Harmen Overdijk, Caidao Wealth
Next year the Fed will worry about wage inflation in the US, while the ECB needs to worry about deflation, therefore central bank policy will play an ever bigger role in financial markets. This will lead to very different dynamics than we have seen over the past few years. Central bank policy will stay supportive for much longer than the market now thinks. Equity markets are fundamentally well supported by economic growth and central bank policy, however expect to see much more volatility next year.
In general, Asian and European markets are more attractively valued than the US. Emerging markets are cheap but unlikely to perform well next year, so we prefer developed markets. Bond markets are overvalued, even though we think bond yields will stay low for many years, which will support bond prices. However, credit spreads are rising and we prefer high dividend stocks over high yield bonds. A key trend will be a strengthening US dollar cycle, so investors should stay away from all commodities.
We expect market volatility to rise over the next few years. This offers opportunities for fund managers with strong convictions. The outperformers of 2015 will be the dedicated stock pickers rather than relative managers. One of the better stock pickers is Mansfield Mok of New Capital China fund. His balanced approach of making bold stock picks without losing sight of the overall market risk will work well in the current climate. A strong sector fund that is well positioned to do well in 2015 is the Morgan Stanley Asian Property fund, as this is one of the most experienced teams in Asian property stocks and Reits.
Martin Hennecke, The Henley Group
One of the main challenges in this industry is not to get carried away with hating what everyone hates and liking what everyone likes. This is the way in which great investment opportunities are missed. Accordingly, when reflecting on 2014, we should note that the weakest sector has been commodities, and as far as global equity markets go, we have seen the Shanghai-Hong Kong Stock Connect disappoint so far, while a number of emerging markets also underwhelmed, such as Russia.
These same areas may present attractive buying opportunities however, based on low prices and/or compelling valuations. For example, the price of silver is down approximately 70% from its 2011 high and may rebound as China expands its silver-intensive solar energy use to meet its goals under a historic climate agreement with the US. As for equities, Chinese companies listed in Hong Kong trade at only 1.2 times net assets and a 40% discount on average compared with the global equity index while providing RMB income. Value Partners is one of the managers we use to gain exposure to this market.
Clement Joly, AA Advisors
Next year we will look more systematically at how active managers differentiate themselves. We remain positive on equities for 2015 in a context of low interest rates in the developed world, accommodative monetary policies, and global growth overall. As active managers, we will adapt portfolios and manager recommendations over the year depending on market circumstances but in all regions, we will start 2015 with no specific bias in terms of style for equities. There are no signs of deterioration in terms of alpha opportunities, so we have confidence in active investment strategies. Our clients in Asia, but also in Europe are looking for income and diversified strategies. We have also identified sustainable investing as a key area of growth in the coming years.
When it comes to specific funds we favour strong fixed income alternative Ucits funds such as BlueBay IG Absolute Return Bond or the total return strategy managed by Insight which should help clients to navigate the Fed tapering. Regarding investors’ appetite for income and diversified strategies we like the team at JPM which offers a solid core solution with different vehicles for different markets.
This article originally appeared in the December issue of Citywire Asia magazine