Thursday, November 11, 2010

Words of wisdom from a think tank

Once a year I have an opportunity to leave the traffic jams and delights of Bangkok to attend a Think Tank where a pool of top fund managers from companies like Schroder, HSBC, Aberdeen and Morgan Stanley, together responsible for billions of dollars under management, come together and share their thoughts on the global markets. This year it took place in Hong Kong and as usual was thought provoking.

One speaker made reference to the financial meltdown in 2008 and specifically September 15, 2008 when Lehman Brothers failed – ‘the day the music died’! He said the banking and financial industry was like a turkey in the run-up to Christmas. It was fed at the same time every day and lived a comfortable existence. It had no reason to believe anything would ever change. But then came Christmas, and suddenly everything changed!

The turkey didn’t make it beyond Christmas but the world has survived. It is a different world though. Developed countries are saddled with massive debts that have to be unwound, resulting in severe austerity measures, whilst developing countries have been enjoying almost unprecedented growth. So what we are seeing is a global rebalancing and this was the main theme of the Think Tank.

While a relatively brief column does not do justice to the many presentations, the following are some of the main points that may be of interest to readers:
·         Growth will be slow for a number of years in developed countries.
·         But it will be strong in emerging markets.
·         GDP growth in China could be as high as 10% pa.
·         Ten years ago the BRIC countries (Brazil, Russia, India and China) accounted for 15% of global growth. Today it is 45%.
·         The West now matters less to Asia, but it still matters!
·         Asia is predicted to have a middle class of 800 million by 2014

Mortgages account for a very small proportion of property markets in Asia. There is a lot less personal debt compared to the West.
·         Australia: a two-tier market with the West and the East driven high by commodities.
·         Singapore and Hong Kong: a strong rebound with 5% yields on property investments possible in both.
·         China: Much talk about the millions of completed but unoccupied apartments. A potential bubble situation.
·         Japan: very little yield here.
·         Overall risks in Asian property: over-supply and corporate governance.
·         Opportunities: population growth, urbanization in China, growth in consumer spending.

Commodities have frequently been the number one performer over the past ten years. Portfolios with commodities have outperformed.
·         Interest in agriculture has started to rise recently.
·         Strong demand from newly industrialized countries.
·         There is a finite supply and extraction costs are rising.

·         We now live in a two-speed world but developed economies are still dominant.
·         On currencies the GBP looks interesting versus other western currencies.
·         Despite bad news on employment and consumer confidence the corporate sector is in excellent shape and is sitting on a mountain of cash.
·         In Europe Greece is likely to default and Ireland may go the same way.
·         Equities are showing good value versus bonds. Dividend yields are now higher than yields on corporate bonds.
·         A lot of money is going into emerging markets.

We should not be making any drastic changes to the way we allocate assets and build up wealth through diversification. But the trends discussed do mean we should be shifting emphasis a bit more towards the regions of the world that are expanding, namely the emerging markets and Asia in particular. We still need to be cautious however if we see a bandwagon that is getting a trifle overloaded (e.g. the SET’s stellar performance this year). At the same time we cannot keep thinking that the West rules the world.

Bonds may look unattractive now but they still have an important part to play in adding security to a portfolio. The meltdown of 2008 has taught us to preserve a healthy level of liquidity and not to get heavily into debt. Also, the commodity story is ongoing. While governments can print money to their hearts’ content, real assets such as gold and oil are running out. Make sure you have some real assets in your portfolio. 

Written by guest contributor -    

Eric Jordan
Managing Director
Professional Portfolio International Ltd.
209/1 K Tower, Tower B, 19th Fl., Unit 4
Sukhumvit 21 Rd.(Asoke), Klongtoey Nua
Wattana, Bangkok 10110, Thailand
Tel   +662 664 0968;  +662 664 0145
Fax  +662 260 7769 

No comments:

Post a Comment