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Private banking

Finding opportunities in today’s uncertain markets

How do you go about finding opportunities in the current market context? Marc Lansonneur, regional head of investment teams & market solutions at Societe Generale Private Banking (Asia Pacific), says there is plenty of scope for good returns, but you need to take an active approach.

What is the new normal and what should serious investors be investing in? How do they go about finding opportunities??

The new normal is a range-bound market.This year the volatility on several assets has been relatively low and that can be challenging – if there is volatility, there are usually more opportunities. In the current market, a good option is to diversify in different regions and products – and these can include equities, fixed income, currencies, commodities, structured products, etc. This should make is easier for investors to take advantage of any volatility that could arise.

In times when yields on the bonds of big western economies have reached historically low levels and investors keep piling into them, do we have to adjust to much lower returns in the years ahead?

The low interest rate context we’re currently experiencing is going to continue.That’s because interest rates in several western economies, in Europe and the US, need to be kept as low as possible to fuel growth.

However, it’s still possible to find some interesting yields. We’ve been encouraging our clients to invest in certain fixed income segments such as corporate debt, investment grade or high yield bonds for over a year, and this has been quite successful. In fact, the most active sector among our clients, in terms of investments this year, has been the fixed income sector– through direct bonds purchase or using mutual funds. Investors see these bond products as a combination of safety and yield. We’re also increasingly seeing investors chase yields through equity.

For the first six months of 2012, investors were very cautious about equities, but high-yield equities which combine high dividends and good valuations are drawing more attention.
In certain markets, including the US and Asia, stocks can provide very interesting variations and yields.

For the longer term, these are really good investment opportunities. The low rate environment may change in three to five years because liquidity which has been injected by various governments (quantitative easing in the US and the eurozone) is likely to generate inflation. It may be too early to position oneself today, but investors need to keep an eye on the likely inflation rise and be ready to face some inflationary threats in the future.

What equity markets do you like, geographically and sector wise?

It is difficult to have a pure geographical approach today – investors will probably find it more advantageous to have a sector approach and be selective in terms of the equity.

Regarding sectors, the pharmaceutical and medical industries in both the US and Asia are attractive. The energy sector looks good in the US, Europe and Asia. We also like some consumer industry equities in Asia.
These are the sectors that we believe have appreciation potential, interesting yields and valuation.

What about alternative investments, do hedge funds and private equity still present a viable investment opportunity?

Private equity benefits from opportunities in distressed asset environments – which a lot of sectors and countries are experiencing right now. This means there are many opportunities for private equity companies.
With hedge funds, we have noticed that investors have been reluctant to invest in them this year.
However, we believe hedge funds are still a good diversification instrument in the current context and one can diversify using various strategies.

However, in the current low visibility environment, investors tend to stay away from these products. This can be improved with time and investor education.

What about property, especially as investors continue to pile into super prime property across Europe?

I think this trend is set to continue. Super-prime property often provides an interesting and diversified investment. If you look at the big cities – London, Paris,New York, etc – the top prime properties have not really suffered from a property correction. These properties are much more resilient to volatility than others.
Owners can often wait and hold their properties – they don’t need to sell to raise money. Recently we have been positive on the US property sector as we see positive trends.

Are Asian currencies a good investment at the moment?

To answer this, it’s important to think about what currencies are going to weaken in the near future. We believe the euro is going to weaken, so most Asian currencies, including the Singapore dollar, are a good bet for European investors.

We’ve also been promoting the Chinese Renminbi to our European clients – it’s a good diversification currency for euro-based clients.

We reckon the US dollar will probably get stronger and that there is more appreciation in the US dollar versus Asian currencies. It corrected on a downside recently, but we believe it will correct back versus the yen and versus the Australian dollar in particular.

For non-Asian clients, having 5% to 10% of their currency holding in Asian currencies is probably a good diversification strategy.

What else are you recommending to Asian investors?

We’re trying to encourage more investments in equity markets. While some investors are already active here, there are many who are not – we advise investors not to shy away from equities and instead of having a dynamic portfolio management approach.

Another issue is that most investors are really overweight in cash – and often in one currency. If they want to maintain their cash holding, we encourage investors to diversify in other currencies.The key in the current context is to have a dynamic and tactical approach on the portfolio management. It’s not enough having a portfolio and sitting on it and not looking at it for months. It doesn’t work this way in the current environment if you want to make money, particularly if you have cash. Asia has relatively high inflation compared to Europe – so if you have lots of cash, with little return, then from an inflation point of view, you are losing money.