What can investors do to grow and protect their wealth?
PROMISING developments on Covid-19 vaccines recently have injected a dose of optimism into financial markets. However, UOB Malaysia believes that investors should remain cautiously optimistic about corporate earnings growth this year. A full global economic recovery will likely require widespread vaccinations worldwide, continued government stimulus as well as stronger business and consumer sentiments. The rollout of additional government measures earlier this month in response to the current surge of Covid-19 cases in Malaysia shows that the recovery journey can be bumpy. Against such a backdrop, Ronnie Lim, managing director and country head of personal financial services, UOB Malaysia, explains what investors can do to grow, to protect and to preserve their wealth while managing risk and volatility:
Q: How will the world economy fare this year?
Lim: We believe that countries and industries that are supported by ongoing government stimulus can recover strongly this year, especially if Covid-19 vaccinations start by the middle of the year. As more people around the world are vaccinated, governments can slowly lift pandemicrelated movement and travel restrictions, which will help the global economy to rebuild gradually in the second half of 2021. Central banks will continue to keep monetary policy loose to support economic recovery. However, we expect the recovery chart to show diverging paths because some regions and sectors will emerge from the recession sooner and in better shape, while others that have been harder hit will recover more slowly. For example, industries such as e-commerce, electronics, technology, gaming apps and services and pharmaceuticals are thriving amid the pandemic. With low interest rates and higher economic growth, we expect corporate earnings to recover from 2020 levels this year.
Q: The road to recovery will likely be uneven and we do not know exactly what the new normal post-Covid-19 will be. Are there any investment opportunities despite such uncertainty?
Lim: Investing is a continuous journey to grow one’s financial nest sustainably. Therefore, learning to build resiliency into your portfolio becomes the anchor decision point, instead of being distracted by market volatility. This will ensure a solid foundation of investment assets while managing the investment risks one is taking. Investors need to ensure a core holding of protection and globally diversified income generating assets that can weather market volatility a lot better in times of heightened risks. With a good foundation, investors are better positioned to take on more risks and to participate in market opportunities as and when they present themselves.
There are certain deeprooted, transformative trends and structural shifts that either emerged or accelerated during the pandemic. They are reshaping the way we live, work, and play. By recognising and participating in these irreversible transformations, investors can benefit as the global economy adapts and adjust to them in the future. There are clear long-term benefits for investors to focus on companies that adopt ESG business models and practices early. For instance, as governments implement more and stricter regulations, such as to restrict carbon emissions over time, companies that have already started on managing their carbon footprint will be better equipped to sustain their growth. As such, companies that place emphasis on ESG practices will be able to generate both financial and sustainable returns for shareholders.
Q: What should investors investing in Malaysian equities look out for this year?
Lim: Investors should be selective about Malaysian equities because the impact and recovery from Covid-19 is set to be uneven across different sectors. Value stocks in the financial and healthcare sectors deserve more attention because they have been far outpaced by growth equities within the technology sector in the past several years, particularly in 2020. If the pandemic persists, travel-related stocks will continue facing headwinds.
Q: What do you foresee as key risks for investors in 2021?
Lim: The recovery of the global economy is reliant on a successful roll-out of vaccines worldwide. However, hiccups in vaccine distribution, concerns over the long-term side effects of the vaccines and anti-vaccine sentiment, as well as additional lockdowns in countries that are unable to contain new waves of infections will likely stretch the global recession. On the geopolitical front, tensions between the US and China are likely to continue as the US seeks to contain the rise of China. Another key risk is if companies continue to fold as a result of the pandemic. This will lead to a deterioration of the global economy due to rising unemployment and shrinking demand. Recovery may be dampened if governments are no longer able to inject stimulus into the economy and contain the virus.
Q: Given the challenging market conditions caused by the Covid-19 outbreak, what should investors do to grow and preserve wealth?
Lim: In addition to investing regularly over a longer time horizon, we encourage our investors to maintain a welldiversified portfolio by choosing quality and income-yielding assets to help optimise their investment returns. In doing so, they can also manage their overall portfolio risk as financial markets will likely remain volatile in the first half of 2021 due to the uncertainty around the duration and full impact of the global pandemic. A focus on long-term growth opportunities will help investors to protect the value of their portfolios. At UOB Malaysia, we adopt a Risk-First approach to help our customers manage their wealth portfolio in accordance with their risk appetite. By applying this approach, we help our customers to understand the potential risks of any investment ahead of returns, as they seek to achieve their long-term financial goals.
Q: In light of the uncertainties ahead, how should investors with a lower risk tolerance invest in 2021?
Lim: Investors with a lower risk tolerance should focus on assets that are less volatile and which do not require active rebalancing. With risk-free rates so low, it will be prudent to invest in assets that can offer enhanced yields. For example, short- to mediumduration high-grade bonds are defensive in nature and are able to weather periods of heightened volatility, giving investors greater portfolio stability. In addition, investors may want to consider Asian investmentgrade bonds as they offer a more reasonable balance between defensiveness and attractive yields (2.0 to 2.5 per cent), compared with the Bloomberg Barclays Global Aggregate Index (0.9 per cent). These bonds will also benefit from the region’s earlier resumption of economic activity during the pandemic.