Best Private Bank — Integrated Platform

Arnaud Tellier, CEO Asia Pacific, BNP Paribas WM In 2022, uncertainty will remain and volatility will prevail as inflation, central bank reactions, the threat of new variants and geo-political tensions are key risks that will combine with high valuation of some sectors.

We have identified five investment themes in 2022. One is ‘Riding a New Inflation Regime’, in that inflation and the Fed’s policy tightening will continue to take the driver’s seat in the financial market. This remains our key theme. We favour energy, mining, resources and financials sectors, real assets (particularly Asian commercial real estate) and commodity currencies.

The next themes are “Identifying Winning Investments & Innovations” and “Repair, Reuse, Recycle”. Both public and private sectors are increasing capex significantly with the former to stimulate economic recovery and to meet aggressive net zero targets (e.g. Joe Biden’s infrastructure bill and the EU’s Recovery Fund), and the latter to upgrade technology for remote working and to resolve supply chains disruptions. This gives rise to plenty of interesting opportunities in areas such as health tech, infrastructure, smart technology, sustainable food and energy transition. Companies did not invest in capex during the last cycle, hence, the shortage in so many sectors when economies reopened.

Our fourth theme is “Small is (Still) Beautiful”. Small caps tend to outperform large caps in the long run and especially during times of economic expansion, as where we are now. Also, large companies have been actively acquiring smaller companies at a premium with the number of M&A deals reaching a record high. The recent underperformance provides opportunities to add this as part of a satellite allocation.

Theme five is “Enter the Metaverse”. In terms of megatrends, Facebook changed its name to Meta and the term “Metaverse” is causing a buzz. Investors should grab the opportunities and be among the first to “Enter the Metaverse”. As yields rise, the US technology sector underperforms. As the market prices in rate hikes, the correction in technology shares will create opportunities in specific niches to invest in this megatrend. Jean Chia, CIO and head of Portfolio Management and Research Office, Bank of Singapore 2022 will be a year of recalibration for investors globally as inflationary pressures coincide with the withdrawal of pandemic-induced liquidity and gradual paring down of fiscal and monetary support for economies worldwide. Instead, quantitative tightening, interest rate hikes and higher real yields will drive markets into bouts of short-term volatility across asset classes.

Super-impose this macro backdrop against (a) China’s structural adjustments to an economy centred on “common prosperity” (b) a global pivot to focus on net zero outcomes for climate change and (c) a major leap into a digitallycentric economy including re-building a metareality beyond our universe. Based on these key themes, we advise portfolio builders to consider the new narrative with the 3Vs in mind: Volatility, Value and Vulnerability.

Volatility: As the tide of liquidity ebbs and the world confronts the realities of an uneven pace of global recovery, we expect capital markets to be volatile. Historically, bull markets do not end at the beginning of rate hike cycles, but shortterm corrections are not unusual as treasury yields rise sharply to respond to inflationary expectations.

Investors with well-positioned portfolios need not fear volatility but should be prepared for these bouts with sufficient cash buffers to potentially take advantage of drawdowns to build long-term positions at the “right price.” Appropriate exposure via derivatives by buying options when volatility is low and selling them during periods of elevated volatility could complement overall portfolio risk-return.

Valuations: Equities remain an attractive asset class, considering the positive global economic growth and corporate earnings trends, but a rebalance is in progress. We see a compelling case for real economy sectors in cyclical and value stocks (e.g. financials, industrials, real estate and energy) as investors look for earnings growth, cash flow and resilience against inflationary pressures. Growth sectors, especially early-stage unprofitable technology and new economy companies, may be vulnerable to volatility in the short run, but we maintain core exposure in quality technology companies with business models that play to longer-term tech trends.

Vulnerability: As we confront the US rate hike cycle, returns for fixed income portfolios will be sensitive to both portfolio duration, as well as credit selection that considers balance sheet strength, credit fundamentals and valuations that adequately reward bond holders for the risk. Just as diversification played a key role for us in weathering the storm in China property bonds within Emerging Markets credit, we believe judicious credit selection will be key in 2022 as we remain watchful of risks and vulnerabilities within emerging markets.

Jasmine Duan, investment strategist, RBC Wealth Management – Asia RBC Wealth Management is positive on ‘Sustech’ stocks in the medium to long-term, namely technology companies that can help to solve global sustainability issues. We see SusTech as centred on five key themes: GreenTech, HealthTech, FinTech, FoodTech/AgriTech and Smart Cities. These five themes illustrate innovative solutions that seek to future-proof the planet for generations to come. We believe companies that are at the forefront of these technologies will benefit and thus we will look for opportunities to accumulate after each correction.

The green transition is a key investment theme that we think investors should still pay attention to in 2022. As the world pushes toward aggressive carbon reduction goals, the green energy transformation could represent a grand economic realignment rivalling the industrial and information revolutions. Yale Professor William Nordhaus estimates it would take roughly US$100 - US$300 trillion in new capital on a global basis to reach net-zero emissions by 2050. There is little doubt in our minds this would bring opportunities for investors.

However, we encourage investors to be realistic and have longer-term investment horizons for these types of investments, as the transition to green energy could be bumpy, exemplified by the energy crisis in Europe and China last year. In addition, segments of populations could push back on carbon reduction initiatives if they negatively affect household finances or employment opportunities. New technology requires adaption, may experience occasional challenges and may require more time to play out. But for investors with higher risk appetite and a longer term investment horizon, investing in these companies may be a good source of outsized return for their portfolios. Eleven Ying, global market head and Singapore CEO, Heritvest Global Looking ahead to the global macro-economy in 2022, we believe that herd immunity of COVID-19 will be acquired globally. The momentum of the rapid recovery of developed economies in 2021 may weaken in 2022. The economic growth of emerging markets will increase as vaccination rates increase. This difference in economic growth is expected to return to the historical average level, which will help to resolve supply chain bottlenecks and the high inflation in global economic development.

There are two major risks to the improvement of the global macro environment in 2022: the global economy faces the risk of "quasi stagflation"; and supply chain bottlenecks may still restrict supply in the short term, and inflation will remain high, making it more difficult to coordinate policies.

It is expected that debt default risk prevention and control will be in the spotlight. There’s little room for fiscal policy to change. Monetary policy will move towards normalisation, global interest rates will rise, and values of various assets will be revalued. Under the unstable economic and financial environment, the asset allocation strategy will be seeking structural hedging around core assets.

In 2022, market transactions will be carried out under the logic of "quasi stagflation", and for this reason the uncertainty will be high. We suggest that the overall asset allocation strategy in 2022 should focus on stability; pay attention to longer-term investment themes and grasp offensive opportunities.

In 2022, the global financial market will be affected by a variety of compound risk factors, and market volatility will increase. Considering risk and return expectation of various assets, from asset allocation perspective, our priority of markets is: developed economies > emerging economies; from asset category perspective, priority is: alternative investment > USD > global equity > commodities > gold > bonds. Cai Xinfa, Ping An Group executive, special assistant to the Bank’s president and head of retail banking, Ping An Bank The key investment themes shaping global markets and the Asia-Pacific markets in 2022 will be "gradual recovery from the US to Europe to the emerging markets" and "interest rate increase".

Specifically, economic recovery will follow the sequence of "US → Europe → emerging markets", which will bring benefits to and subsequent impacts on different markets. The start of interest rate increases will have a significant negative impact on assets including stocks, bonds, and commodities.

Therefore, our recommendations for investing in the overseas markets are as follows:

• US stocks: The general rally will end, and follow up on the institutional market. • Overseas bonds: Bonds in developed markets will generally face the impact of interest rate increase and balance sheet reductions, so their allocation ratio should be reduced. Asian bonds, Chinese USD bonds might go up again. • Crude oil: Lack of opportunities and trend downwards. • Gold: Need to wait until the end of interest rate increase for investment opportunities. Alok Saigal, head, Private Wealth, Edelweiss Wealth Management The biggest theme for global markets in 2022 is the reversal of rates globally and the liquidity tightening programme. Other parallel themes — such as the technology and start-up ecosystem in India, ESG, etc. — are equally playing an important role. We advise clients to maintain long-term asset allocation during such risky times and to reduce risk by either adopting risk management strategies or keeping dry powder handy to increase allocation during corrections. In addition, we have recommended that clients allocate 5%-10% to gold as an asset class.