2019 Investment Outlook

CJY: What is keeping me awake is US Federal Reserve (Fed) policies. After the global financial crisis (GFC), what helped the economy to recover was quantitative easing (QE). Now, it is quantitative tightening (QT) that will cause the economy globally to falter. Certain policy decisions by US President Trump and others are also causing us to enter a more precarious phase. The UOBAM house view is that the US Fed may raise interest rates by another one or two more times, but I hope to see the Fed stop at this level, as well as slow down its shrinking of its balance sheet.

JD: If we step back, 2018 was a story of two halves. In the first half, there was an acceleration in growth and output and rate hikes was not an issue. The mid-year was an inflexion point where manufacturing indexes peaked and the Fed was too aggressive in its hiking cycle. The fourth quarter decline in the S&P index was similar to the fall in the third quarter of 2011 but markets recovered subsequently. We are still constructively positive but cautious in this late stage of the cycle.

LHS: There is no way to dispute the fundamentals (which are still positive) but I think the market reaction is a signal. Besides market moves, I think we need to consider investor sentiment. There are definitely benefits of diversification, looking at uncorrelated asset classes and alternatives. While market indices fell in 2018, our flagship hedged strategy actually chalked up positive returns for the year. In these inefficient Asian markets, our unconstrained, actively-managed strategy can benefit in spite of what markets do.

JL: As a retail investor, all I’m concerned about is whether I am making money and whether I should invest now or stay out. I am not asking whether markets are going up or down. The question of whether I should invest or not is based on my previous experience. In the past 10 years, no matter whether clients invested at the peak, trough or middle of the previous GFC, they would have made positive returns. As retail investors, we all need to retire, we all need to plan for our children’s education. The key is to stay invested.

PB: I have a reasonable degree of optimism on markets. The weakness is not caused by fundamentals but sentiment concerns, on whether world leaders will act in the best interest of the economies. Today is a good buying opportunity, especially in the equity markets. I think there will be continued volatility for the next two months till March when things will accelerate, but it will be challenging to time markets. Returns will accelerate very quickly and if you are not already invested in markets before that time comes, you will miss out on a big upturn. I believe most of the attractive return opportunities will be in companies driving innovation and the US has some of the most disruptive companies.

LHS: There may be downside risks. But investors want returns. Regardless of what markets do, there are assets and companies that are growing. For example in China where there are a billion consumers needing to spend, we just need to find the businesses that benefit. Opportunities still exist. We just need to look harder. Some of these opportunities lie in the private domain and require a long-term view to harvest returns for the patient investor.

JD: After the global financial crisis, investors have moved into higher risk investments to keep up with inflation. There is a need for risk management now more than ever. As such, we are now looking to add more “uncorrelated beta” to our portfolios to provide more diversification.

CJY: Geopolitical risks will cause volatility to stay. Investors will need to adopt a balanced approach and diversify – balance with income. Even with equities, allocate to the income portion of equities and hedge to protect the downside.

JD: Balancing with the use of systematic tools and do not get caught up with the herd or bad decision-making.

LHS: The biggest paradigm shift is the move from quantitative easing to a flat or tightening environment. There is now greater volatility and investors will need to be more thoughtful about it.

PB: There are a number of important shifts, including rising rates and fundamental-related risks such as economic growth, earnings growth and valuations. The pace of adoption of innovation and the compounded return of growth also offer opportunities.

JL: As a retail investor, I want to have it all. Clients should invest across all asset classes to gain the benefits of diversification. I recommend clients to allocate to short-term fixed income, invest the bulk in equities and also have exposure to alternatives. In investing, I either win or I learn. When I learn, I don’t make money, but I learn to shift my allocation such that eventually, I win more. The key is to stay invested, because when you don’t, you neither win nor learn.