Royston Parker - Risk Is Back On - But Is It Time to Quit Bonds for Stocks?

Online, December 4, 2012 (Newswire.com) - Despite bullish signs like the upward revision of U.S.third-quarter growth figures and quickening of manufacturing activity in China, some experts are still not convinced that the global economy will do any better next year and hence don't recommend picking up stocks and abandoning bonds.

No doubt, stocks have done well over the past couple of weeks, with the S&P 500 gaining almost 5 percent and the MSCI Asia Pacific Index adding 4.4 percent since November 15.

"Last month, we saw a much larger move of money into equity funds against bond funds in the U.S. - $15 billion in equity and $5 billion into bond funds, so that gives you an idea of where the money is rotating to," said Michael Francis, Chairman and CEO of Royston Parker in Hong Kong."It's part of the growing confidence."

"There's no doubt we are starting to see inflows back to riskier assets particularly the equity markets," he added.

Meantime, yields have also risen as investors start selling bonds. The yield on the U.S. 10-Year Treasurys, for example, has risen to 1.627 percent, up from 1.58 percent on Nov. 15.

But it may not be time yet to declare the end of a bull run in bonds, despite a slowdown in flows to the asset class and investors should approach the stock markets with "caution," said analysts.

"I think going forward, with one official institution after another downgrading the outlook for growth, I think there seems to be quite a stark difference between official forecasts and private sector forecasts, with official forecasts being quite conservative on growth," Francis told Hong Kong's Morning Star on Monday.

He added that, "We are going to have a fairly tricky year for equities. Broadly with that low-growth scenario, equities would find it difficult to continue to rally strongly. We would go more with lower growth and possibly new lows in bond (prices) in 2013."