For most global investors, a major challenge is trying to find decent returns in stocks and bonds under the current low interest rate environment.
For Credit Suisse, the answer is alternative investment, one of the bank’s fastest growth areas.
Global head of asset management Bob Jain said: “The biggest theme of the market is having too much money and not enough stocks to buy. So the price of every asset in general has gone up.
“There are artificial markets like the Hong Kong property market that might be different, but in general we see European real estate, infrastructure assets are in tremendous demand with unlimited cash behind it. The hard part is finding the assets and the seller.”
In the past, 60 percent in stocks and 40 percent in bonds would give an easy 5 percent return. But not when interest rates keep falling. Bonds give little yield and investors face volatility from the higher-return equity market.
Jain also pointed out less expensive areas tend to be slightly more complicated. For example, buying European real estate is by itself not complicated, but buying a piece of property in Spain is different from doing a similar deal in Germany.
Another area is leveraged loans to corporates. But like European assets, there’s a big difference between lending money to an energy company and dealing with a goods producer because in the latter, one is better off having an adviser on what assets are a good investment at the time of purchase.
For the US$430 billion assets under Credit Suisse management, alternative investment accounts for US$150 billion, including US$45 billion in real estate, US$35 billion in credit strategy, where US corporates are the main borrowers, followed by Europe and Latin America. Commodity strategy accounts for US$11 billion.
One area in asset management that’s growing in importance is artificial investment. Fifteen years ago, Credit Suisse bought HOLT, a computer programming company that helps investors in making better decisions.
Jain said: “We call it ‘quantamental’ (quantitative fundamental). The fundamental part is building the model. When it is fear time, no one wants to buy. That is just life. The system picks the turn better.
“Generally, market is driven by fear and greed. So if you look at fear and greed in the past 25 years, we were in panic when the market was in euphoria. We don’t rely on human decision-making.”
Jain said investors “would be partly comfortable but not totally comfortable with artificial investment because people tend to be afraid of technology”.
But today’s generation of investors is much more comfortable with technology. “You see a very different attitude,” he said. “People are developing robot advisers. The world will evolve as the new generation gathers more wealth and assumes decision-making roles. Giving money to a computer doesn’t sound right. But for these kids, making money through the machine sounds perfectly normal.”
Because of the low interest rate environment, Jain is upbeat on the overall global market performance. The US market is still on an uptrend with good economic support.
In Europe, where many investors are underweighted, better market performance is expected in Germany, the Netherlands, Britain, Spain and Portugal, which more or less have stepped out of their economic difficulties. Investors should be wary of Greece, however.
Meanwhile, the prevailing low tide in natural resources is expected to hurt economies such as Canada, where the banking system has heavy exposure in natural resources, and Australia, whose economy is bound to suffer from falling China demand.
Emerging markets are less attractive, Jain noted. The Indian market is very expensive after a strong rally last year, Brazil and Russia both have political issues, while geopolitics is dominating the Middle East and Eastern Europe.
As for China, Jain said the market is as hard to predict as the weather. But he said its economy is unlikely to have a hard landing.
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