The report aims to guide investors on how to navigate the current global and local economic situation.
According to the report, there will be two contrasting scenarios competing for investors’ attention in the second half of 2023.
“The first scenario called the “no-landing” scenario, suggests that investors should continue investing in equities, expecting their prices to rise further. The second scenario warns that risky assets may not be worth holding at all, as a deep recession is anticipated,” states the report.
During the H2 Global Market Outlook media briefing at Villa Rosa Kempinski Hotel in Nairobi, the Chief Investment Officer for Africa, Middle East, and Eastern Europe at Standard Chartered, Manpreet Gill Singh presented the “CALM” report.
“The strategy proposed in the report (CALM) is to Capitalise on market opportunities, Allocate broadly, Lean to Asia and Manage volatility,” stated Mr Singh.
The report acknowledges the challenge faced by investors as financial markets present a mixed picture.
While equity markets have surged, there are concerns about weak economic growth indicators, particularly in the US.
Major central banks are also more focused on elevated inflation.
Despite this, the report cautions against fully embracing the equity surge or adopting an overly conservative approach.
Instead, investors are advised to keep ‘CALM’ and take four specific actions.
First, they should capitalize on market opportunities by overweighting high-quality government bonds, upgrading equities to a core allocation, and securing investment-grade bonds with higher yields.
They should also balance strong equity momentum with delayed recession risk.
Second, investors should diversify their portfolios broadly by including gold, liquid alternatives and private assets as diversifiers.
Third, they should lean towards Asia, as the report suggests there is greater relative value in Asian equities and bonds, including Japan.
Fourth, managing volatility is crucial, and the report recommends using opportunistic allocation and barbell sector strategies to gain short-term gains, especially in the US, Europe, and China.
The report emphasizes that by following these strategies, investors will be better equipped to navigate the current economic situation.
In a post on LinkedIn, Mr Singh states that “In the ever-changing world of financial markets, investors are likened to sailors navigating the open sea. Just as weather conditions shift, investment strategies must adapt to the dynamic landscape. One such strategy that serves as a compass in the world of investing is tactical asset allocation.”
He notes that tactical asset allocation helps investors adjust their course based on their risk profile, which plays a crucial role in determining their asset allocation outcomes.
“The asset allocation strategy focuses on a moderate risk profile, making it suitable for investors comfortable with a certain level of risk in their portfolios. A significant component of this strategy is the inclusion of Developed Market Investment Grade government bonds. These bonds, issued by governments in developed markets, are renowned for their high quality and low risk,” said the official who is adept with markets.
Additionally, he noted that Asia USD bonds hold importance within this strategy. These bonds are issued by Asian entities in US dollars, allowing investors to gain exposure to the Asian market while mitigating currency risk.
Furthermore, multi-asset income strategies are viewed as an attractive option. These strategies involve diversifying investments across various asset classes to generate income, thereby providing potential risk reduction and diversification benefits.
“It is crucial to note that the tactical asset allocation strategy is not a one-size-fits-all solution. Investors are advised to seek professional advice tailored to their specific investment objectives, financial situation, and individual needs. Moreover, opinions, projections, and estimates within this strategy are subject to change without notice. Thus, regular review and adjustments are necessary to ensure its effectiveness,” he stated.
While the tactical asset allocation strategy offers advantages, it is essential to remember that past performance does not guarantee future results.
The ever-evolving investment landscape calls for a more strategic and tactical approach to asset allocation. It is not merely about riding the waves but also understanding the underlying trends and making informed decisions.
The Head of Affluent Banking and Wealth Management at Standard Chartered Kenya & East Africa, Paul Njoki highlighted the investment opportunities in Africa, emphasizing positive demographics, increasing technology adoption and rising consumer and business spending.
With Africa projected to account for 25% of the global population by 2050, it presents an attractive investment proposition for international capital.
Mr Njoki emphasized the concentration of investment in high-growth sectors like technology and green energy, as investors seek sustainable solutions.
Furthermore, Mr Njoki mentioned that “Africa and Kenya, in particular, can benefit from realignments in global supply chains, which seek new sources of energy and commodities. However, realizing these benefits and driving economic development requires leveling out foreign direct investment (FDI) flows. This necessitates leveraging private capital for investments in high-growth sectors in Africa and implementing structural reforms to improve the investment climate in the region.”
Standard Chartered claimed it continues to provide market forecasts and insights to help individuals make informed investment decisions and diversify their portfolios in these dynamic times.
In one of their recent reports, they predict that equities will outperform bonds in the long run, with implications for different investment strategies focused on income or growth.
“Why bother investing in fixed income when cash enjoys high fixed deposit rates? Though timing of a US recession is uncertain, we believe we are approaching the peak of the US interest rate hike cycle. We compared the performance of the long-tenor US government bonds with that of cash during the two-year period ensuing the final rate hike in each of the last three rate hike cycles. The high quality government bonds produced an average return of over 17%, outperforming cash by 9%,” The report stated.
In conclusion, gaining a comprehensive understanding of economic trends, risks, opportunities, and global developments is crucial for investors to navigate the ever-changing landscape successfully.