This year has been a torrid year for many investors, with stock and bond prices falling sharply amid a myriad of concerns ranging from rising inflation and interest rates to the ongoing war in Ukraine.
Although financial markets have stabilised recently, the near-term outlook remains uncertain with debate continuing over when inflation will peak and if the world will slip into a recession. What’s clearer is that the process of digital transformation will continue along with the fight against global warming.
These enduring trends may even pick up pace in coming years as governments and companies respond to the pressing challenges facing the world today.
“The Covid-19 crisis, the ongoing Russia-Ukraine conflict and the sustainability revolution are reshaping the world as we know it. All these transitions bring change, uncertainty and even possibly some risk. But if managed well, they can also bring opportunity,” said Mr Anurag Mathur, Head of Wealth and Personal Banking at HSBC Singapore.
“We remain hopeful for what the future holds, and HSBC stands ready to continue on this journey with our clients by turning disruptions into pathways for growth and opportunity,” he said at a recent dinner conference organised by the Business Times in partnership with HSBC Premier.
The two-hour hybrid event, titled “Investment outlook in a disrupted market”, featured speakers including Mr Saurabh Dhingra, Partner and Asean Financial Services Strategy Leader at EY-Parthenon; and Mr Tan Kee Wee, Founder and Principal Economist at Waveney Economics.
Keynote speaker Mr James Cheo, Chief Investment Officer, Southeast Asia, HSBC Global Private Banking and Wealth, said that while forecasts for inflation and interest rates vary among different analysts, there is greater certainty about the forces that will shape the world in coming years.
One of the trends is digitalisation, which has gained pace due to Covid-19.
Digitalisation refers to the conversion of information into the digital format to enable easier exchange of information over the Internet. The benefits include smoother business processes and the ability to work remotely.
Many people, for instance, are now familiar with video conferencing tools such as Zoom and interacting with one another virtually instead of meeting face-to-face. Zoom, however, is just the tip of the digital iceberg, according to Mr Cheo.
“Zoom’s interaction is very much two-dimensional. That level of interaction is not as great or as engaging as we would like. It will see greater evolution as we enter into the new world of the Metaverse, where the virtual and reality come together. I think this is going to be the future of work and play,” he added.
“The trend towards the metaverse relies on a confluence of technologies. You need the blockchain, software that can create more engaging digital content, 5G, cloud computing and the Internet of Things.”
Mr Dhingra said companies that had transformed themselves digitally have seen much higher returns compared with businesses that had not.
Another trend highlighted was sustainability and the need to build a circular economy that would reduce the emission of greenhouse gases into the atmosphere. Many countries have pledged to cut their greenhouse gas emissions to net-zero by 2050, and the United Nations has said that these commitments must be backed by credible action.
“The opportunity in sustainability is going to be huge. In order for the world to transform totally, to reconfigure into an economy that is net-zero by 2050, you need at least US$9 trillion to be spent every single year – that’s equivalent to 7 to 8 per cent of (global) GDP,” Mr Cheo said.
Industries that will benefit from an influx of new investments include clean energy, smart agriculture, smart buildings and infrastructure.
People must also change the way they produce and consume so that goods can last longer and whatever waste that is generated is recycled, creating a circular economy, he said.
“As much as climate change is going to be our biggest threat, it’s also going to become one of our biggest opportunities,” Mr Cheo added.
Russia’s invasion of Ukraine and the end of the “peace dividend” that Europe had enjoyed over the past 30 years also came under the spotlight. Mr Tan said there was also a high risk of conflict between China and Taiwan.
Mr Cheo said countries will spend more on defence as well as pay more attention to areas such as cybersecurity, energy security and supply chains. One beneficiary will be renewable energy as countries try to reduce their dependence on imported fossil fuels.
Mr Cheo said there was still a lot of uncertainty about the global economy. Investors should focus on the long term and refrain from trying to time the market, he advised.
Strategies such as building diversified portfolios and staying invested will help investors ride out short-term volatility, while benefiting from long-term structural trends such as digitalisation and the sustainability revolution.
Mr Cheo said that while it is natural to be apprehensive about investing given the turmoil in financial markets this year, “the biggest risk is not taking any risk at all”.
There is a need to build diversified portfolios of equities, bonds and alternatives like private assets, commodity, precious metals and real estate. That’s the advice from HSBC on how investors can best divvy up their portfolios.
While many investors are wary of getting burnt amid the current volatility, staying on the sidelines is not necessarily the best move as the potential higher returns from investing may add up over time.
“If you have a lot of cash now or if a large part of your portfolio is in cash, this is the time to stay invested,” Mr James Cheo, Chief Investment Officer for Southeast Asia at HSBC Global Private Banking and Wealth, said.
Despite the still uncertain outlook, cash should be invested in intervals. Instead of trying to time the market, investors should focus on diversifying their portfolio across different asset classes, and staying abreast of longer-term trends and developments.
“Once you have a diversified portfolio, you can consider the longer-term themes such as energy transition, sustainable revolution, bio-diversity and circular economy, which I think are going to look interesting in the years ahead.”
Disclaimer: You should not use or rely on this material in making any investment decision. This material is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment nor shall it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. Before you make any investment decision, you may wish to consult a financial adviser. In the event that you choose not to seek advice from a financial adviser, you should carefully consider whether the investment product is suitable for you. The value of investments and units may go down and up, and the investor may not get back the original sum invested. Past performance is not necessarily indicative of future performance. Investors and potential investors should read the relevant prospectus or product information before investing.
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MCI (P) 031/10/2021, MCI (P) 032/10/2021. Published by SPH Media Limited, Co. Regn. No. 202120748H. Copyright © 2021 SPH Media Limited. All rights reserved.
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