Stay invested in diverse portfolios amid volatile market conditions

AS the macroeconomic outlook has weakened globally, panellists at the “Investment outlook in a disrupted market” event held on Thursday (Jul 28) affirmed the need to stay invested with diversified portfolios to ride out the storm, despite their differing views on how the world economy may pan out in the coming years.

In his opening remarks, Anurag Mathur, HSBC bank (Singapore) head of wealth and personal banking, said that the Covid-19 crisis, ongoing Russia-Ukraine conflict and a drive for sustainability have reshaped the world.

“So, the question is how can we adapt and build a future-proof wealth portfolio to return stronger?

“We remain hopeful for what the future holds, and HSBC stands ready to continue on this journey with our clients by turning disruptions into pathways for growth and opportunity,” he added.

Held at the ParkRoyal Collection Marina Bay on Thursday, the event was organised by The Business Times and presented by HSBC as a premier event, and addressed topics ranging from inflation woes to how the energy transition could be impacted by geopolitical tensions.

During his keynote address, James Cheo, chief investment officer, South-east Asia, HSBC global private banking and wealth, said that things would likely get worse in 2022 before improving in 2023.

After the quantitative easing programmes that central banks undertook when the Covid-19 pandemic first began, he noted that the world has become more indebted.

“Because of this stimulus that occurred since the pandemic, what we got was a kind of demand-supply imbalance.

“The stimulus has pushed up demand in a very significant manner. At the same time, you have supply that’s very much constrained,” he said.

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He added that the next few economic indicator readings would likely be “tough”, creating uncertainty and uneasiness in financial markets.

The US economy posted a 0.9 per cent contraction in second quarter gross domestic product (GDP) on Thursday, the second quarterly contraction it has seen in a row.

Uncertainty has also been introduced on multiple levels due to the Russia-Ukraine conflict, he said, adding that the post-second world war peace dividend that investors enjoyed has been destroyed.

Still, Cheo noted that there is some cause for optimism.

Certain “pockets of strength”, such as strong US consumer spending and low unemployment, still bode well for the economy.

Furthermore, he noted that China is still stimulating its economy and keeping monetary policy easy, even as its zero-Covid policy remains a very real uncertainty.

As different uncertainties pan out and potentially result in segments under or over-performing beyond expectations, Cheo said that an important lesson for investors would be to have a diversified portfolio depending on an investor’s risk tolerance.

A moderate investor, he said, should allocate a third of their portfolio to global equities, a third to global bonds and a third in alternatives like precious metals and real estate.

“I think the message really is that for most people who are sitting on the sidelines, who have lots of cash, this is a time to actually start to be greedy when everyone is fearful,” he said.

Once investors have a diversified portfolio, Cheo said that investors can then turn towards longer-term growth trends such as digitalisation and sustainability.

Differing world views

Still, Tan Kee Wee, founder and principal economist at Waveney Economics, provided a more sobering perspective on how he viewed the future of the global economy. He was part of the panel at Thursday’s event.

He cited the conundrum that central banks are facing as they try to solve supply-side inflation by curbing demand with interest rate hikes.

“Ideally, governments should try to stimulate the supply side, but that is harder,” he added.

“Europe will, I think, suffer for the next many months because they will suffer from a shortage of gas. Maybe Asia will pick up a bit because China is coming up. The US will be bogged down by inflation as well,” he said.

In a more pessimistic view of the world, Dr Tan also noted the possibility of war breaking out between Taiwan and China, as well as a new reserve currency introduced by Brics nations that could erode the pre-eminence of the US dollar.

Despite these potential headwinds, he suggested that there would still be investment opportunities, citing the example of mask and glove makers that did well during the pandemic.

Saurabh Dhingra, partner and Asean financial services strategy leader at EY-Parthenon, expressed confidence in Asia’s growth trajectory despite the inflationary and potential recessionary pressures globally.

This was especially because he has seen a lot of positive signs in Asian GDP growth, which has been driven crucially by domestic consumption.

“In these environments, we need to… think of different scenarios and therefore decide on what our investment strategy is going to be. How are we going to balance our risk and reward?

“Clearly, sustainability is one big area where we think, globally, both the public and private (sectors) will come together and invest heavily into that space, which will create new opportunities for all of us,” he said.

Responding to a question on how the economies around the world could end this year, Dhingra noted that inflationary pressures could ease in a couple of quarters and the world will be back on a growth trajectory across the globe.

In particular, he highlighted themes such as the digital transformation and the evolving business models of companies as opportunities to look out for.

Dr Tan said that even though he is pessimistic about the world economy, he remains optimistic on people’s ability to adapt.

“Remember when Covid-19 first hit, we couldn’t go out and we couldn’t do anything but after a few months, we got used to it and Zoom is actually better than going for meetings.

“Even in the next few months, I see a lot of volatility and all that but we will get used to it,” he said.

Cheo said that while there is going to be a lot of noise over the next few months, the trend towards sustainability stands out to him.

“As much as climate change is going to be our biggest threat, it’s also going to become one of our biggest opportunities,” he said, adding that investors should place sustainability at the heart of their investment process and thinking in the years ahead.