Best Private Bank — CIO Office

What will be the key investment themes that shape both global markets and those in the region in 2022 and how is that feeding into how you advise clients?

Tan Siew Meng, regional head, Asia Pacific, HSBC Global Private Banking Our latest investment outlook presents three long-term structural changes that we believe bring with them important investment considerations — and opportunities. The first, what we call “Remaking Asia’s Future”, looks at how Asian economies have responded to the pandemic, taking advantage of their growing technological expertise and expanding wealth, and ramping up reforms for a more sustainable and resilient growth model.

Our second long-term theme is “Digital Transformation” and, within that, our four highconviction themes of Smart Mobility; Automation & AI; Biotechnology, Genomics & Devices; and Total Security. Our focus is on where we see that transformation has picked up momentum such that we are seeing the emergence of real, tangible benefits — and where that innovation is positively transforming business and the global economy.

Our third theme is “Investing for a Sustainable Future”. We are unequivocal in our belief that now is the time to take action and the Group has taken a number of decisive steps aimed at stemming climate change. As an investment theme, we believe sustainability should feature in the core portfolio strategy and thematic satellites — both to manage risks and capture opportunities that arise given that all companies will be affected by new regulations, the vast investments and opportunities, and changing consumer choices stemming from the sustainability revolution.

Raymond Ang, global head, Affluent Clients, Standard Chartered Bank Our theme for 2022 is ‘A winding road to normality’. While we start the year with significant uncertainty regarding the Omicron variant, we still believe 2022 will be a year where we increasingly ‘learn to live’ with COVID-19.

This should help the still-strong growth in Developed Markets increasingly permeate the rest of the world. This will be matched with a gradual normalisation of monetary policy settings. Normally this is an environment of continued outperformance for equities and high-yield bonds and we see no reason for this to change in the current cycle. That said, returns are unlikely to match the performance over the past 21 months and volatility is likely to increase so it is important for investors to ensure that their portfolio holdings are consistent with their ability to absorb temporary losses.

Vincent Chui, head of Wealth Management, Asia Pacific, Morgan Stanley PWM Asia Sustainable investing will accelerate as the core investment approach by asset owners in Asia outside Japan and Australia. Globally, sustainable assets have reached US$35 trillion, accounting for a third of global AUM and dominated by assets based in the US, Europe and Japan. It may grow to US$53 trillion by 2025.

Investors should focus on companies for which ESG creates new opportunities for topline growth, reduces regulatory and public policy risks and aligns with COP26 goals.

Tee Fong Seng, CEO AsiaPacific, Pictet Wealth Management After three years of doubledigit returns for major stock indices, 2022 could be a decisive year for markets even if COVID-19 concerns recede, and also a delicate one for investors. To survive and prosper, they may have to change their behaviour as circumstances dictate.

Firstly, some central banks are withdrawing liquidity support and winding down quantitative easing schemes. Markets will be doubly challenged when the Federal Reserve starts raising rates. How far monetary tightening goes will largely depend on the inflation outlook, and one will have to distinguish which price rises will prove to be transitory and which ones are structural. Supply-chain problems could ease quickly in certain sectors, but labour shortages are here to stay. In any case, the economic cycle could become volatile, especially if inflation concerns induce central banks into making policy mistakes and new COVID-19 waves force partial shutdowns. A renewed pandemic wave could keep workers at home, worsening labour market tightness.

The range of possible market outcomes in 2022 is unusually wide and the gains of the past three years are unlikely to be repeated. We still see areas of opportunity as the recovery continues, but picking the right spots will call for exceptional nimbleness. The road ahead may not be a smooth one, and such fragile conditions justify an active-management approach to investing.

Omar Shokur, CEO Asia, Branch Manager Singapore, Indosuez Wealth Management The 2022 economic landscape, with an expected 4% global growth, sees some risks in 1Q22 due to the Omicron variant but the world at large is still benefiting from a generous fiscal policy. On policy rates, the Fed and the ECB are expected to end the tapering in March as inflation exceeds central banks’ target. Against this backdrop, earnings growth should normalise to a more reasonable level. Our bank predicts high single-digit growth in the developed markets and double-digit EPS growth in Asia.

At Indosuez, the top five investment themes for global equities are: rising inflation (value/ cyclical & strong pricing power), secular growth trends (disruptive technology), ESG investments, infrastructure investments and increased M&A activity. While all financial assets currently have high valuations, relative to history, the higher equity risk premium suggests that, at least on a relative basis, equities remain attractive and are likely to provide a real return as inflation rises.

In terms of asset allocation, we continue to employ multi-asset portfolios tilted on a risk-on mode, favouring equities but we also maintain exposure in high yield and emerging debt. On regions, we focus on developed markets as a start but an exposure on emerging markets equities, debt and currencies could increase gradually.

Benjamin Cavalli, head of Wealth Management Asia Pacific, Credit Suisse Relatively more attractive investment opportunities can be found in Asian markets. Improving valuations in Asia in 2021 were driven by strong earnings growth of 40%.

As demand for technology products normalises alongside related supply chains, it is likely that the technology sector will experience an earnings contraction. And even though we anticipate stronger earnings growth from Southeast Asia as tourism recovers, the MSCI Asia ex-Japan is likely to generate just 8% earnings for 2022. Attractive opportunities lie in the thematic sphere. For example, our “Sustainable China” basket, which captures opportunities in a number of China’s policy-supported sectors, is exposed to opportunities in sectors such as renewable energy, electric vehicles, 5G and semiconductors. Our “Beautiful Europe” investment theme is designed to take advantage of demand for luxury goods among Chinese consumers and the pricing power of luxury goods producers in Europe. We prefer equity markets with a cyclical tilt including Japan, as we expect the Japanese machinery, electric appliances, and transportation equipment sectors to benefit from the post-pandemic global recovery.

Fixed income investors will experience challenging conditions in 2022. As inflation moderates and bond yields rise, real rates should improve, but generating positive returns in fixed income will still be difficult. Hence, we are overweight senior loans. They benefit from rising interest rates, and are already offering an attractive yield of 5.5%, which compares well with 4.4% in US high yields. In terms of fundamentals, the US senior loan default rate continues to improve and should remain low in 2022 considering recent rating upgrades.

In Asia, we prefer the non-China property segment of the Asia high yield (HY) complex. This market segment accounts for around 60% of total Asia HY credit and should benefit from strong growth in both South and Southeast Asia in 2022, where policy normalisation is likely to be gradual.

Asia HY ex-China property is surprisingly healthy at the fundamental level, with a sharp improvement in the default rate (from 12.7% in 2020 to just 2.3% in 2021), in stark contrast to the roughly 30% in the China property segment. Specifically, we favour short duration (one to three years) BB-rated bonds, as these offer yields that compare favourably with the equivalent US HY segment.

In alternative investments, real estate should still benefit from the low interest rate environment, as well as the continuing economic recovery. The economic backdrop remains supportive for private markets as well, while hedge funds should deliver modest returns close to the historical average.

Michael Blake, Asia CEO, Union Bancaire Privée Global markets are entering a new mini-cycle in 2022, after rebounding from a V-shaped recession. Economic growth is set to slow, while global inflation should remain elevated throughout the first half of the year. This landscape will create some challenges for global investors driven by rising long-term yields and heightened volatility. Despite these headwinds, investors should expect lower, but still largely positive returns on equities, with larger drawdowns.

In this context, we are focusing on proactive risk management, with an emphasis on quality earnings and long-cycle transformational themes, such as the energy transition. Alternatives such as hedge funds can also present useful asymmetrical exposure should volatility rise in 2022.

Lok Yim, head of Deutsche Bank International Private Bank APAC Inflation and central banks will be in focus. This should be the year where central bank policy really starts to change gear – with other central banks starting to follow the Fed's line on tightening. But there will be plenty of other regime shifts underway too (in terms of inflation, climate, geopolitics and technology, among others). Acting now on strategic asset allocation and ESG in portfolios should help capture this process of change. This is an important time to focus on strategic asset allocation. Market timing around such complex processes of change will not be enough, with an effective strategic asset allocation likely to prove a much more effective and reliable source of long-term returns.

Environmental and ESG issues more broadly (including social and governance aspects) will become even more important for portfolios. The switch to a carbon-neutral economy will create many interesting opportunities.

Kwang Kam Shing, CEO of J.P. Morgan Private Bank Asia While growth is moderating from the post-COVID-19 peak, we think it will remain above its long-term average for two key reasons: (1) In developed markets, we see strong consumer spending and strong corporate balance sheets. We still recommend an overweight to equities but recommend a balance between growth and cyclical, and emphasis on earnings quality; (2) In emerging markets, we are more selective but still like growth drivers such as industrial upgrading, automation, and semiconductors. There may be some upside in EMs as well, due to more domestic and external re-opening.

With monetary policy normalisation, we see relatively more volatility in markets. In view of this, we will put more emphasis on flexible fixed income strategies, income-generation strategies in alternative assets such as real estate, infrastructure etc.

Genetic therapy, healthcare, innovation and sustainability focused investments will remain key megatrends for 2022. Andy Chai, Asia CEO, Bank J. Safra Sarasin We expect economic growth to remain strong and labour markets to improve in 2022 and 2023. Supply bottlenecks and COVID-related restrictions have led to temporary setbacks and will probably persist, though to a lesser extent. Still, strong demand means that companies have more pricing power and workers more bargaining power than usual. Both should contribute to relatively elevated inflation rates even once the impact of the jump in energy prices has faded. In our view, central banks will therefore have to remove monetary policy accommodation faster than they have so far indicated.

Moderating global growth and a more hawkish Federal Reserve have strengthened the USD this year. We expect the dollar strength to continue over the coming months, because the risks remain tilted towards an earlier US policy rate lift-off. Cyclical factors may become a headwind for the dollar later in 2022. The euro should benefit from a pick-up in manufacturing activity along with commodity currencies, while the Brexit-related drag on UK growth should weigh on the GBP in the coming year. Both the Swiss franc and the Japanese yen should benefit from low inflation rates. We finally also turn more constructive on gold.

Bhaskar Laxminarayan, CIO and head investment management APAC, Bank Julius Baer Inflation and central bank policy making are likely to be key topics that will dominate investment conversations this year. Though inflation concerns should start to ease through the year, a policy mistake may still be on the cards. The world will move more firmly towards a post-pandemic normal which should set the stage for the next structural growth winners. Some key themes — such as climate change, emission free transportation, cloud computing and artificial intelligence — are likely to stay in focus. Digital assets should gain further acceptance with adoption rates surprising on the upside.