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Caution's The Investment Watchword For UOB Asset Management

Tom Burroughes, Group Editor, 17 January 2020

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There appears to be a consensus emerging that this year is not one for taking aggressive bets when choosing equities, bonds and other parts of the investment jigsaw puzzle. Another financial firm shows how much risk it is willing to take this year.

UOB Asset Management, part of Singapore-based United Overseas Bank, prefers to hold investment-grade bonds and dividend-producing equities to protect capital and gain ground this year in what it expects to be a time of moderate economic growth.

The asset management house, which held about $26.4 billion as at end-November 2019, said its views are based on improving economic conditions, albeit with muted growth expected for the year. It agrees with the International Monetary Fund that has forecast global real gross domestic product to grow by 3.4 per cent in 2020.

"Last year the global economy narrowly avoided a recession and has shown signs of stabilising at the turn of the decade. However, growth is likely to be muted this year. Lingering geopolitical concerns, including US-China trade tensions, the US presidential election and Brexit, will continue to cast a shadow on the global economy," Anthony Raza, head of multi-asset strategy at UOBAM, said at a recent presentation.

The Asia-based firm's outlook appears to be a touch more optimistic than that of Pictet Wealth Management, the Swiss firm which recently set out a cautious asset allocation stance. In general, judging by the raft of outlooks sent to this publication, there appears to be a general mood of wariness, particularly given the US-China trade arguments, geopolitics (such as Iran) and concerns about US corporate debt.

“With moderate global economic growth and therefore consequently modest earnings growth, we do not expect further monetary easing this year. As such, most asset classes are unlikely to replicate last year’s strong performance. This is why we suggest a risk-based balanced income strategy to preserve and to grow capital through bonds yields and stock dividends," Raza continued.

For the first quarter of 2020, UOBAM is overweight on fixed income and alternatives, while neutral on equities and underweight in cash and commodities.

“With no interest rate policy moves expected in 2020, bond yields are likely to stabilise and to remain low. However, with corporate bonds and Asian bonds reasonably valued, there are opportunities to buy on price dips. We expect an annual return of about 3 to 4 per cent for fixed income this year.”

Within fixed income, UOBAM prefers investment grade credits in developed markets as well as issuances by companies that are market leaders and backed by strong government support.

“For equities, our neutral call for the first quarter is an upgrade from underweight in the second half of 2019. We expect global earnings growth of about 7 per cent in 2020 to drive returns and will look out for more signs of sustained economic growth before increasing our positions further.

“We favour US equities to Asian equities in anticipation of resilient American corporate profits. While we are currently neutral on Asian equities, we will shift to a positive weightage should conditions such as greater improvement in global economy and trade and easing of the US dollar materialise. Within Asia, Singapore equities in particular offer attractive valuations and growth potential supported by the government’s fiscal flexibility,” Raza added.

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