CIO Insights Featuring James Cheo, Chief Investment Officer, Southeast Asia, HSBC Private Banking and Wealth Management

CIO Insights Featuring James Cheo, Chief Investment Officer, Southeast Asia, HSBC Private Banking and Wealth Management

Considering the turmoil and scepticism that plagued 2020, the global economy is starting to look considerably more positive in 2021 on the heels of a vaccine roll-out strategy, markets reacting positively to a new administration in the U.S.A and the slow, but steady opening up of most economies. As we head into a new decade, questions with regard to wealth creation, strategic investments and key investment themes may overwhelm global investors. To aide our readers and worldwide investor community, we interviewed James Cheo, Chief Investment Officer, Southeast Asia, HSBC Private Banking and Wealth Management. James Cheo, in this interview, elaborates on investment insights further discussing the macros and markets which could shape 2021 and beyond.

Macro-economic Indicators: Steady economic growth, corporate performance and accommodative rates will aid 2021

As global economic growth steady improves, there is a noted broadening of economic activity beyond manufacturing and digital. To aid this steady growth, a global vaccine roll-out should allow the consumer confidence to pick up, and the all-important consumer sector to become an additional engine of growth. At the same time, governments are rebuilding their economies, and the healthiest companies are investing to adapt to the new post COVID-19 realities and opportunities. Collectively, there is indication that global economy and corporate profits will significantly grow and also become healthier in 2021 as compared with the current circumstance. Further, accommodative rates on a global level by most central banks will also build investor confidence. With this in mind, we continue to see several interesting investment opportunities in EM Asia, which we prefer over other emerging markets. China’s dual circulation strategy, focused on measures to boost domestic demand, technological innovation and market liberalisation should further boost growth, give long term direction to investors and lead to fund flows into the region.

Asset Allocation: Some volatility and reflation will guide 2021

We believe it is key to be mindful of positive growth and rate fundamentals throughout 2021 to avoid being blown off-course. While we do foresee volatility on several fronts, much of it could also turn out to be just noise. Hence a cautious approach is advised. During 2021, oil price base effects may give the impression that inflation is picking up, and the economic recovery may trigger speculation about policy normalisation. Rising inflation is due to economic improvements. With this said, we remain invested with a pro-risk and cyclical stance, but with a selective approach and plenty of diversifiers, including gold, high rated bonds, hedge funds and other alternative assets.

Global Markets: Technology sectors and enablers will continue unabated

The broadening of the economic activity is aiding the sector leadership in the stock markets, and we thus hold overweight positions in technology, industrials, materials, consumer discretionary, financials and communication services. However, this broadening does not mean that technology – which had been principal engine of stock markets – will underperform in 2021.

The digital revolution, according to us, will continue unabated, and technology leaders should continue to see strong growth in the medium term. As tech leaders can be found outside of the tech sector as well, in areas such as automation, health technology and 5G, all related or impacted sectors will also witness growth. Technological leadership is one of the key determinants of whether a company is fit for the future. Hence it is safe to say that many value stocks have outdated business models which investors should be aware of and avoid.

Investments: Guided by China

The Themes: Most of our themes that are related to Asia is led by China.  The key investment trends that will shape 2021 and beyond are: (1) New Asia Consumers; (2) Riding on China’s Five-Year Plan and (3) Hunting for income in a Low Yield World; (4) Digital Transformation; (5) and China’s Green Revolution.

The Ideal Portfolio: We have a risk-on stance in our model portfolio, with overweights in global equities, investment grade and BB-rated high yield bonds, and hard currency emerging market bonds. We fund this principally through our underweight on safe haven bonds. In equities, we have a cyclical sector stance. Our stance and current positions are of the view that the global economy is recovering and rebuilding, hence earnings should improve. In addition to this, equity and credit valuations are supported by the low yield environment.

The Preferred Alternatives: 2021 should provide a rich opportunity set for good hedge fund managers. Markets’ focus on where inflation and rates are going can create volatility and opportunities. Hedge funds can pick winners and losers from the changes around COVID-19 and the digital revolution. Defaults and restructuring in this space will continue to provide opportunities for distressed hedge fund strategies. Further, Hedge funds continue to play a critical role in diversified portfolios, providing potential for uncorrelated and still attractive returns. We continue to adopt a barbell approach, looking for opportunities in credit and some equity strategies, while keeping our overweight exposure with macro and multi-strategy managers.

ESG Investing: ESG credentials could augment valuations in the new decade

In our view, ESG integration and responsible investing are no longer sufficient. In this new decade, we will see substantial migration of investors towards sustainable investing approaches, which we classify as Inclusion, Thematic or Impact investing. With such investment strategies, we not only look at ESG risks, but also ESG opportunities. ESG integration could have been sufficient if we were talking about a small change, but in our view, sustainability is a real revolution. In this respect, we think it is helpful to draw some parallels with digital revolution, to illustrate how investors should be handling it. When investors consider the effects of the digital revolution, they want to actively pick companies in each sector that use technology to their advantage, to help them to win the race against their competitors. Similarly, when it comes to ESG investing We think investors should keep these things in mind, and take a similar approach for sustainability. They should actively select companies with strong or improving ESG credentials to boost performance (inclusion approach) or seek out companies that are exploiting specific sustainability trends (thematic approach). The sustainability revolution is arguably as much as a game changer as the digital revolution. Sustainability should therefore be integrated both in the core portfolio strategy- where it can help investors outperform or reduce risks, and in thematic satellites – focusing on the opportunities.

CIO Insights Featuring Prashant Bhayani, CIO Asia, BNP Paribas Wealth Management Asia

CIO Insights Featuring Prashant Bhayani, CIO Asia, BNP Paribas Wealth Management Asia

As we usher in 2021 and with it a new decade, the pursuit for stability and growth continue. In these rapidly evolving times, the ability to pin-point the next avenue for growth, wealth creation or even disruption would be somewhat of a challenge for even the most savviest of investors. Hence, to better understand what trends could shape 2021 and the years ahead, Global Private Banker interviewed Prashant Bhayani, CIO Asia, BNP Paribas Wealth Management Asia. This interview covers his insights and commentary on macro-economic themes, global markets, the portfolio for the new decade and impact investing.

Macro-economic indicators: Vaccine roll-out and policy accommodation will shape 2021

The two key macro-economic indicators will be the pace of vaccine roll-out and efficacy. This would potentially allow gradual re-opening and faster economic recovery than countries that do not. The other critical indicator is the level of policy accommodation. In that regard, real yields remain negative in the developed world. This year, BNP Paribas Wealth Management grouped its themes by investment horizon, from short term to long term. The first theme, titled ‘Vaccines, recovery, and reflation’, focuses on assets that should be the first to recover in the cyclical turnaround that we anticipate over the coming months. Examples are early-cycle sectors, selected commodities and commodity currencies. Meanwhile, while reflation will gradually take place, the market will likely be concerned that the economic recovery will also push inflation higher in the medium term.

Medium term themes include how to find income in a yield starved world: ‘Low volatility absolute return’.  Examples of this being alternative UCITS, absolute bond funds and structured products. ‘Sniffing out yield truffles’, another medium term theme focuses on corporate and Emerging Market bonds, infrastructure funds and real estate.  The biggest challenge which still remains, is how to create a 60/40 portfolio. For this we emphasize on new sources of alpha such as asset diversification through selected commodities, currencies, US inflation-indexed bonds, alternative UCITS and private equity.

Geopolitics: Continuation of policy indicates to a short-term impasse

The Biden administration is focused domestically on vaccine roll-outs and the U.S economy, primarily passing a stimulus package. Focus is also on infrastructure and research & development. On China, there is not tangible action yet. However, increased use of global multi-lateral institutions – WHO/WTO etc. and partnering with allies in Europe and Asia were noted in the early days.  This is an important difference from the Trump administration. The views on China are bipartisan, hence strategic competition in sensitive areas will likely continue. No changes to tariffs (yet), national security issues, or technology areas have been noted. Additionally, Europe also views China as a competitor. Hence, cooperation is possible in areas of shared interests like climate change.

Asset Allocation: Non-US equities, bonds and gold remain favourites

Historically low real rates are currently supporting equity valuations. We remain positive on equities as an asset class.  We are overweight on Non-US equities – Emerging Markets, Japan, UK, and Europe. We are positive on Emerging Markets, based on a superior earnings growth profile and room for further re-valuation. Preference for China and Taiwan, and the more cyclical Japanese exposure. We remain positive on these pro-cyclical sectors as well as small-mid caps in line with the reflation theme.

Central banks will remain accommodative this year. Both the Fed and the ECB have no intention to raise policy rates. We stay positive on Emerging Markets bonds, Investment Grade and fallen angels corporate bonds, and selected Asia high yield. We also like peripheral bonds and see any spread widening as an opportunity to reinforce positions. We continue to see a weaker dollar, especially with the passing of additional US fiscal stimulus looking imminent. Simultaneously, we continue to like gold. With real interest rates at negative levels, USD weakness and inflation fears (gold is a natural inflation hedge) should bring gold prices up in 2021.

Investments: A positive market rally, generational influences and smart technologies will guide the new decade

Markets: Firstly, the positive impact from vaccinations should accelerate over the next few months, allowing for a progressive re-opening of the consumer economy. Furthermore, this combined with savings rates, which are double digit in the US, Europe, and Asia means a consumption recovery is possible. As majority of U.S companies continue to beat their earnings forecast, key support for equities continues. Our medium-term equity market view remains resolutely positive, with the potential for double-digit gains over 2021. However, in the very short term the risk of a small market correction could be expected, hence we will look to accumulate equities on any market dips.

Investment for the new decade: For the longer-term themes and megatrends in our 2021 investment strategy, we have divided them into two groups. The first group focuses on China’s opening of capital markets and economic reform which includes China A-Shares, technology sector, onshore bonds. The group also includes other megatrends such as ‘New consumption habits in a post-lockdown world’ such as home-based consumption, home entertainment/activities, ‘Shifting generational influences” focusing on nutrition, housing, medical care etc and ‘Enablers of smart technologies’ which includes artificial intelligence, big data, cybersecurity etc.

The second group addresses ESG themes, such as technological innovation, equipment and storage for renewable energies and investing in trust and profitability especially as the world embarks longer term plans to effectively reduce carbon footprint.

Private Equity and Real Estate are in the spotlight: Private equity and real estate will have the highest expected return of any asset class over the next cycle. The illiquidity premium has delivered over equities especially for managers that can add value. For example, there is more than a trillion dollars of dry powder among private equity and real estate firms. As we anticipate increasing corporate defaults due to the impact of the recession, this will translate into excellent hunting ground for attractive acquisitions. Furthermore, there is a demand for $6.3 trillion infrastructure spending in the medium term that cannot be funded fully by indebted governments alone. Hence, we favour private infrastructure funds – a critical backbone of the economy, because of their high cash generation and inflation adjusted revenues.

Impact Investing: The transition to a end-to-end investment experience could define this decade

Global transition to an better future: This is by far the most significant megatrend for this decade. 2020 was the biggest year for inflows (US$194 billion) to sustainable strategies. Assets in sustainable funds hit a record US$1.65 trillion dollars. Europe leading with the largest flows, followed by US and Asia. Furthermore, bonds related to ESG issuance passed the US$500 billion mark for the first time in history in 2020. Moreover, ESG focused strategies outperformed in general and the pandemic has reinforced trends benefitting sustainability.

Contributing to ESG: BNP Paribas Wealth Management’s client-facing staff take a mandatory training on sustainable investing. Further, more than 25 sustainability related events are organized each year where clients can learn more about sustainability and how they can have a positive environment and social impact with their wealth. BNP Paribas recently launched an online questionnaire for clients to identify their preferences on the 17 UN Sustainable Development Goals. This was undertaken to enable the bank to provide its clients with tailor-made sustainable investments solutions. BNP Paribas Wealth Management believes in employing ESG investing principles to their overall top-to-bottom investment philosophy.

CIO Insights Featuring John Woods, Chief Investment Officer Asia Pacific, Credit Suisse

CIO Insights Featuring John Woods, Chief Investment Officer Asia Pacific, Credit Suisse

Amid the revival in economic activity on the back of the vaccine program, organisations moving from business continuity plans to stable working environments, and a slight improvement in unemployment numbers, the world continues to adjust to new realities. Coming to terms with the “new normal”, global investors are on the look-out for attractive and stable investment opportunities. In our bid to help our readers and investors understand what to expect from 2021, we interviewed John Woods, Chief Investment Officer Asia Pacific at Credit Suisse.

Macro-economic indicators: A dovish stand by central banks, anchored inflation and vaccination roll-out could shape 2021

Mass vaccination drives, measures to contain the spread of Covid-19 and economies rebuilding themselves are pointing toward global growth. Leading the global growth will be two main markets, USA and China. The latest job numbers in US point to economic recovery moderating and this has further strengthened the case for a sizeable stimulus package in country, which will boost the growth outlook for US. Additionally, we expect inflation to remain anchored – notwithstanding a transitory near term rise – as unemployment in US is still high and unlikely to dip back to pre Covid-19 levels anytime soon. We expect major central banks to remain dovish in the foreseeable future – both the Fed and ECB have reiterated their accommodative stance as uncertainty continues to loom over the global health crisis. From an investment perspective, Covid-impacted cyclical sectors will offer higher potential especially in materials and financials with UK and Germany being our preferred choices. Also with major economies like US, China and Europe committed to moving towards carbon neutrality, greener technologies and sustainable investments, ESG is clearly a multi decade investment theme.

Geopolitics: US-China tensions to persist in the short-term

We anticipate a more structured and multilateral foreign policy from the new US government. While there are positive signs on the US-China front, we still expect US-China tensions to persist in the short-term. On multilateralism, US President Joe Biden’s foreign policy nominations point to a shift in this space. With appointees such as Kurt Campbell in-charge of  Indo-Pacific policy  and Katherine Tai as U.S. Trade Representative, there are signs that Mr. Biden may pursue a more active trade policy than expected. With new-found stability, and acceptance of the new administration on a global level, Asia-Pacific countries are also working actively to foster partnerships. There is reasonable chance that the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) could be revived in some form or other. Overall, a more structured and stable involvement of the USA, and relationship with China, should contribute to a more predictable geopolitical environment, thus lending support to global investors.

Asset Allocation: Equities and commodities have a favourable outlook

Given the economic and geopolitical climate mentioned above, our tactical asset allocation remains overweight on global equities. This is primarily driven by our overweight in Emerging Markets, predominantly in China. We are also remain overweight on commodities as we expect a strong rebound in economic activities this year. Coming to fixed income, we are underweight on government bonds as yields are expected to rise, however we remain neutral in IG and HY credit. Further, we are overweight EM USD bonds. As for USD, we expect it to weaken on strong monetary fiscal stimulus in the US.  Considering a diversified portfolio, we recommend adequate exposure to hedge funds and private equity for their risk-reward and diversification benefits.

Investments: Chinese equities, gold and private market will unlock value for global investors

Markets: In an environment of increased uncertainty over the vaccine rollout, lingering opposition to the US fiscal stimulus, or even a potential surge in infections from the Covid mutations, we are cautious of the fact that temporary setbacks may occur. Nevertheless, we also believe that any such market corrections ultimately offer attractive investment opportunities. Hence, we remain overweight on global equities as the fundamentals are still broadly positive.

Where the yield lies: Chinese equities are an attractive investment opportunity on the back of strong economic recovery and resilient earnings. Additionally, Chinese equities are available at relatively attractive valuations and USD weakness should encourage steady foreign inflows. China high yield bonds are also at attractive valuations.  With lower default rates and credit fundamentals more resilient than in US, 8% returns can be expected in the next 12 months. Another attractive opportunity lies in gold. As yield is expected to remain lower for longer on dovish central bank policies coupled with USD weakness, a 12 month target of $2200/Oz implying a 20% upside is reasonable

Private Equity and Hedge Funds should also deliver stable returns: In an environment of uncertainty, several alternative investment opportunities have attracted our attention. Should our clients and other investors look to diversify, we recommend Private Markets as an avenue for alternative investment. They are increasingly becoming mainstream, with smaller asset managers, family offices and even retail investors increasingly investing in this asset class. Further, US regulators allowed US retirement plans to invest in buyout firms, and banks to take stakes in venture capital funds in an attempt to roll back post-crisis constraints. On a 5 year time frame, we expect PE investments to deliver the highest expected returns in our asset universe. As a word of caution, due diligence and good fund manager selection are paramount to achieve these high return prospects.

Hedge Funds returns have been on a declining trend but we do not expect this to continue as central bank rates are unlikely to fall much further. Our projected 5-year return for hedge funds remains in the low to mid-single digits. Notably, hedge fund returns have witnessed low volatility in recent years, making them a viable alternative to traditional portfolio hedges.

Investing for a better future: Integrating ESG in day-to-day practice is key

As regulations and investor engagement are creating impetus for sustainable investing,  the majority of studies have found evidence that link solid sustainability practices to positive impacts on share price performance. Also, the largest of  asset managers are planning to make their portfolios ESG-ready. Consumer concern over climate change is on the rise globally, with young consumers more worried about climate change. To align with this change in mind-set, Credit Suisse has integrated ESG considerations into its investment processes and financial analysis. Furthermore, Credit Suisse has allocated more capital towards sustainable thematic and impact investing strategies which focus on mobilizing capital for activities that are in line with the United Nations Sustainable Development Goals (SDGs). As part of our ESG initiative, a provision of at least CHF 300bn towards sustainable financing over the next 10 years has been made.

Private Banking for a technology drive future: Creating value through the use of data analytics

As a leading provider of private banking solutions and services, technology and innovation are enduring areas of focus at Credit Suisse. COVID-19 has intensified technology adoption, which has proven to be crucial for business continuity and growth during the pandemic. In this vein, Credit Suisse maintains its pioneering tradition of embracing digital innovation in the private banking space. A prime example of this is how we augmented insights, personalized and timely content tailored to the investment appetite of each client through the extensive use of data analytics. This was achieved through our platform SPARK, which delivers targeted investment ideas and data-driven recommendations, supported by integrated automated investment suitability controls. As validation of this approach, in 2020 alone there was a 3.5x increase in the number of views on our product pages and 5x increase in the number of product searches.

Adrian Zuercher, Head Global Asset Allocation, UBS Chief Investment Office

CIO Insights featuring Adrian Zuercher, Head Global Asset Allocation, UBS Chief Investment Office

As we welcome a new decade driven by mass structural changes, vaccine roll-out and economies poised to account for everything that 2020 ravaged, global investors have demonstrated a cautious approach to global markets in general. To help them make the right choices and understand trends that will shape the coming decade, we interviewed Adrian Zuercher, Head Global Asset Allocation, UBS Chief Investment Office. In this interview, Adrian Zuercher’s in-depth commentary and insights into markets, macro-economic indicators and investment ideas, could help investors unlock value in the coming decade.

Macro-economic indicators: Economies playing catch-up and a weaker dollar will be bolstered by vaccine roll-out and global stimulus initiatives

With the rollout of a coronavirus vaccine and continued monetary and fiscal stimulus – to enable corporate earnings to recover to 2019 levels by the end of the year, the world is set to slowly yet steadily return to pre-pandemic norms. At the same time, structural changes driven by the pandemic mean the world is accelerating into a transformed future. Firstly, the more economically sensitive markets and sectors will catch up in 2021, after underperforming in 2020.  Areas with most potential for “catch-up” include the more cyclically exposed Eurozone and UK markets, small- and mid-caps, and select financial, energy, industrial, and consumer discretionary stocks. Secondly, low interest rates could still persist, making it harder for investors looking for yield. Thirdly, a weaker dollar will be driven by higher US fiscal spending, a recovering global economy, and a diminished interest rate differential. In such a circumstance, investors should diversify across G10 currencies, into select emerging market currencies like INR or IDR, and gold. 

Geopolitics: The US-China stalemate to continue

The Biden administration’s bid to renew/repair the USA’s foreign relations is a tack that should improve relations with Europe in particular. Although the fundamental US-China geostrategic stalemate may continue in the near term, the new administration will be less likely to use tariffs as a tool of foreign policy. Additionally, this administration’s approach to not use tariffs as a policy tool should also be seen as a positive for the Chinese yuan. Further, reduced trade tensions should support the economic recovery, reinforcing our preference for cyclicals such as industrials. The shares of Chinese companies listed in the US could benefit from an end to—or at least less—delisting threats.

Asset Allocation: China, Korea and Singapore equities market continue to remain favourable

From cross-asset perspective, MSCI AxJ equities are favourable against High Grade bond. AxJ earnings revision breadth ratio further rebounded to 28% in Jan 2021. Further, the CIO bottom-up team revised the 2021 MSCI AxJ earnings growth to 28% in USD term or 22% in local currency term. On the heels of a strong rally since March 2020, certain parts of the market have become stretched on valuation metrics. With that said, Asia remains an attractive market compared with US for institutional investors and the deep value part is still at very reasonable valuations. On equity side, our most preferred equity markets are China, Korea and Singapore and our least preferred markets are Malaysia, Hong Kong and Thailand. As for fixed income, Asia High Yield and China Government bonds remain preferable. 

Investments: Emerging market equities and technology investments will unlock value for global investors

Global stocks returned 16% while US stocks returned 21% in 2020 against the backdrop of falling earnings and a deep economic recession. This has left them looking expensive on price-to-earnings ratio (P/E) metrics and has raised questions about the possibility of a bubble in equities when economies haven’t fully recovered. However, according to us, equities as a whole is not a bubble, and valuations can be justified in the context of low interest rates. With COVID-19 vaccine rollout set to support a broadening economic recovery, further upside for global equities can be expected. Specifically speaking, our focus is on equity exposure is away from some of 2020’s winners i.e., US mega-caps and more towards lowly valued emerging market stocks. Our preferences include global small and mid-caps, as well as select financial and energy stocks. Now delving into a specific sector; if the last decade was about investing in the technology sector itself, we think the next decade will reward investing in disruptors using technology in other sectors. “The Next Big Thing” in our opinion will materialise within the fintech, health-tech, or green-tech spaces, or at the least be enabled and accelerated by the global rollout of 5G technology.

The UBS Wealth Way: UBS devised an approach called “UBS Wealth Way” which focuses on three strategies – “Liquidity. Longevity. Legacy.” In the Liquidity bucket, short term bonds (1-yr Certificate Deposits) and high-yielding currencies (INR, IDR) are advised. In the Longevity part, portfolios should be re-tilted to add higher-yielding bonds (CGBs), stocks (EM value) and some previous laggards and promising regional markets (UK, Asia ex-Japan). For the Legacy bucket, private market debt and equity are recommended. Based on the above-mentioned strategy, we have shifted a higher allocation to the longevity strategy which a higher allocation to equities as it is our most preferred asset class.

Alternatives: Amid lower returns in developed market equities, investors are on the look-out for alternative sources of returns and diversification such as private markets and hedge funds. Private markets require long capital commitments, however expected returns of more than 10% per year in private equity are attractive. Meanwhile, funds of hedge funds are expected to return to approximately 3.6% (in USD) per year, over the long term.

 Real Estates: In a low interest rate environment, real estate remains an attractive investment for income generation. Real estate’s inflation protection characteristics may prove beneficial in a more indebted world. While city living or the office market in our opinion hasn’t been permanently impaired due to the pandemic, active private real estate strategies should provide better returns compared with low yield buy and-hold strategies.

 Buy into Sustainability: Green tech and impact funds are here to stay

With a quarter of a century’s experience in delivering ESG solutions globally, this key topic is a part of our DNA. With increased channels of communication, delivering key learning topics and concepts to our clients, all the while sharing latest industry developments and insights, UBS helps its clients understand the solutions and impact of ESG investing. In Asia, UBS is at the forefront of innovative and bespoke sustainable investing offerings. In 2016, UBS raised USD 471m for the UBS Oncology Impact Fund, an early-stage private equity fund focusing on investments in the development of cancer therapeutics in order to achieve attractive financial returns. USD 275m of the funds raised was committed by the investors here in APAC which accounts for over 50% of the fund. In addition, increased government, business, and consumer emphasis on sustainability, and exposure to several fastest-growing thematic research in the decade ahead, means sustainable investing is now a preferred approach for investing globally. Investment in green tech, through ESG leaders, in green bonds and in multilateral development bank bonds could further strengthen initiatives around sustainable investment.

CIO Insights featuring Alexander Wolf, Head of Investment Strategy for Asia, J.P. Morgan Private Bank

CIO Insights featuring Alexander Wolf, Head of Investment Strategy for Asia, J.P. Morgan Private Bank

Leaving behind a year of volatility and unpredictability, the scope to find steadiness while also staying focused on long term yields remains a priority for investors. To help our readers as well as global investors keep pace with new investment themes and avenues, Global Private Banker interviewed Alexander Wolf, Head of Investment Strategy for Asia, J.P. Morgan Private Bank. In our conversation, we covered trends poised to reshape investments, what to expect from global markets, while also shedding light on how Private Banks are set to change the way they service their clients.

Macro-economic indicators: Supportive Policy, strong exports and Chinese credit growth will further drive economic recovery

Supportive policy, both fiscal and monetary, has been a key component behind the economic and market recovery. Further, dialogue over additional fiscal stimulus in the US as well as monetary policy decisions from major central banks will be key indicators over how much more policy support can be expected. Considering the macro data perspective, trade date will also be a key indicator as to the pace of the recovery. Exceptionally strong exports have been an important factor for the recovery in Asia, and this is mostly driven by demand in the US as well as the global rotation towards spending on electronics. Further to this, how trade shapes up will be another indicator as to the pace of the recovery and whether Asia can continue to outperform. Lastly, Chinese credit growth will be a key factor. Policy in China has already started to normalize as the economy improved and the withdrawal of policy support is a potential headwind for emerging markets and commodities.

Geopolitics: Uncertainty will continue to plague US-China relations

From a geopolitical perspective some policy changes by the United States have become clearer, but with most of the focus on domestic policy, it’s yet unclear how foreign policy priorities will shape up. What does seem evident is the willingness of the Biden administration to engage more with the rest of the world following four years of quasi-isolationism, this means re-joining the Paris Climate Accord, and rebuilding alliances. Policy towards China could continue on a broadly similar trajectory albeit with different tactics likely resulting in less focus on tariffs. However, this aspect of foreign policy is still under review as the new team settles into place and the full scope of China policy has yet to emerge. For investors, issues like market access, tariffs, export restrictions, and sanctions all have had a big impact over the past four years. How the new administration chooses to remove or continue these policies will continue to be impactful; however, as mentioned above they have yet to determine exactly how they will proceed. Beyond geopolitics the focus on renewables and environment, as well as fiscal policy and infrastructure stimulus, will also be impactful for global investors.

Asset Allocation: Asia and US will continue to demonstrate growth

Equities remain broadly favourable over bonds. Within equities we favour cyclicals over the near term, particularly industrials which are in line with our view of above consensus growth. Geographically speaking Asia and US remain favourable. Deep-diving further into Asia we prefer China, Hong Kong, Korea, Singapore, and India to get a mix of structural growth outperformance in NE Asia and the cyclical outperformers in South and Southeast Asia that will benefit from continued re-opening and economic normalization. Within fixed income we favour credit over duration and recommend moving out the risk spectrum favouring high yield in both the US and Asia over investment grade.

Investments: Technology, environment and global real estate will generate returns

Key themes: Three megatrends that will shape 2021 & beyond are digitalization, healthcare technology, and the environment. Speaking of long term exposure in each of the above mentioned themes, we believe growth in data will continue to drive growth in AI, cloud, and cybersecurity. In healthcare, aging populations and continued innovation in areas like gene therapy will create investment opportunities. Considering the awareness around environment and the shift from carbon to electrification – a defining shift over many years, new opportunities in renewables, clean tech, and environmental services will favour investors.

Alternatives becoming an increasingly attractive source of income: With rates as low as they are, and likely to remain low in our view, we recommend considering real assets and alternatives as sources of yield. Within real assets both global real estate and infrastructure are attractive. The property sector has been a bright spot amid the recovery and given low vacancy rates and low supply, we expect construction to remain a source of growth in many countries. The same goes for infrastructure where we see supportive fiscal policies. Both offer attractive risk-adjusted returns.

Investing for the global low carbon transition: There is a clear investment opportunity driven by increased government awareness and supportive policy, supportive economics around renewables, and geopolitical drivers to reduce energy dependence on carbon sources. To re-iterate further, the drive towards de-carbonization is a long-term shift and represents a significant investment opportunity. 

Private Banking in the future: Digital platforms and social channels will further enhance client service

Many of the shifts towards remote working and adoption of digital platforms will remain post-pandemic. In terms of implementing and adopting new trends to better service J.P. Morgan Private Bank’s client requirements,  we recently became the first private bank to offer our clients a WhatsApp broadcast service. Our bi-lingual WhatsApp broadcast channel is offered to clients who’ve indicated they wish to hear from us on this platform, hence receiving timely insights from us. For example, we send our clients a weekly market commentary covering our views on the latest global and regional investment themes. The move to a more standardised yet regular interaction with our clients has been well received.

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CIO Insights Featuring Tuan Huynh, Chief Investment Officer Europe and Asia, Deutsche Bank International Private Bank

As we aim to find stability in the new decade, there is also the fact that this decade could see disruption to technology, work style and wealth creation techniques like never before. As the world watches new economies empower themselves and move into the wealth creating segments, investor awareness is only set to grow. In our bid to help our readers and investors understand as to what to expect from 2021, we interviewed Tuan Huynh, Chief Investment Officer Europe and Asia at Deutsche Bank International Private Bank. In this interview he shares his views on investment insights, right from macros and markets to impact investing.

Marco-economic indicators: Inflation, the cautious consumer and budget deficits “CAN” plague 2021

One of the key macro-economic indicators to look-out for is inflation. Although the immediate threat from inflation at present appears low, the continued spare capacity and still cautious consumers in many markets – driven in part by continuing fears around unemployment, can unfold later in the year. Secondly, expansionary fiscal policy and escalating budget deficits have exacerbated an existing trend of debt escalation. Rising levels of debt have not so far unsettled the financial markets as there are still willing buyers for government debt, but these worries could unfold too. Meanwhile, countries may also face increasing demographic pressures from the ageing population. There is further a concern for markets and the possibility of a rise in government yields during 2021 is a real one.

Geopolitics: Mending the U.S-China relation will take longer than expected

With a new administration occupying the White House, a multilateral approach is expected to take the U.S.’s continental neighbors and European partners out of the cross-hairs for future disputes. By contrast, tensions across the Pacific are likely to remain largely unresolved, but potential next steps will likely be more measured. The new administration also brings new hope – a potential trade dialogue between U.S.A and China. Yet, a quick turnaround in resolving tensions in trade, financial and technology areas seem highly unlikely. One of the reasons why trade talks may remain on shaky grounds can be attributed to the news around the delisting of Chinese firms in the U.S. While this may complicate matters, President Biden’s administration is expected to take a more multilateral approach, and his actions in the initial days of being sworn-in have already helps the markets. Coming to the markets, the current focus of Biden administration is on the domestic fiscal stimulus packages, which is broadly supportive of market sentiment. To sum it up, any escalation of any kind between U.S and China could impact the market. 

Asset Allocation: Emerging Markets Asia and U.S. Equities remain the focus

Coming into 2021, we believe a prudent positioning should still be appropriate, due to uncertainty related to Covid-19 and its far-reaching impact. Our regional asset allocation has a small overweight in Asia ex-Japan and U.S. equities in particular. We are positive within EM Asia with a preference for China. India has sustained market momentum, but valuation is getting higher in Indian equities. Globally, markets are still sustained by liquidity provisions and therefore outlook remains positive, but also subject to the success of vaccine distribution and its efficacy.

Meanwhile, in fixed income, we have an overweight in EM hard currency bonds but an underweight in U.S. sovereign exposures. We have observed higher yields stemming from a steepening of the U.S. Treasury yield curve. Corporate credit year to date has slightly tightened, whereas high yield has gone the opposite direction, with especially high yield China property widening. The increased issuance of credit in the space does not provide any concern for the time being regarding a decrease in credit quality. 

Investments: Asian equities and gold remain the favourites

The Themes: Longer-term investment themes could be attractive in 2021 and beyond, which include cyber security, 5G, healthcare, millennials, resource stewardship and the blue economy.  

Speaking of Equities: There is a keen liking for EM equities (especially Asia ex-Japan) and U.S. equities. Another focus is also the small and mid-cap firms in Europe Assuming a robust fiscal/monetary support, “lower for longer” real yields, the lack of proper alternatives and the prospect of stronger economic growth will support all equities. “Growth” stocks with particular focus on Technology should still play an important role in client portfolios, as they are expected to help investors benefit from ongoing structural economic change while also providing protective characteristics against negative re-opening surprises. Further, the window for the cyclicals is likely to extend on the back of the ongoing reflation trade. 

Discussing Long-term Exposure: The 2020 pandemic has re-emphasised the importance of our long-term themes, along the dimensions of technology, demographics and sustaining the world we live in. Technology once again plays an ever-increasing role in many sectors and in our lives – from healthcare through to home working. Demographics seem likely to have a growing impact on both business and government priorities and investors are aware of this impact.  

Go Gold: While the gold price is currently under some pressure, we believe there could still be some upside for gold stemming from the continuation of liquidity, fiscal policy support and macro uncertainties surrounding the USD. Global recovery setbacks and/or increased evidence of inflation could provide temporary gold price boosts through higher investment demand, but USD weakness could reverse.

Impact Investment Take-away: Rise of the Blue Economy

COVID-19 further amplified the interconnectedness between Environmental, Social and Governance principles. Deutsche Bank International Private Bank brings forward a very relevant topic within the ESG world, that of biodiversity and the blue economy. The blue economy – a topic of relevance and utmost importance, is a concern for the global population. Interlinked with biodiversity, there is increasing concern for the ongoing systematic decline of the blue economy which will in a definitive manner cause social impact and associated financial risk. Further, biodiversity underpins the “ecosystem services” that humans receive from nature, and which are thought to provide regenerative returns worth around USD125 to USD140 trillion a year. The blue economy has an immediate importance for investors –in terms of both opportunities and risks. As such there is a growing interest among clients in ESG themes especially since the pandemic last year.