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Revisiting the financial markets
TWO veterans of the investment industry resumed a conversation they ended two years ago about the direction of global markets.
In 2014, Ng Kok Song and Robert Parker told the audience at the Credit Suisse Global Megatrends Conference to expect a period of low returns from financial markets as the global economy recovered from the financial crisis of 2008. Two years on and the fall in returns have turned out to be even more dramatic than they had anticipated.
"We live in a world of negative or very low yields. In most equity markets negative returns have been generated since the middle of last year. In Europe we have 14 government bond markets where two-year yields are negative," said Mr Parker, senior adviser in the Investment Strategy and Research Group at Credit Suisse, at this year's instalment of the conference.
Indeed, Mr Ng, who is the founding partner and chairman at Avanda Investment Management, argued that bonds were no longer a safe investment because the low yields meant there was little margin for error.
"The reason why fixed income investment is a lousy proposition in the longer term is because yields have come down so much. What was once thought of as a safe investment is no longer safe," said Mr Ng, who was the former chief investment officer at GIC Singapore.
If investors wanted to play the fixed income market, he recommended looking at corporate bonds that offered attractive yields and manageable risk compared to government paper.
"In Asia the corporate bond market is developing very rapidly. More companies are turning to financing their needs in the (fixed income) markets rather than bank financing, and some of them are good credits offering reasonable attractive yields," he said.
Turning to commodities markets, both men had predicted a fall in oil prices in 2014, but neither had anticipated the extent of the drop. This was largely due to the volatile nature of the asset class.
"Commodities are a totally different game from investing in bonds and equities. Commodities are all about supply and demand in the short term, no wonder it is extremely volatile," said Mr Ng.
As for China, Mr Parker reversed his position from 2014 when he described the world's second biggest economy as a "miserable place to invest, a great place to lose money, yet again".
This time, he said that China markets today are a relatively cheap market compared to other emerging and developed markets. Its currency, the renminbi, has also come down to a more appropriate valuation.
"I can say with some confidence is that (China) is having a long-term slowdown and not a hard landing. Now we have reasonable valuations so I would go back into China," he said.
Mr Ng advised not just looking at investing in China itself but also the economies and companies with exposure to the country in order to reap the benefits of its growth. "I would look for China-related themes. Louis Vuitton is a China-related stock, Brazil is a China stock, Glencore is a China stock. That is the right way of playing the theme," he said.
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