Bearing Asset Management "Risk Asset Preference Continues This Year... Emerging Markets and European Stock Markets Attractive"

[Asia Economy Reporter Minji Lee] As the preference for risk assets is expected to continue in this year's securities market, emerging markets including Korea and European markets were identified as attractive investment destinations. By sector, it was advised to pay attention to companies expected to see earnings growth, such as IT and automotive.

On the 5th, Baring Asset Management forecasted in its '2021 Global Securities Market Outlook' that the preference for risk assets will continue this year, considering the spread of COVID-19 vaccine distribution, strengthened recovery momentum in advanced economies, and abundant market liquidity.

The report projected that if recovery momentum is established mainly in Europe and the United States, it could have a positive impact on emerging economies with high external dependence, including Korea.

In the domestic stock market, it emphasized the need to pay attention to major export industries such as IT and automotive, where significant improvement in corporate earnings is expected. Companies related to 5G infrastructure construction or the growth of the 4th industrial revolution are predicted to maintain continuous growth momentum. Additionally, companies related to electric vehicles and secondary batteries are also considered promising in connection with Korea's Green New Deal policy and globally strongly promoted eco-friendly and low-carbon policies.

Investing in traditional companies that quickly adapt to new paradigms can also be an effective strategy. The report stated, “Stocks such as cyclical stocks or dividend stocks that were excessively adjusted after the outbreak of COVID-19, as well as travel and consumer goods value stocks that had relatively low performance despite good fundamentals, should also be watched closely,” adding, “Selecting individual stocks that will benefit from resolving stock price differentiation will have a significant impact on investment performance.”

Although the market may contract when abundant liquidity disappears over time, the U.S. Federal Reserve (Fed) is expected to proceed cautiously with liquidity withdrawal. The report said, “Considering the Fed’s experience of tightening policies that worsened the Great Depression in the 1930s, it will initiate tightening policies only after confirming improvements in various economic indicators such as labor force participation rate and unemployment rate,” and added, “The timing of liquidity withdrawal will be no earlier than after 2022, so liquidity in the market remains abundant in 2021.”

In the bond market, the pace of increase is expected to be limited until economic recovery is fully underway. Globally, absolute interest rates remain low, and demand for emerging market bonds, including those of Korea, which offer relatively high returns, is expected to continue.

In the domestic bond market, market interest rates will fluctuate depending on supply and demand and expected inflation. The report said, “There will be no change in monetary policy stance in the short term,” and added, “Attractive investment opportunities will exist in lower investment-grade bonds (A grade) where credit spreads have relatively widened.”

Furthermore, in the post-COVID-19 era, ESG (Environmental, Social, and Governance) integrated investment strategies aimed at achieving a sustainable society worldwide are expected to gain more attention. The report stated, “With a long-term perspective, investors should consider properly discovering and investing in tech and environment-related stocks related to these structural trends.”

This content was produced with the assistance of AI translation services.