Wealth and Portfolio Management in Periods of Market Uncertainty

Damien Hitchen CEO, Saxo Bank MENA gives us his perspectives on portfolio management in challenging times

What is Saxo’s perspective on the current matters confronting the world today?

There are multiple issues that are impacting markets today. From geopolitical risks, de-globalisation and the on-going Russia-Ukraine situation, to significant inflationary pressures affecting most parts of the world, Central Bank monetary policy and highly volatile capital markets. Saxo’s perspective is that it is more important than ever that we provide our clients with topical and timely research, commentary and tools to be able to navigate the uncertain markets that are a consequence of the many factors I have just mentioned.

Are you noticing developing patterns or trends in regional investment behaviour specific to the macro-level challenges now facing the world?

Even with a backdrop of global macro events, there have always been regional and local patterns to trading behaviour and these remain. Most investors display a “home bias”, which could be country- or region-specific, on the basis there is a higher level of knowledge and familiarity on that level when compared to a global picture. So, while some of the issues above are global—for example the significant inflationary pressures seen across the globe – we have not seen in 2022 a material switches away from historical trading patterns from our clients.

Damien Hitchen, CEO, Saxo Bank MENA

With inflation hitting 40-year highs in some places, how do you expect regional investors to hedge against this?

With recent inflation statistics hitting more than nine per cent in the US, double digits in the UK, and according to the latest Dubai Statistics Centre

CPI release 7.1 per cent (*1) in Dubai, this is a very difficult question to answer. Aggressive inflation is a relatively new phenomenon and has arisen very quickly this year, so while it is becoming increasingly clear that inflation will not return to normality as quickly as most people hoped, it may be that in the short-term investors adopt a waitand-see approach. While some of our Trader clients are taking advantage of the opportunities of a downward market environment, across the industry many Investor clients are adopting a sit-on-the side-lines view and adopting a passive approach. There may be some Investors who return to the traditional deposit-

account approach with interest-rates rising following Central Bank hikes, but even with this approach they are faced with a negative real-return scenario.

Given the unusually wide range of issues facing the world, do traditional “safe-haven” investments like real estate or gold remain as such?

Our house view is, together with traders responding to the highest level of inflation

in 40 years and turmoil in stocks and cryptocurrencies, hedges in gold against the rising risk of stagflation—central banks kill growth before getting inflation under control – is one of the reasons why gold has not fallen at the pace dictated by rising real yields. With that in mind, we are watching through the exchange-traded fund (ETF) flows what investors are doing rather than what they are saying. Considering the risk of continued turmoil in global financial markets as the transition towards a higher interest-rate environment takes its toll on companies and individuals, we maintain a bullish outlook for gold. We stick to our forecast in Q2-2022 that, following a period of consolidation in the second quarter, both gold and silver will move higher during the second half of the year, with gold eventually reaching a fresh record-high.

THERE IS A BALANCE TO STRIKE BETWEEN THE LONGER-TERM ESG MANDATE AND COMPELLING SHORT-TERM REQUIREMENTS

Are ESG-related concerns waning in precedence as clients discuss the management of their investment portfolios in these uncertain times?

There is a balance to strike between the longer-term ESG mandate and compelling short-term requirements. Many developed countries, particularly in Europe, have been forced to put their clean energy targets on hold to prioritise critical short-term energy demands. Companies are being pressured to do the same. In looking at our Saxo investment themes in 2022, the best performing baskets YTD are Commodity, Defence and Logistics themes, whereas some of the ESG-linked baskets such as green transformation and renewable energy are materially negative YTD, which would support the view that there is a shortterm pivot back to traditional energy and real-asset industries and away from ESG supportive investing.

*1 https://www.bloomberg.com/news/articles/2022-08-19/dubai-prices-skyrocket-less-than-year-after-steepdeflation-funk

Do you foresee the re-emergence of a more predictable, pre-pandemiclike investing environment in the coming five to ten years?

Given the significant pace of change in the investing environment since the start of the pandemic, this is very difficult to project. The last years have witnessed unprecedented liquidity available to invest in capital markets and the rise of the army of retail investors, all came following a decade-long bull-run. In the short-to-medium term, our house view is that companies will no longer be rewarded simply for revenue growth, but rather see improvements in return on invested capital and free cash flow. The V-shape recovery, which happened during that long bull cycle, will not happen this time and the bear market will likely not exhaust itself until the new generation of investors – those that went all-in on speculative growth stocks, Ark Invest funds, Tesla and cryptocurrencies – have fully capitulated and withdrawn excess (and cheap) liquidity from the markets. That said, more than ever, we provide our clients with access to tools to take opportunities in both upward and downward market conditions, a suite of risk management tools for their portfolios, and regular commentary and inspiration on market events in an increasing uncertain and volatile world.

You mention your riskmanagement tools, how can these help clients in volatile and uncertain market conditions?

Saxo has built a suite of risk-management content, educational webinars and videos that are available to our clients. From explaining various risk-control strategies such as our Saxo “account shield” that allows clients to place predefined automated close triggers on positions to control portfolio risk, to simple concepts such as stop-loss orders and the “two per cent rule of allocation” there are a host of risk-management tools available to our clients that are suitable for everyone from beginners to even the most-experienced traders.