According to Experts Buying Cyclicals on Recovery Should Be the Investment Strategy in 2013

As the global economy is showing signs of a possible recovery, the expert strategists are actually advising investors to put money in the Asian equities. This situation is expected to be supported by a possible expansion of Chinese economy. The concern over the so called US fiscal cliff is also likely to fade by 1st half of 2013, thereby helping the global economy further.

The MSCI Asia Pacific Index has surged for 5 days consecutively until today (It actually plummeted by 0.6% today). The index has gained more than 8.7% this year. According to analysts, this gauge may experience a further gain of 18% before 2013 ends. The manufacturing and Housing industry of China and US respectively already have experienced high growth signaling a positive rebound. 

According to a recent report released by Jonathan Garner, the Chief Asia and Emerging Market Strategist of Morgan Stanley, the valuations of the cyclical shares are less than the defensive equities by around 40%, including the household product manufacturers. Niall MacLeod, a key strategist working for UBS AG stated that the biggest hurdle lies in overweighing cyclical sectors over the defensives.

It is expected that the investors will turn less bearish on the possible earnings outlook for the different cyclical companies to that of defensive businesses. Incidentally, the profits of defensive businesses are not much reliant on an expanding economy.

The most important country for cyclical companies, China may see an economic expansion of 8.2% in 2013, as mentioned by Garner. It is expected that the banks will have a preference towards the energy and capital goods. These are often considered as cheap industries.

Most of the strategists believe that to take the advantage as early as possible, investors should start holding more shares than what are represented in the benchmark index of countries such as India, China and South Korea. Chinese and Korean markets already have a great amount of exposure to the regional and global cyclical improvement. The monetary easing, on the other hand is expected to continue in India in 2013. The Indian Government also decided to open up sectors such as aviation and retail to direct foreign investment. The markets where investors should put in money cautiously are: Indonesia, Australia, Malaysia and Hong Kong – as mentioned in a recent report released by USB.