SINGAPORE - Investors should avoid exposure to emerging Asian shares as rising inflation threatens to hurt regional currencies, HSBC said in a report. The investment bank said overall it is cutting global equity exposure by 5 percentage points to 54.5 per cent, and turning neutral on stocks in the developed markets as central banks become worried about inflation more than growth.
HSBC advised investors to raise cash holdings to 11 per cent from 6 per cent. 'Inflation looks a very real problem in Asia and the risk, as we've said before, is that investors lose faith in the region's currencies,' HSBC strategists wrote in a report on June 11.
'Although markets have fallen savagely from their peaks, they're still looking pricey, especially in context of rapidly rising inflation,' HSBC said.
Asian stocks fell to two-month lows on Thursday after oil prices jumped US$5 to near record highs on a report showing four weeks of tightening supply, adding fears about rising inflation.
The MSCI index for Asian stocks excluding Japan has fallen almost 16 per cent this year, and is down almost 25 per cent from a peak in November. The MSCI index for global stocks is down 9.2 per cent this year.
HSBC said investors should have no exposure to emerging Asian stocks, compared with its previous stance that investors should invest 2.5 per cent in emerging Asian stocks in a model portfolio.
India's central bank raised its key lending rate for the first time in more than a year on Wednesday. Central banks in China, Indonesia and the Philippines have tightened policy in the past week to counter inflation.
In Vietnam, inflation has been running at more than 25 per cent and in developed Singapore inflation surged to a 26-year high of 7.5 per cent in April. -- REUTERS