EXCLUSIVE INTERVIEW: LGT Group In Singapore Gazes Into The Economic Crystal Ball

Tom King

12 September 2014

Simon Grose-Hodge is the Head of Investment Advisory for to be inventive or dormant in 2015?
We would lean toward inventive, which from our perspective also means dormant! We suspect the Fed will be happy to stay behind the curve in order to support the recovery and may not start to tighten as early as many analysts are now predicting. Secondly, the first move may be inventive, by choosing to raise the interest paid on reserves as a way of withdrawing liquidity, rather than a more broad-based rate hike.

Are you afraid a “eurozone crisis” is back - if it ever went away?
There is no crisis, due to the European Central Bank finally waking up to reality and committing to unconventional measures. Stronger global growth will also prop up export sales and help offset disappointing domestic economies.

On the UK, if the Scotland’s referendum on independence on 18 September produces a “yes” vote, what will happen to sterling in the short term, given the key contributions to the UK economy of oil and gas from Scotland, as well as issues over whether firms will relocate south?
Sterling will weaken sharply on a “yes” vote, as much due to uncertainty as anything else. Losses will be more enduring against the dollar, which is in a solid uptrend, than against European currencies that will still have weaker fundamentals even if the UK economy is damaged.

“Abenomics” - in your opinion is this going to end in smiles or scowls?
We are still fans of Abenomics and are not surprised at the slow pace of reform, bearing in mind the amount of internal opposition. Nevertheless, progress is being made and Abe has shown he is not scared to replace officials that block his agendas, such as at the Health Ministry. We remain overweight Japanese equities with a hedge against Yen weakness.

What do you like across the rest of Asia?
Asia is our preferred destination within emerging markets for all asset classes (equities, credit and currencies), although we are still underweight emerging markets overall. Within Asia, we prefer North Asia over ASEAN as a region. Equity markets offer better valuations and the currencies are protected by current-account surpluses.

Gold hasn’t rallied much despite global tensions. Are there other precious metals you think should be considered?
For some time, we have held a long position in palladium rather than gold. The supply/demand dynamics are favourable and fundamentals are supported by industrial use in the automotive industry. Long palladium versus gold remains a good relative value trade in a bullish dollar environment.

What equity markets look best to you from now until the end of 2014?
From a valuation perspective, Europe has some catching up to do and is now supported by a more accommodative ECB. We particularly like the bigger periphery markets such as Spain and Italy. In Asia, Taiwan would be our top pick, along with Japan.

Do you have any thoughts on the Alibaba IPO?
With the caveat that clients are unlikely to get any allocation, the pricing suggests the IPO should go well. Investors that have a bullish view on the stock should consider buying a company such as Japan’s Softbank as a proxy, as it owns more than 30 per cent of Alibaba.

With new Apple and Samsung launches and with various wearable devices gaining traction do you see those bolstering the Asian technology-manufacturing sector?
Technology is our favourite sector of the market and because of that, we also like Taiwan. Beyond Smartphones and the like, we expect capital spending to increase, with a lot of that going toward IT and software upgrades.