THERE IS A precedent for what is happening today in the markets. It’s a rerun of the early 1990s, says Sean Darby, Asia strategist at Nomura Securities. Back then, the newly-appointed Alan Greenspan at the Federal Reserve cut interest rates dramatically, setting off an enormous boom in emerging markets. “Thailand, Malaysia, Brazil -- all those markets went up by nearly 100%,” Darby recalls, “What’s happening today is the same thing.”

What does an investor do? In Darby’s view, inflation is about to take off and is already being felt here in Asia -- hence fixed income is the last place to be. On Dec 10, at a media briefing, he pulls out a chart that goes all the way back Weekend Comment Dec 10: Switch from bonds to equityto the 1950s. It shows that when everyone is invested in a particular asset class, that asset class tends to underperform and decline in value.

That was the case with equities in 2000 -- the peak of the market in the US. 

 

“Everybody owns fixed income at the moment including Mr Bernanke, so that’s the last place to be,” Darby reasons. Also, his chart shows that more people own fixed income now than at any time in history. “From that point, equities should do relatively well in developed markets and in some case in emerging markets as well.” In the short term, Darby expects North Asian equity markets to do better, particularly Taiwan and Korea.