deficit than the US, he said.
For economic risks, "an overshoot of the US dollar will tend to have a negative impact on emerging markets because that sucks the liquidity in emerging markets back to the US", he said.
Causes for an overshot dollar might be a lack of growth in Europe and European political crises, leading the European Central Bank to freeze its interest rates, Mr Woods said.
Investors are therefore recommended to diversify their investment portfolios, with an active investment strategy to ensure flexibility in periods of volatility, he said.
Despite looming uncertainties, in his view the global economy will likely continue to accelerate on the back of continuous recovery in major economies such as the US, the EU and China.
For Thailand, the country has experienced a limited impact from the ongoing trade war and the baht's value has buffers against external shocks because of the country's trade surplus and strong foreign reserves, Mr Woods said.