16 September 2019
The low valuation of Chinese stocks provides good buying opportunities. Photo: CNSA
The low valuation of Chinese stocks provides good buying opportunities. Photo: CNSA

Diversified investment is best bet amid volatile market

Securing stable return from a single asset class is difficult in a highly volatile market. That’s why diversified investment has gained popularity in recent years.

Diversified investment means a fund holding different asset classes like stocks, bonds, commodities, exchange traded funds (ETFs) and alternative investments, and adjusting the allocation in response to different market situations.

The broader asset classes, and the wider regions they cover, mean larger investment opportunities, lower volatility and more efficient risk-adjusted return.

With no requirement to follow a certain benchmark index and no geographical limitation, such investment can seize various opportunities.

Let’s look at the dollar-denominated return of MSCI indices for different countries between 2006 and 2014. China outperformed all other markets in 2006 and 2007.

In 2008, 2011, 2013 and 2014, North American countries offered the best return. The Asia-Pacific region (excluding Japan) was in the lead in 2009, while the emerging markets led the way in 2010.

No single asset class can be always in the lead. Diversified investment is more flexible to seize the trends.

Independent research institution Investment Metrics said in a study that diversified portfolios performed better than stock funds and pension funds in the decade ended 2014.

Such mixed asset funds are becoming popular in Hong Kong. Data shows that asset under management of mixed-asset funds expanded to US$22.4 billion in October 2014 from only US$7.7 billion in October 2012.

Currently, the US economic recovery has led its stock markets to a better performance. In Europe, easing monetary policies and quantitative easing measures are expected to lead to a strong rebound of the economy. Asia is still full of potential despite slowing growth.

The International Monetary Fund predicts a 5 percent GDP growth for Asia, compared with 3 percent in the United States and 4 percent for the world.

With the opening up of its capital account and strong government support, China can achieve its 6.5 percent GDP growth target. The low valuation of Chinese stocks provides good buying opportunities.

In addition, the outlook for South Korea is also very positive despite slowing exports. The domestic economy is stable, while the tourism and real estate sectors are seeing rapid growth.

All in all, diversified investment allows investors to seize opportunities while spreading the risk.

This article appeared in the Hong Kong Economic Journal on Nov. 25.

Translation by Myssie You

[Chinese version中文版]

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Managing director of retail division at Value Partner