Business

Saturday February 4, 2012

Gold prices rally seen

By LIZ LEE
lizlee@thestar.com.my


KUALA LUMPUR: Gold prices are expected to rally this year with an average forecast of US$1,975 per ounce, serving as a good hedge against global uncertain environment.

Standard Chartered chief investment strategist for consumer banking Steve Brice said the rally was contributed by the high debt level in the West, negative real interest rate, high demand from China, India and central banks against limited supply of the hard commodity.

Brice: ‘The Malaysian market has held up pretty well.’

“We are still bullish about gold (because) it is good for diversification of portfolio and has low correlations to equities. Investors are not just protecting against inflation and managing volatility but also getting good returns on it,” Brice said in the Q1 Market Outlook 2012 media briefing.

He added: “Gold is a good investment irrespective of where you are in the world.”

With gold price assumptions adjusted higher, Standard Chartered also expects gold stocks to catch up with gold prices.

Gold is currently testing key support in the US$1600 to US$1650 range.

In addition to gold as a hedge against market volatility, he said the other “high conviction call” would be on alternative investments especially macro hedge funds.

Brice also advised on investing in cash-generating assets like high yield bonds and equities.

“We like assets classes that give cash to hold for the current uncertain growth outcomes,” he said.

In his outlook report, he noted that with 60% probability of mild recession and 30% of deep recession in the West this year, high yield bonds and equities would generally outperform these environments due to investors taking comfort from assets that generate cash against sizeable risk to capital and companies being conservative in their investments, thus improving balance sheets and dividend coverage ratios.

On crude oil prices, he said that heightened geo-political risks would keep the prices slightly elevated but stronger demand should replace that in the second half of the year.

“With strong demand from China, it would be positive for oil therefore we do not see any significant decline in oil price this year,” he said.

Brice projected oil prices to hit US$100 per barrel in the second half of the year.

As for investing in the local front, he maintained a neutral outlook on the Malaysian equity market, calling it neither too expensive nor cheap.

“The Malaysian market has held up pretty well comparatively to the rest of the world, whereas we saw significant set-off in China and India. (But) the other side of that is that valuations didn't cheapen, he said.

He added that on a technical basis, Malaysia was more attractive but on valuations, China would prevail.

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