In times of uncertainty, fall back on proven strategies
A stock market sell-off, an unexpected electoral competition and rising geopolitical tensions require investors to refocus
IS THE recent bout of selling in global markets an opportunity to add to your positions? The answer depends on what those positions are.
In this edition of Who’s Who in Private Banking, a biannual supplement put together by The Business Times, we poll senior executives and thought leaders at 12 of Singapore’s top private banks for their views on opportunities, risks and innovations.
There was quite a bit of consensus on artificial intelligence (AI), which is widely viewed as an exciting innovation for both businesses and portfolios. The ways to play this theme differ slightly, but it is expected to be an important generator of economic growth as it develops.
Dhiraj Bajaj, chief investment officer for Asia fixed income and equities at Lombard Odier Investment Management, said Asia will have a significant role to play in the deployment of AI.
“Much of the world’s upstream servers and data centres will have to be replaced with newer AI versions, which are in turn dependent on Asian semiconductor and hardware technology products,” Bajaj said.
Meanwhile, Joseph Poon, group head at DBS Private Bank, pointed out that companies in the United States and Europe excel in the design and innovation portions of the AI value chain. This means that in order to capture the benefits of the AI trend, a global approach is required.
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Nearly all those polled also agreed that geopolitics is a major concern for investment portfolios. Tensions between the US and China, Israel and Palestinian political group Hamas, China and Taiwan, and Russia and Ukraine are hindering global trade and investment.
Dong Chen, chief Asia strategist and head of Asia research at Pictet Wealth Management, also noted that Middle East conflicts could push up oil prices and, subsequently, inflation.
As governments react to these tensions, Bank of Singapore’s Singapore co-head of private banking Rodney Sin said some opportunities could emerge.
“The global desire for enhanced security and self-sufficiency will likely benefit sectors such as technology and healthcare, as well as food, energy and metals,” he said.
Bhaskar Laxminarayan, chief investment officer and Asia head of investment management at Julius Baer, said the increased volatility could even lead to “attractive entry points for investors” in the months ahead.
By far, the biggest consensus that emerged, however, was that investors need to ensure their portfolios are sufficiently diversified to withstand market shocks.
“Politics, geopolitics and other macroeconomic risks – or known unknowns – can be accounted for and, in many cases, hedged away,” said Evonne Tan, managing director and head of Barclays Private Bank Singapore.
“The unknown unknowns are the real risks, as they can’t be measured or hedged. The only solution available to investors to prepare for these risks is to hold a well-diversified portfolio.”
Constructing a diversified portfolio is “as important as identifying high-growth opportunities”, said Dr Mika Kastenholz, Asia-Pacific head of products and services and Asia-Pacific head of investment services at LGT.
“It is worth revisiting whether the outperformance of equities has created an unintentional tilt or concentration risk in portfolios.”
In recent months, US technology shares have starkly outperformed other stocks and asset classes – mostly on the strength of the AI story.
James Cheo, chief investment officer for South-east Asia and India at HSBC Global Private Banking and Wealth, said the bank’s advice has included diversification in US stocks beyond the tech sector as well as into investment-grade bonds.
Dr Neo Teng Hwee, chief investment officer at UOB Private Bank, favours cyclical laggards such as industrials.
Young Jin Yee, Asia-Pacific co-head for UBS Global Wealth Management and country head for UBS Singapore, said investors should also consider gold, the Swiss franc and the Japanese yen.
Foo Tian Ong, South-east Asia regional head and Singapore location head for private banking at Standard Chartered, noted the positive track records and diversification benefits of alternatives.
Which of these diversifiers investors add to their portfolios will depend on existing positions as well as risk appetites. Above all else, experts said, they should focus on proven fundamentals of successful investing.
Alvin Lee, Maybank Singapore’s country CEO, noted that in the longer term, the risk for the investment industry is how some groups of investors are departing from the basic tenets of investing.
Said Lee: “Regardless of the asset class, it is important that investing is based on the fundamental of value-creation, and not speculation or activism.”
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