Private banks urge wealthy Asians to shun risk, favour credit

[SINGAPORE] Here's some advice that wealthy Asians are getting from their private bankers after Britain's vote to quit the European Union has thrown markets in turmoil: Add to corporate credit, avoid risky assets and expect UK property prices to drop.

Credit Suisse Group AG, Citigroup Inc and United Overseas Bank Ltd are telling clients that higher-quality corporate bonds are a safer bet, while offering higher yields amid record low interest rates. Private banks are also urging investors away from UK property, with UBS Group AG predicting pressure in the real estate market, especially in London, as banks move to other locations in Europe.

The UK's vote to exit the EU has prompted a reevaluation of investments amid a selloff in the riskiest assets, the pound's record plunge and a flight to safety. Trillions were wiped from global equity values and the UK was stripped of its top credit grade by S&P Global Ratings, after the country's decision to leave the European Union that has left it in political and economic paralysis.

"Our largest overweight relative to the size of the assets is US high grade debt," Steven Wieting, global chief investment strategist at Citi Private Bank, said in Hong Kong on Tuesday. "You should consider longer duration, high quality bonds, where yield premiums in some markets are unusually wide and attractive even if overall rates of returns are low."

The pound is the most vulnerable asset, Mr Wieting said, and UK's financial sector faces many uncertainties over working arrangements.

Credit Suisse expects US investment grade corporate credit to outperform as yields on US treasuries will stay low, making company debt relatively more attractive, John Woods, chief investment officer for Asia-Pacific at Credit Suisse Private Banking in Hong Kong, said. The bank closed its outperform view on financials and expects a possible rotation from European to US stocks, Mr Woods said.

While Credit Suisse is neutral on UK property as interest rates could remain "very low for long," the bank's wealth managers expect UK reits to underperform other real estate markets, Mr Woods said.

Kelvin Tay, regional chief investment officer at UBS's wealth management business in Singapore, said his main advice to investors during turbulent times is to stay calm and not sell out their positions. He's also telling clients to underweight Asian exporters with exposure to Europe and the UK.

The Bloomberg US Corporate Bond Index has risen 6.6 per cent since the beginning of March as investors are seeking higher yields than US Treasuries while shunning equities. The broader Bloomberg Global Investment Grade Corporate Bond Index has advanced 5.7 per cent in the same period.

BLOOMBERG