UOBAM takes balanced income investment approach; expects muted global growth in 2020

UNITED Overseas Bank's wholly-owned subsidiary UOB Asset Management (UOBAM) is focusing on investment grade bonds and dividend growth equities for capital preservation and gain in 2020, it said on Thursday.

Anthony Raza, head of multi-asset strategy at UOBAM, suggests a risk-based balanced income strategy to preserve and grow capital through bond yields and stock dividends.

The asset manager is "overweight" on fixed income and alternatives for the first quarter of 2020, "neutral" on equities and "underweight" in cash and commodities.

UOBAM expects an annual return of about 3 to 4 per cent for fixed income in 2020.

Within fixed income, it favours investment grade credits in developed markets and issuances by companies that are market leaders and backed by strong government support.

For equities, UOBAM's neutral call for the first quarter is an upgrade from underweight in the second half of 2019. It expects global earnings growth of about 7 per cent for the year to drive returns, and will look out for more signs of sustained economic growth before increasing its positions further.

"We favour US equities to Asian equities in anticipation of resilient American corporate profits," said Mr Raza.

While the asset manager is currently neutral on Asian equities, it would take a more positive view of this asset class if the global economy and trade see a greater improvement, and if the US dollar eases.

"Singapore equities in particular offer attractive valuations and growth potential supported by the government's fiscal flexibility," Mr Raza opined.

UOBAM's overall view is based on improving global economic conditions, albeit with muted growth expectations for the year.

Mr Raza cited lingering geopolitical concerns, including US-China trade tensions, the US presidential election and Brexit, as potential headwinds for the global economy.

He said moderate global economic growth would likely mean modest earnings growth, and "we do not expect further monetary easing this year". "As such, most asset classes are unlikely to replicate last year's strong performance," he added.