SINGAPORE: Stocks may continue to be a favourite asset for investors next year.
Improving corporate earnings and attractive valuations are expected to drive stock prices higher.
Experts said investor sentiment may also get a lift on hopes of a recovery in the Chinese and US economies.
Equities are among the star performers in financial markets this year.
In the US, key stock indices like the S&P 500 and Dow Jones Industrial Average has gained 15% and 9.3% respectively since the start of the year.
Meanwhile, the technology-laden Nasdaq rose 17.3% in the same period. In Asia, Japan's Nikkei rose 20.2%, Hong Kong's Hang Seng Index advanced 22.7% and Singapore's STI index gained 19.4% year to date.
Experts said this asset class may repeat its stellar performance again in 2013.
They added that a favourable macroeconomic outlook may also prompt some investors to switch out of bonds and back to investing in stocks.
"Valuations are not excessive at this juncture, liquidity is supportive of the equity markets," said Vasu Menon, vice president of wealth management in Singapore at OCBC Bank.
"Going forward, we could see some rotational money moving out of bond markets which have been favoured over the last two, three years into equity markets especially given the fact that economic growth is starting to pick up and we will see a modest recovery in the global economy in 2013."
Analysts are more upbeat of stock prospects in the North Asia region - particularly China.
They said companies there have stronger fundamentals, steady balance sheets and the stock markets have ample liquidity.
Experts added that they are positive on Chinese equities within this region, which have underperformed over the last three years - in view of a turnaround of the Chinese economy in the first half of 2013.
The Shanghai stock exchange composite index fell 1.7% year to date and the Shenzhen composite index decline 5.1% in the same period.
"The Chinese positioning is becoming more normalised from where we were before to something that is more sustainable going forward. On top of that, we've already seen the policies start to come through from the new regime, which is supportive to opening up China's market to foreign investors," said Jason Hughes, head of premium client management at IG Markets.
"We now have the stock market opened up to the institutional investors more so than before."
Among the sectors that may take the limelight next year are commodities and real estate investment trusts.
A pick up in global growth and the weaker US dollar will give commodities demand a boost , hence pushing gold prices higher.
Others expect property and financial names to lead the way like they did in 2012 - thanks to China's accommodating policies towards infrastructure and development of their own local economy.
Steve Brice, chief investment strategist at Standard Chartered Bank said: "One can make the case that REITs are overvalued and possibly, they are in a normalised environment. But we're not in a normalised environment, we have very low interest rates and that search for yield is still a very dominant theme and that should keep REITs very well supported going through at least the first half of 2013, and possibly into the second half."
Still, experts warn of looming risks such as the US fiscal cliff and the upcoming European elections that may dampen investor sentiment next year.
"Probably something more for the second half of 2013, is the risk of the fed withdrawing some of the monetary stimulus from markets," said Menon.
"If the economy of the US is growing at a faster than expected pace, and if unemployment starts falling below the 7% level then the markets will price in the possibility of the fed withdrawing the stimulus. The expectation of that alone may actually cause markets to pull back."
- CNA/xq
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Stocks likely to continue being investors' favourite
