TAIPEI HSBC (0005.HK) (HSBA.L), Europe's biggest bank, said on Thursday U.S. stocks were the best bets in 2009 due to the healthy profits some U.S. firms had made over the past two years, though a big sell-off was possible through March.
U.S. stocks are expected to pick up following their plunge last year, as corporate profits were strong and companies were not in much debt, said Arjuna Mahendran, managing director and head of investment strategy at HSBC's private bank in Asia.
After Wall Street posted its worst year since the Great Depression in 2008, with the S&P 500 .SPX tumbling 38.5 percent and the Nasdaq .IXIC off 40.5 percent, U.S. markets are up modestly in the first few days of the new year and are well above their lows touched last November.
"U.S. companies are the best bets in 2009 because of the strong profits they generated in the past two years," Mahendran told reporters on the sidelines of a company event.
"U.S. companies are sitting on piles of cash, because they got the rest of the world to do their investing for them," he said, referring to the contract manufacturing China and other Asian countries do for U.S. firms.
Defensive plays, including health care, consumer goods and foods, would be good buying targets, he said.
HSBC also favours China and India stocks in emerging markets because of their long-term growth potential, he said.
Both of those markets tumbled even more sharply than U.S. indexes last year, with the benchmark Shanghai index .SSEC down a whopping 65 percent while India's main index .BSESN fell 52 percent.
"I think China can still manage to grow 7 percent this year," said Mahendran.
Still, downside risks remained for U.S. and other markets, as the global economic slowdown could continue to send corporate debt into default and hurt consumer spending.
"We are not out of the woods in the equities sell-off yet," Mahendran said, adding that turbulence could remain in global markets through March. "By the middle of 2009, we'll actually see a bottom of the current downturn."
(Additional reporting by Yvette Chen; Editing by Jonathan Hopfner)