SINGAPORE - Investors should have no exposure to emerging Asian shares as rising inflation threatens to hurt regional currencies, HSBC said in a report.
The drastic recommendation by the global bank compared with its previous stance that investors should invest 2.5 percent in emerging Asian stocks in a model portfolio.
Asia is facing the threat of rising inflation, stemming from high oil and food prices, and aggressive monetary tightening as inflation has breached the comfort zone of most Asian economies.
"Inflation looks a very real problem in Asia and the risk, as we've said before, is that investors lose faith in the region's currencies," HSBC strategists wrote in a report on June 11.
"Although markets have fallen savagely from their peaks, they're still looking pricey, especially in context of rapidly rising inflation," HSBC said.
Overall, HSBC said it was cutting global equity exposure by 5 percentage points to 54.5 percent, and turning neutral on stocks in the developed markets as central banks become worried about inflation more than growth.
HSBC advised investors to raise cash holdings to 11 percent from 6 percent.
Deutsche Bank Private Wealth Management said in a report on Thursday that aggressive monetary tightening is required in Indonesia, Philippines, India and Vietnam, and to a more limited extent in Thailand and Malaysia.
"This could hurt equity prices in these peripheral markets," Chua Hak Bin, Asian investment strategist at the private bank said in the report.
However, those markets less hit by oil prices and where monetary tightening will be more limited in future would be Taiwan, Singapore, China and Hong Kong, he said.
Asian stocks fell to an eleven-week low on Thursday after oil prices jumped to near record highs on a report showing four weeks of tightening supply, adding to fears about rising inflation.
The MSCI index for Asian stocks excluding Japan has fallen almost 16 percent this year, and is down almost 25 percent from a peak in November.
The MSCI index for global stocks is down 9.2 percent this year.
India's central bank raised its key lending rate for the first time in more than a year on Wednesday. Central banks in China, Indonesia and the Philippines have tightened policy in the past week to counter inflation.
In Vietnam, inflation has been running at more than 25 percent and in developed Singapore inflation surged to a 26-year high of 7.5 percent in April.