Sometimes we all need to step outside for a moment, take some air and review the situation with a calm head and a clear focus. This is undoubtedly true right now, as the economic disruption and market volatility generated by the pandemic plus the associated negative news flow is creating a barrier that makes it harder to see the bigger picture.
Let’s pause, then, and look at the facts from an Asian perspective. The first thing to point out is that Asia, as a region, is not homogenous, and recent events from trade tensions to the pandemic have affected different markets in a variety of ways. The truth is, the picture is not universally negative. In our view it is to say that some markets, such as Hong Kong and Singapore, endured greater short-term pain than others. But it may also surprise you to know that some markets (China, Vietnam and Indonesia) should emerge from the “crisis” with their GDP for 2020 in positive, or close to positive, territory (see chart below).
Global Equity Diversified Income (GEDI) Fund: Staying selective through market volatility
Global equity markets have recently experienced greater volatility. Much of this has been driven by earnings announcements from AI hardware, semiconductor and large cloud-computing companies. Concerns about potential interest rate hikes have also added to investor uncertainty. After a prolonged period of strong performance in AI-related areas, market expectations have become demanding. Even companies reporting solid results have experienced sharp share-price moves when their outlook has only met, rather than exceeded, investor expectations. Against this backdrop, the GEDI Fund remains focused on its core objective: generating income while maintaining diversified exposure to potential capital growth.
Global Multi Asset Diversified Income Strategy (GMADI) update: A balanced approach to market volatility
Global equity markets have recently experienced sharper movements, particularly in areas linked to artificial intelligence (AI). Earnings announcements from AI hardware, semiconductor and large cloud-computing companies have been key sources of volatility. Concerns about potential interest rate hikes have added to uncertainty. The Global Multi Asset Diversified Income (GMADI) Strategy has not been immune to these market movements. However, its income focus, broad diversification and relatively defensive positioning may help limit the effect of sharp changes in technology and growth-related investments.
Real assets and the infrastructure behind AI
Artificial intelligence (AI) is often positioned as a story of models and applications, but its growth depends heavily on something far more tangible. Real assets such as data centres, power grids, and raw materials form the physical that supports AI development. As structural forces reshape the investment landscape, real assets are emerging as an enabler of the AI buildout.
Once we move into 2021, it seems most markets in Asia will likely enjoy robust GDP growth, led again by the emerging territories that will be bolstered by the strength of their underlying economic fundamentals.
Although GDP is a measure of what has gone before, and investors invariably look to the future, a period of healthy growth does instil confidence. It can encourage people to participate in the market – especially when they see economic expansion resulting in improving company earnings and, consequently, rising prices.
In our view it is also true to say that a flourishing portfolio is a well-diversified one. Currently, many people prefer to invest in their home market, as this is where their comfort zone lies. However, with confidence rising in the economic prospects and diversity of the wider Asian region, we believe investors now have an opportunity to spread their wings and explore other markets. We expect this would deliver greater portfolio diversification through exposure to different markets, asset classes, sectors and industries.
Earlier, we noted that despite a lack of clarity on the bigger picture, our daily lives will still go on. As such, one should remain cool and calm to face any challenges, plan for the future, and maintain diversification.
1 Source: Government websites, as of 22 July 2020. International Monetary Fund – World Economic Outlook Update, April 2020 and June 2020. 2020 Q1 actual GDP: Vietnam: 3.82%; India: 3.1%; Indonesia: 2.97%; Taiwan: 1.59%; South Korea: 1.4%; Malaysia: 0.7%; Philippines: -0.2%; Singapore: -0.3%; Japan: -0.6%; Thailand: -1.8%; Euro area: -3.6%; US: -5%; China: -6.8%; Hong Kong: -8.9%. All figures show year-on-year change, with the exception of US, Euro area and Japan 2020 Q1 GDP showing quarter-on-quarter change. The information in this material may contain projections or other forward-looking statements regarding future events, targets, management discipline or other expectations, and is only as current as of the date indicated. There is no assurance that such events will occur, and may be significantly different than that shown here. The information in this material including statements concerning financial market trends, are based on current market conditions, which will fluctuate and may be superseded by subsequent market events or for other reasons.
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