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ECONOMY
DARANA CHUDASRI
Fears of a US recession are overblown, and emerging markets have mostly ''decoupled'' from the slowdown in the world's largest economy, according to Deutsche Bank. Anurag Mahesh, the head of Asia Pacific global investments and sales for Deutsche Bank, said economic growth in Europe would slow significantly in the second half.
But neither Europe nor the US would fall into recession, he said.
Mr Mahesh said signals by the European Central Bank following its recent interest rate increase suggested that inflation should be under control in Europe.
Asian central banks, however, would be forced to tighten monetary policy aggressively in response to rising prices.
Higher world inflation, driven by rising food and oil prices, had depressed equity and bond markets.
Mr Mahesh suggested given the scenario of slow economic growth and high inflation, investors would do well to shift to the commodities market and alternative investments.
According to Deutsche Bank, commodities and alternative investments have generated positive returns of 13.7% in times of low GDP growth and high inflation, based on data since 1929.
In times of low GDP growth and low inflation, equities was the highest performing asset class, at 14% in real annualised returns. Equities also outperformed at 10.6% per year in cases of high GDP growth and low inflation.
''The uncertainty over the future outlook favours a significant portfolio allocation towards commodities and alternative investments,'' Mr Mahesh said.
Deutsche was bullish on commodities, particularly agricultural commodities.
On a historical basis, oil is at an all-time high while farm commodities are still trading below previous highs. Prices for agricultural crops would continue to be supported by a growing world population, rising incomes and higher production of biofuels.
Mr Mahesh said agricultural commodities prices increased by 30% in 2007 and by 14% in the first half of 2008.
While prices might fall in the second half of the year, commodities investments are still expected to post positive returns for the full year and remain attractive for the long term, he said.
For energy commodities such as oil, Deutsche Bank has a neutral outlook, with crude prices expected to stabilise at current levels of $140 per barrel.
Mr Mahesh said that for the equities market, Deutsche preferred emerging markets for structural growth and favoured large-cap stocks over smaller firms.
He said ''thematic investments'' in companies and sectors such as commodities, infrastructure and climate change were also preferred.
In Asia, Deutsche currently overweighs Taiwan due to improving political sentiment and low price-to-earnings ratios. Vietnam, Thailand and other countries suffering from high inflation are underweighted by the bank.
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