Equities still rules?

To be honest, Equities would be the most easiest product that everyone could buy isn't it? There was quite a few articles previously that analysts were all talking about being bullish on Equities and here's another view.

Full article here: Why We Remain Bullish On Equities

Equity markets have had a fairly volatile year, with most markets recording strong gains at the start of the year before giving up gains in a poor 2Q 12 as Eurozone concerns were reignited. Nevertheless, most markets under our coverage remain in positive territory in 2012 so far, with a few (like technology stocks and Singapore equities) having delivered stellar returns on a year-to-date basis. Given that equity markets have fared relatively well over the past month, some investors may be wondering if it is now time to take some money off the table, while others are wondering if it is alright to get back in now. We attempt to address some of these concerns in this piece which reiterates our positive view on equities, and offers our take on specific equity markets.

1. BONDS HAVE DONE FAIRLY WELL IN 2012 SO FAR, WHY OVERWEIGHT EQUITIES?

While we continue to encourage investors to hold both fixed income and equity funds in their portfolios in a proportion commensurate with their investment objective and risk appetite, we still maintain a strong preference for equities vis-à-vis fixed income for several reasons. First, we believe that from a returns perspective, equity markets are likely to deliver far superior long-term returns compared to bonds, aided by a re-rating of PE multiples (from their current depressed levels), alongside decent levels of earnings growth. In contrast, yields on most bond segments remain near historical lows, representative of poor long-term returns for bond holders.

CHART 1: LONG-TERM DECLINE IN YIELDS BOOSTED PERFORMANCE

Also, we caution that investors should not look to historical returns for fixed income segments to project investment returns going forward. Historically, the strong (even “equity-like”) returns for many fixed income segments has largely been driven by the long-term decline in interest rates to current levels; this has aided in the performance for bonds on the whole (see Chart 1). However, from current yield levels, there does not appear to be much more room for yields to decline, which warrants a more cautious approach to investing in the fixed income space. To guard against potential increases in interest rates in the future, investors may wish to consider lower risk short-duration bond funds like the United SGD Fund Cl A or Nikko AM Shenton ShortTerm Bond(S$). We also favour high yield and emerging market bonds which are less sensitive to interest rate changes due to their fairly high coupon rates.