This is a sponsored article from Morgan Stanley Private Wealth Management Asia.

Sometimes contrarian, always enlightening, Morgan Stanley’s industry-leading private banking client conference in January set new standards in thought leadership and client experience. And the food and wine were out of this world.

In its customary early start to the new year, Morgan Stanley Private Wealth Management Asia hosted a record 400 ultra high net worth clients at its 10th annual two-day conference at The Ritz-Carlton hotel in Hong Kong on 8-9 January.

Newly branded as the Asia Wealth Summit, the event offered clients no end of sensory distractions. There was the luxuriously soft feel of each gifted Naadam cashmere sweater. There were the culinary delights of Hong Kong’s most celebrated restaurants, including the two Michelin-starred Tin Lung Heen, The Chairman and Club Bâtard. For connoisseurs, there were the rarified aromas of wine-tasting featuring 2015 Burgundy vintages.

But it was immediately clear that intellectual nourishment topped the agenda for the vast majority of delegates at the 9 January plenary sessions. They filled every seat, even in advance of the 8:30 am start. They were not to be disappointed. Thought leaders of global repute graced the stage for the ensuing 7.5 hours, addressing a full gamut of geopolitics, macroeconomics, investment opportunities and wealth planning strategies to help them shape their objectives for the year ahead.

Hong Kong’s Acting Financial Secretary, Michael Wong Wai-lun, began proceedings with an upbeat welcome address. Stressing that a pro-business, pro-market culture is deep in the DNA of not just the Hong Kong government but the entire Hong Kong community, he said investors could look forward to further growth in the local IPO market on top of 2024’s 89% year-on-year increase in new issues worth HK$87 billion (US$11.2 billion). His overall outlook was “quite optimistic.”

Geopolitics may not be as menacing it seems

This reassuring tone also permeated the keynote address by former Foreign Minister of Singapore George Yeo. He cautioned investors not to take President-elect Donald Trump’s more esoteric holiday-period pronouncements against Denmark, Panama and Canada at face value. These, he maintained, with wide reference to primary sources, should be set against Trump’s negotiating style of always asking much more than his bottom line. Trump has always been sensitive to business concerns and keeps an eye on the stock market. He is also against war and does not want a war with Iran.

He also suggested that the incoming US administration would be very sensitive to anything which threatens the reserve status of the USD. The rising national debt must be a worry. It will not be easy to reduce the fiscal deficit by much.

What does 2025 have in store for the S&P 500?

Andrew Slimmon, managing director and head of applied equity advisors at Morgan Stanley Investment Management, gave the big picture on equities. Expectations for his speech were at a premium. This was unsurprising, given Slimmon had called the S&P 500 Index to finish 2024 at 6,000 points at last year’s conference. It subsequently climbed from 4,742 points on 1 January 2024 to finish the year at 5,882. What did he have in mind for 2025? Seldom at an investor conference have so many pens been so poised.

While he cautioned that macro predictions are unlikely to be consistently accurate, Slimmon said that US equity markets have been acting “completely normally.” He explained that investors’ behavioural patterns have, for the past three years, been very much in line with legendary investor John Templeton’s maxim that “bull markets are born on pessimism, grow on scepticism, mature on optimism and die on euphoria.”

Accordingly, in the first two years of the current bull market, beginning in September 2022, investor pessimism and scepticism produced consecutive years of 21.6% and 36.3% market growth. As we are now in the third year of the bull, investor optimism is prevailing. So, the market will continue to grow, but more mutedly, as a result. He doubted the market could achieve the consensus 6,681 year-end target.

But while more muted returns should be expected, he felt that the danger zone of euphoria was yet to be seen. And that was a healthy sign for equities.

Finally, while a lower return year was his base case, he felt there was a possibility we were on the cusp of a late 1990s return environment. Five straight years of the market compounding at over 20% and 2025 would only be the third year. The commonality? The late 1990s was the inception of the Internet, and today, it’s AI.

Ideas for income

Similar clarity of vision and assurance emanated from a panel on “Your Income Portfolio.” There was a consensus that strong fundamentals across businesses would present abundant opportunities to derive income in 2025. Citing a supportive rate environment, and the fact that there was still more than US$7 trillion in investor funds waiting to exit the money markets, speakers made plausible cases for investment in bonds from across both the credit and maturity spectrums.

India – peak or opportunity?

Moving from an asset class to a geographic focus, the conference debated whether Indian equities could sustain their near five-year bull market, during which the blue-chip NSE Nifty 50 index has more than tripled since its March 2020 low. Panellists noted that foreign investors who have fought shy of India continue to find it difficult both to identify truly competitive businesses in the public market and to scale Indian businesses on the private side. They also advised caution owing to the lack of clear visibility on the impact of US policy on India’s manufacturing companies.

Overall, though, the optimists carried the debate. They stressed that demographics had been the greatest tailwind behind the India market’s advance and would clearly continue to be supportive. They also praised the large-scale enhancement of India’s physical and digital infrastructure as the key driver in unlocking productivity. They encouraged investors to focus on listed companies’ earnings growth which consensus estimates suggest will achieve 10-12% CAGR in the next two years. They also said that the IPO cycle in India has only just begun, with momentum set to continue apace.

Cautious about Greater China

There was generally less confidence about the China market’s prospects for concerted recovery in 2025. On the theme of “What’s next for Greater China?” panellists agreed that the Politburo’s tone in Beijing is stimulative, but they also noted that there is limited transparency on policy implementation. They said that US inflation would continue to combine with deflation on the cost side in China as a major benefit for Chinese exporters. However, they did not see any immediate inflexion point for the China stock market. They advised caution amid market volatility in the first half of the year but said it was possible there would be pivot points in the second half.

What was hot and what was not

Speakers voiced strong convictions about different sectors and themes throughout the day. The most-favoured sector overall – supported by the incoming US administration’s much anticipated deregulatory policies – was financials. The least favoured theme, meanwhile, was the quantum computing trend. Why so? As one speaker put it: “We are a million qubits away from any real-use case.”

Navigating legal and tax challenges

While the discussion of investment opportunities – and their attendant risks – dominated the stage for most of the day’s proceedings, a thoughtful panel on wealth protection also piqued the ultra high net worth delegates’ interest.

They heard that the international tax landscape is being substantively reshaped by the drive for global tax transparency. The enforcement of international data-sharing arrangements like the Common Reporting Standard (CRS) and the Foreign Account Tax Compliance Act (FATCA) has alarmed families with global asset allocation and overseas holding structures. It follows that compliant planning strategies now have what one expert described as “a higher threshold and a different meaning”.

Help was at hand from the panel of experts. They advised family members of the newly heightened importance of appropriate holding structures given that the economic substance requirement and tax transparency have both weakened the benefits of overseas structures and made compliance more costly. They said families should consider diversifying asset holding structures in jurisdictions which are simultaneously compliant and provide ease of management, like Hong Kong and Singapore.

From a legal perspective, the importance of a second residency in a relatively stable region was emphasised, as well as keeping abreast of the risk and compliance requirements for managing a globally diversified portfolio. Discussing and reviewing the wealth planning strategies within the family and with advisors is key to staying adaptive to changes.

Above all, the panellists agreed unanimously that families should make sure there is a plan and plan early. They should discuss all succession plans within the family, and they should consult professional advisors.
 

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This is a sponsored article from Morgan Stanley Private Wealth Management Asia.