22 January 2019
As markets are expected to remain volatile, investors will need to be quick on their feet. Photo: Bloomberg
As markets are expected to remain volatile, investors will need to be quick on their feet. Photo: Bloomberg

Time to rebalance investment portfolios

With financial markets in fresh turmoil, leading central banks will try to shore up investor confidence through various means.

In the US, the Federal Reserve might put a brake on rate hikes due to economic uncertainties and disappointing data. Across the pond, the European central bank is on track to expand its monetary easing measures.

In Asia, the Bank of Japan has adopted negative interest rate for the first time in a bid to stimulate consumption and investment.

Central banks’ support has underpinned the financial markets since the 2008 financial crisis. The Fed has launched three rounds of QE since 2009. 

Risk assets will perform well as long as central banks maintain loose monetary policy.

On the whole, we believe the Year of the Monkey will be a volatile period. But that does not necessarily mean that we will see only more declines in the market. We could, in fact, witness a satisfactory rebound going forward, as was seen in crude oil price in early February.

As of now, Hong Kong and mainland markets are yet to stage any decent rebound. Investors should watch closely if there are any good surprises in the earnings season.

Market participants have already slashed earnings expectations substantially. However, if some companies deliver solid earnings reports it would help improve overall market sentiment.

It is doubtful if the Fed will hike rates further this year. I’ve always said the low-interest rate environment would prevail for some time. Aggressive investors will have many options, and even conservative ones should not keep themselves confined to cash.

We’ve already seen capital flowing into the debt market as safe haven over the last few months. Government bonds in certain regions have become much sought after. There is reason to believe that the debt market will remain attractive even if the stock market rebounds.

Investors should watch closely the high-yield bonds that have suffered a sell-off earlier. No matter whether it is government bonds or high-yield bonds, investors should look at the coupon rate first and also take into account the risks. Higher the return, higher the risk. 

Market volatility has been on the rise in recent years. Some observers believe that it’s not a good time for making investments.

I believe investors should be more active in tracking the performance of their portfolios. They should put both defensive and aggressive plays in their portfolios, just as we have both forwards and defenders in a football team.

It’s easier said than done.

Funds which have made diversified investment in both equities and bonds have become popular in recent years. These could offer some clues for investors who have no idea about the market direction.

This article appeared in the Hong Kong Economic Journal on Feb. 11.

Translation by Julie Zhu

[Chinese version 中文版]

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Investment Strategy Head in Northeast Asia at Standard Chartered (H.K.)

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