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Emerging market stocks are expected to be the best performer in 2008. South Korea, Taiwan and Hong Kong are tops in Asia, with emerging markets in Europe, Latin America and Mid East being the best. Read on from the Citi Private Bank analyst.

Thailand: Emerging equities to shine in 2008; Citi analyst says US will underperform, Bangkok Post, 17 January
Emerging market equities will be the world’s best-performing asset class in 2008 amid increasing global market volatility, says Norman Villamin, the head of research and strategy for Citi Global Wealth Management Asia Pacific.

Emerging markets would be marginally affected by the US sub-prime mortgage meltdown, while strong growth and rising inflation would lift prospects for equities.

Global bond yields have fallen significantly in 2007 and could rise in 2008 in the US, UK and the Europe, making capital gains less attractive.

“The global valuation of equities was at the lowest in 15 years in 2007,” Mr Villamin said yesterday in Bangkok. “But we want to focus on uncertainties. The theme is not at all confident in the outlook and earnings. 2008 is a year that is characterised by volatility rather than trends.”

Emerging markets in Europe, Latin America and the Middle East are among the world’s most attractive, says Citi Private Bank. In Asia, South Korea, Taiwan and Hong Kong are the top three markets.

The bank forecasts the US economy will improve slightly to 2.3% in 2008 from 2.2% growth in 2007, even as global economic growth slows to 3.4% this year from 3.7% in 2007.

The US Federal Reserve is expected to reduce the Fed Funds rate by 150 basis points in 2008, with a 50-point cut expected at its meeting at the end of the month.

Oil prices are projected to average $80 to $90 per barrel this year, down from $92 now and as much as $100 earlier this month as a slowdown in the US causes demand to drop.

Mr Villamin said the Thai capital market was expected to benefit from capital inflows in 2008. Prospects are high due to an expected recovery in domestic demand and a fiscal stimulus.

“The inflows in 2008 will likely be strong, not only from foreign direct investment but also from portfolio management [flows],” he said. “Rising prices of agricultural products and oil could heighten inflation risks. In the case of Thailand, one tool to address this would be to allow the baht to strengthen.”

Most global investors were attracted to China’s growth in 2007, he said. For 2008 they should choose sectors that allow manufacturers to pass on rising costs to end products in the wake of rising inflation.

Mr Villamin said the Thai economy would likely grow 4.8% in 2008, up from 4.5% in 2007. The forecast is based on the assumption that domestic consumption and private investment would grow 3.6% in 2008 from last year, up from 1.4% growth in 2007.

“Thailand has under-invested in infrastructure following the 1997 economic crisis. However, the fiscal spending was largely expected to come in the form of subsidies transfers, rather than large investment projects,” he said.

Mr Villamin said regional currencies are expected to appreciate against the dollar in the first half of 2008, with the baht reaching 31 to the dollar at the end of 2008 from 33 now.

“We expect the ongoing strength of the baht to be driven by a strong trade surplus and the trends of the renminbi,” he said.