Henderson Global Investors suggested on Thursday that investors diversify their portfolio by investing in a spread of asset classes.
Being one of the leading investment manager in the world, Henderson said in recent weeks, the global equity markets including Asia have fallen sharply. The investors need to recognize that the falls have been driven by increased risk-averse, rather than deteriorating economic fundamentals.
Asian stock markets witnessed an overall plunge on Thursday. Japan's key Nikkei stock index tumbled 3.07 percent to a dive to a new low of daily plunge since the beginning of this year, the weighted index, key barometer of Taiwan Stock Exchange, also fell 4.25 percent while the Hong Kong stocks plunged 366.44 points, or 2.32 percent, to close at 15,450.11.
Henderson said in a media release that globally, the financial markets have become risk-averse. Increasing inflation concerns, rising interest rate expectations, build up of leveraged products, sharp gains in commodity prices and weakness in U.S. dollars are factors which have impacted the markets.
Henderson said he believes that due to such uncertainties, the markets are unlikely to return to stellar gains of recent years.
Tony Dolphin, Henderson's London-based Director of Economies and Strategy who is visiting Asia from June 5 to 9, 2006, said " compared to three months ago, we are less positive on the global economic and earning growth prospects."
He said the tightening of monetary or financial conditions at the global level may signal a slide towards a downswing. This may lead to some cuts in earning expectations.
In the coming months, inflationary pressures in oil and other commodity prices may push inflation rates in the major economies modestly higher. Inflation is expected to remain broadly under control.
However, in the medium term, the fundamentals of the equity markets appear stable, said the Henderson report.
Tony said in China the economy is booming. The official growth rate is 10 percent but most observers believe that this is an underestimate. Inflationary pressures are low. "The recent initial public offering of Bank of China has given a boost to the economy and we believed this growth will continue in the medium to long term."
In the second half of this year, the economic cycle has reached a point where strong growth is likely to be seen as potentially inflationary. This may cause banks to adopt an outright tight monetary policy, said the Henderson report.
Economic outlook is now more uncertain compared to the past, with risks of slower growth and higher inflation. Investors are likely to be more cautious than other setbacks over the last three years and it may take some time for equity markets to find their vigor again, Henderson report said.
Henderson Global Investors is one of the leading investment manager, providing a wide range investment products and services to institutions and investors. It manages over 116.2 billion U.S. dollars