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Institutional Asset Manager’s CIO Perspectives: Simona Paravani, Global CIO for Wealth, HSBC Global Asset Management:

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Simona Paravani assesses the key institutional investment trends in 2011 and looks ahead at 2012.

2011 was a year punctuated by significant volatility and a strong performance by ‘safe haven’ assets like US Treasuries relative to riskier segments like equities. As we look ahead to 2012, volatility is likely to remain the name of the game as there is no sign of the uncertainty around the growth and eurozone risks abating anytime soon. While we would deem the probability of extreme scenarios such as a disorderly breakdown of the eurozone extremely unlikely, it is clear that a credible resolution of the crisis will take time: not just months, years. In other words, it is a marathon, not a sprint!
 
After the sharp sell-off in 2011, valuations for equities look very attractive and appear to be already pricing in the challenging macro environment. No matter what valuation metrics we use (e.g.: standard PE, Shiller’s CAPE), the picture is the same; equities look attractively valued when compared with the yield offered by  ‘safe haven’ assets like US cash or Treasuries and this supports a broad positive stance on equities globally. Within equities, we have a preference for Emerging Markets that combine attractive valuations with a somewhat more upbeat growth outlook. Investing in emerging market equities may also be a way to gain exposure to currencies that appear to be set for long-term appreciation.
 
Within Emerging Markets, China and Russia seem to offer particularly interesting opportunities on valuation grounds. For example, the Russian market is trading on a 12 months forward PE of just 5x, representing a nearly 50% discount to emerging markets as a whole.

 

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