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Roundtable

Gearing up for the year ahead

Despite risks, there are still bright spots to look forward to this year

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Jyrki Rauhio, South Asia Head, Citi Private Bank

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Bahren Shaari, Chief Executive, Bank of Singapore

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Philip Kunz, HSBC Head of Global Private Banking, Southeast Asia

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Benjamin Cavalli, Credit Suisse Head of Private Banking South Asia and CEO Singapore

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Raymond Ang, UBS Head of Global Wealth Management for South East Asia

Risks abound in 2020 despite the expectation that the bull market in equities, led by the US, is intact. Genevieve Cua asks the leaders of the wealth management industry for their views on how you should be positioned.

Jyrki Rauhio
South Asia Head, Citi Private Bank

Asset allocation and risk management remain the drivers of our investment outlook for 2020 following the dispersion of asset class and market performance in 2019 and the impact of short-term news fl ow which will continue to dominate the investment dialogue. We are closely examining the strong fi xed income returns we saw in 2019 and the prospects for the asset class going forward.

Many strongly performing areas of fi xed income are unlikely to see the same sort of returns going forward and the appetite for yield - both from fixed income and other assets - will continue to dominate. Within equities, we remain laser focused on valuations, corporate balance sheet strength, earnings growth and dividend-growing names as well as the implications of geopolitical tensions.

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We expect global equities to advance six to eight per cent if policymakers avoid escalating the trade war. Global fixed income overall may struggle to produce 1-2 per cent returns. In early 2020, cyclical equities are likely to shine. Just as politics stoked fear in 2019, the same may happen in 2020. But politics has much less impact on markets than investors perceive.

We also continue to focus on what we call "unstoppable trends" - the widespread impact of disruption in all major parts of the global economy which is only just starting to be understood. In addition to the careful use of risk mitigation structures, we continue to have a major focus on low-correlation hedge funds, plus the selective deployment of capital in select illiquid assets such as private equity, private debt and real estate.


Bahren Shaari
Chief Executive, Bank of Singapore

While the economy remains in a delicate position today, the good news is that we see the stage being set for a mild economic recovery in mid-2020. History shows that markets tend to rally after the Fed's initial rates cuts, and this uptrend is typically sustained if investors see increasing signs that a recession would be successfully averted.

Over the next few months, we see more upside for markets as investors receive increasing confi rmation of a growth recovery alongside improving incoming data and the signing of the US-China phase one trade deal. We expect the decade-long bull market to continue in 2020 given that monetary and fiscal policies remain supportive, and that clear imbalances in the financial markets and emerging market (EM) economies - which tend to accompany recessions - are largely absent. That said, there is a need to moderate return expectations.

As we head deeper into 2020, we see challenges from still-relevant late cycle forces, such as pressure on corporate margins and high debt levels, in addition to geopolitical uncertainties in the Middle East, the US presidential elections, and US-China tensions. Moreover, valuations of risk assets today are already near fair value, and are higher than the average levels seen during past similar recovery rallies over the last 40 years. We do see, however, that because interest rates today are lower than historical levels, there is some additional scope for valuations to rise further.

Against this backdrop, we have a moderate risk-on position in our overall asset allocation strategy, expressed through our overweight positions in Europe equities and EM high yield (HY) bonds. Relative to the US and Asia, we fi nd better risk-reward in Europe equities valuations, which have largely discounted the economic weakness in Europe and the geopolitical issues relating to Brexit and Italy. We also like the attractive carry from EM HY bonds. Bottom-up company results in this space remain broadly fi rm, and valuations are relatively undemanding. This asset class is well-placed to continue receiving broad-based support with much of the world's bond markets at low or even negative yields.


Philip Kunz
HSBC Head of Global Private Banking, Southeast Asia

We encourage investors to build portfolios around income, growth and stability. But with cash rates and bond yields in developed markets near record lows, global economic growth below normal, and political uncertainty creating potential volatility, these objectives will not be as easy to achieve as in the past.

To achieve an adequate level of income, we believe portfolios should avoid excessive cash balances on which rates are just too unattractive. We also avoid the lowest rated end of high yield because valuations are just too tight and the weak economy is a risk. Instead, we favour USD investment grade, EM's local and hard currency debt. We complement these with dividend stocks, real estate and private debt instruments to generate more income.

The lower-than-normal economic growth we expect for 2020 and 2021, and the over-optimistic consensus earnings expectations are a challenge for investors. To boost the return potential of portfolios, we don't think the answer lies in taking higher cyclical risk. Instead we focus on quality companies with sustained earnings growth. We prefer the US equity market over Europe. We also look for long term growth in promising sectors, geographies or themes related to the Fourth Industrial Revolution.

For stability and uncorrelated returns, hedge funds should be able to capture growth opportunities, while typically being less exposed to market corrections or to the economic cycle. Private equity can help tap into long term themes, reduce the market timing risk, and look through short term volatility and geopolitical uncertainty.

Therefore, a multi-faceted investment strategy is needed to achieve the three objectives of income, growth and stability.


Benjamin Cavalli
Credit Suisse Head of Private Banking South Asia and CEO Singapore

While we are more constructive on equities versus bonds, we are also recommending that investors cast a wider net as they search for yields and returns in the market. This will also help their portfolios better weather any future volatility. As such, we continue to educate our teams and investors on using non-linear strategies to get upside with more protection and to look for return in areas that we feel have been neglected, such as real estate, hedge funds, and private equity. We expect that 2020's returns environment will exhibit the following traits:

1) Lower cash returns expected across all markets.

2) Major government bonds are expected to deliver lower total returns, after a strong 2019 outperformance.

3) Equities and alternatives are likely to outperform fi xed income, but with higher volatility.

4) A pick-up in global manufacturing could see demand for commodities increase, which would benefi t that asset class.

Within Asia, we are positive on China equities. We believe that the recent market rally has further to run given the phase one deal has been reached and expected to be signed in a few days. Leading economic indicators like the PMI's and company earnings are also improving.

In the fixed income space, we like Asian HY credit and subordinate fi nancial debt as they offer a great mix of higher yield and strong fundamentals.

In addition, we have two thematic areas of focus - China property and Asia's New Economy. These are meant to be relevant for the 6-24 month time frame.

A likely confl uence of strong growth, less hawkish policies from Chinese authorities and deleveraging by companies should make the China property sector an attractive investment target. Asia's New Economy - centered on the key technologies of cloud computing and 5G - is an attractive option in the equities space given the focus that has been placed on 5G by governments across Asia.

Finally, we believe 2020 is the year that ESG and impact investing will move from the fringes of portfolios and investor concerns and enter the mainstream.


Raymond Ang
UBS Head of Global Wealth Management for South East Asia

Within Asia, UBS Global Wealth Management CIO is tactically overweight Asia ex-Japan equities versus US high grade bonds on improving earnings prospects and risk sentiment in our Asian strategies.

Given lingering growth and political uncertainties however, this position is paired with a long 10-year US Treasury versus cash position.

Asia ex-Japan's earnings are expected to rebound 10 per cent in 2020, after persistent downgrades for over a year. This should boost equity market return expectations to a low-tomid teen percentage this year. In Asian credit, UBS Global Wealth Management believes investors should be cautious when trading low quality for yield at this late stage of the economic cycle.

For 2020, investors may wish to consider quality and dividend-paying stocks, as well as domestic and consumer- focused fi rms that are less exposed to trade and business spending.

They may also wish to adopt a middle- of-the-road approach to bonds, given very low yields on the safest debt and rising credit risks among highyield issuers. When investors consider diversifi cation across asset classes, our UBS CIO recommends a preference for precious metals over cyclical commodities for a combination of safe and high-yielding currencies; and for low sensitivity to market movements within alternative investments.