ABN AMRO Private Banking analysts have given
Asian corporate bonds the seal of investor approval, after moving the
sector into its ‘overweight’ list and reducing its exposure to cash.

In its second quarter investment outlook
titled ‘Building confidence’, the Dutch private bank advises clients
to favour Asian corporate bonds, with a particular focus on China, Indonesia
and Malaysia.

The bank’s Hong Kong-based head of
emerging market bonds, Carman Wong, believes Asian corporate bonds offer value
relative to developed-market peers. “In addition to macro-economic positives,
we expect Asian corporate bonds will attract large flows due to demand for
saving instruments in Asia and effective diversification for foreign
investors,” she said.

Improved investment conditions in the
first quarter are reflected in a reduction of almost half of the cash position
within the bank’s balanced model portfolios, to 18 per cent. The bond
allocation is increased to 34 per cent, equities to 40 per cent and
alternatives remain at 8 per cent. The bank retains an overall underweight
allocation for fixed income due to low government bond yields.

ABN AMRO Private Banking has also moved to an overweight
rating for industrial equities and advises clients to position themselves for a
gradual manufacturing recovery.

Industrials join the bank’s list of
preferred sectors as it increases its overall European equities position to neutral
by taking profits on its US equities allocation, which has been overweight
since July 2011.

Didier Duret, chief investment officer of
ABN AMRO Private Banking, said that investor confidence is progressively
returning as a result of improving economic momentum, lower market volatility
and abating systemic risk.

“Last quarter’s spectacular relief rally
has not exhausted the upside for equities – valuations are still comparatively
low and many investors remain underinvested. For equities to move higher, they
need to demonstrate the inner driving forces of earnings generation and sales
growth,” he added.