While the markets are still full of uncertainties, with clients favouring lower-risk assets, fund selectors at private banks in Asia believe now is the time for clients to start increasing their exposure to equities and alternatives, but while avoiding concentration risks.
This is according to the views shared by panellists at the APB Intensive webinar on Thursday, a high-powered virtual session, where select fund houses pitch their latest investment convictions and product solutions to an exclusive audience. The 7th edition of the event gathered individuals from the region’s fund selector community across more than 30 private banks and family offices.
Paula Ip, UBS
“Despite a very challenging 2022 environment, I must say we have made a few good calls on a relative basis. Such as stocks – value stocks over growth stocks. On fixed income – short-duration bonds over long-duration bonds. And on alternatives, we continue to ask our clients to invest into alts for diversification benefits,” Paula Ip, managing director, head of investment funds, advisory & sales, Greater China at UBS Global Wealth Management, told participants of the webinar.
Ip summarised the bank’s key calls for 2H 2023 into three significant points:
“First of all, buy quality bonds to lock in yields. Secondly, look for equity laggards – as stock gains in the first half of 2023 are primarily concentrated in a few areas. And last but not least, go sustainable. For UBS, we are a strong supporter of sustainable investing,” she added.
Why Japan?
Jean Chia, Bank of Singapore
Bank of Singapore (BOS) is retaining duration over credit by being overweight US treasuries and developed market credit. Plus, the bank has upgraded Japanese equities from neutral to overweight and downgraded China/Hong Kong to neutral, and Taiwan to underweight.
This is according to Jean Chia, CIO and head of portfolio management & research office.
There are a few structural reasons for the overweight call on Japan. “The first is on the top-down aspects. On economic recovery, we’ve seen an economic growth surprise in Japan, so we do think that it will be a positive growth for the year. Also, on the inflation front, we’re starting to see moves up in terms of positive inflation numbers,” Chia explained.
“On the bottom-up basis, which is really significant, is corporate reform. The Tokyo Stock Exchange has actually highlighted to listed companies that they really need to start looking at overall shareholder return,” she continued.
Increasing risk
In addition, BOS also increased exposure to alternatives for more aggressive clients.
“For our most aggressive clients, the [alternatives] weight goes up to almost a quarter of the portfolio. And one reason for this is diversification and the lack of correlation to other asset classes. But within alternatives, we have also been talking to clients about how to allocate into the sub-asset classes. Whether it’s private equity, private credit or real estate,” Chia said.
Beyond Japanese equities, private banks are also slowly helping clients increase allocations to equities in general.
Yvonne Leung, J.P. Morgan Private Bank.
“Given what happened over the last 12 to 18 months, the equity allocation on a lot of our clients’ portfolios tends to have come down. But we are trying to find ways to help our clients increase and get back into the market,” according to Yvonne Leung, managing director, head of managed solutions, Asia at J.P. Morgan Private Bank.
“But such shifting should be in a slower manner, by finding good managers who will be able to actually weather and find opportunities in a market with higher dispersion and also in a style-agnostic way,” Leung added.
Avoid over-concentration
Even so, diversification among markets, asset classes and durations remains important.
Lina Lim, regional & Hong Kong head of funds & discretionary, Asia Pacific, Global Private Banking & Wealth at HSBC, said that one should avoid over-concentration.
Lina Lim, HSBC
“In general, we try to avoid over-concentration in one particular theme or in one particular asset class. And the reason is because we expect market volatility to stay in the near term and hence it is essential to ensure we have proper risk budgeting in our portfolio today,” Lim said.
Lim added that the bank would like to invest in China, India and the broader ASEAN countries to capture opportunities. “Due to the dispersion we are seeing in the market, we prefer active managers for alpha generations,” Lim added.
If you are within a Funds Selection or Investment team at a private wealth institution, email [email protected] to receive a replay of the full event.
