Pictet Wealth Management has been overweight cash — a 5% allocation in a balanced global portfolio — since the beginning of the year.
The unclear direction of the trade negotiations between the US and China, as well as the slowdown in global growth are behind the wealth manager’s overweight to cash, according to David Gaud, Singapore-based chief investment officer for Asia at Pictet Wealth Management.
Cash continues to be rewarding, with the risk-free rate at around 2.5%, which is a “decent return” given the current macro-economic risk, he said.
The portfolio would go back to overweights in selected equities and fixed income “if we have a better assurance of the global outlook”, Gaud said at a recent media briefing in Hong Kong.
“Europe has been disappointing, Asia has been decelerating, and we should at least have an understanding of the situation or a settlement between the US and China.”
Nonetheless, Gaud likes emerging Asia equities and bonds.
“When you look at Indonesia, the Philippines and India, you have low inflation and low interest rates of around 3%, plus purchasing managers’ index (PMIs) expansion,” he said.
Gaud added that these countries are also not strongly affected by the trade dispute.
“When your GDP is less dependent on global trade, you can continue to expand domestically. Their currencies are also cheap, which makes quite a nice good combination,” he said.
The Asia Leaders strategy
In the equities space, Gaud likes “Asia leaders”, which are companies that continue to capture market share even in a difficult market environment.
One example is TOA Paint in Thailand, which is an industry leader in paint manufacturing that has expanded in both Vietnam and Indonesia.
“You see a national player becoming a regional leader in markets where the growth potential is going to be exceptional,” he said.
Another example in Thailand is CP All, which operates all 7-Eleven convenience stores in the country.
“We all thought 7-Eleven was saturated in Thailand, but if you go to Bangkok, for example, their margins are still expanding because they continue to add more high-end products.”
In Hong Kong, Gaud likes conglomerate company Chow Tai Fook, which is known for selling jewellery.
“The perception is that the jewellery business is cyclical. But they have stores all over China, which gave them less cyclicality. In addition, it now has around 10 brands, which serve different market segments.”
All three companies are holdings in the firm’s Asia Leaders strategy, which is a discretionary mandate launched in 2017 and invests in companies benefiting from the leading themes and trends in Asian equity mandates.
It’s current market allocation is: India (11.5%), Indonesia (4.8%), Hong Kong (10.9%), China (30.1%), Philippines (1.0%), Singapore (5.1%), Korea (10.5%), Taiwan (13.0%), Thailand (4.8%) and Cash (8.4%).
Real estate is outperforming equities
The firm also has another Asian equity discretionary mandate that invests in companies with high dividends, according to Gaud.
That mandate also includes real estate investment trusts (REITs), which account for around 22% of the portfolio, he noted.
“REITs are giving you pretty good returns of around 5-7%. They are also interesting vehicles because they have low leverage and are very disciplined in terms of managing their debt.”
Gaud noted that since REITs are equities, they also can be volatile.
“But the volatility is actually better than your average equity, and they have been outperforming significantly year-to-date,” he said.
This year, the FTSE EPRA Nareit Emerging Asia Pacific REITs Index has returned 19.72%, which compares to the MACI AC Asia Index’s 7.92%, according to FE data.
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