From left: Tiwari, Moeller, Ho, Curtis and Teng. Photo by Suhaimi Yusuf/The Edge
One of the biggest stories in the past few years has been the spectacular growth of technology stocks and the sector as a whole. This megatrend was one of the topics discussed at The Edge-Citigold Wealth Forum 2018, which was held at the JW Marriott Hotel Kuala Lumpur on March 17.
Other topics of discussion included the volatility in the currency market, the case for multi-asset investing strategies and general election concerns on the home front.
In his opening remarks, Citibank Bhd CEO Lee Lung Nien said, “This year’s theme, ‘The Bull Run: Raging or Ageing?’, resonates with investors, especially in the current volatile environment and uncertain investment landscape. Investors need timely information to make informed decisions.
“Citi as a premier global digital bank is at the forefront offering clients market insights and research updates in real time. Citigold’s distinctive advantage lies in the winning combination of Citi’s global strengths and local market expertise, which position us strongly as a trusted financial partner.”
Lee then proceeded to introduce the speakers for the event — Jai Tiwari, Citi’s foreign exchange strategist for Asia-Pacific, Europe, the Middle East and Africa; Steven Moeller, BlackRock’s managing director and head of multi-asset platform strategy for Asia-Pacific; Jonathan Curtis, portfolio manager with the Franklin Equity Group at Franklin Templeton Investments; and Teng Chee Wai, managing director of Affin Hwang Asset Management Bhd.
In his presentation, Curtis pointed out that technology is changing the way people invest and what they are investing in. He stressed that investors cannot afford to ignore tech stocks as e-marketplaces and tech companies are paving the way forward and will drive economic growth in the next decade or two
Curtis cited Apple Inc, which became the first company to reach a market capitalisation of US$800 billion last year, as one of the leading players. He also mentioned Alphabet Inc, Microsoft Corp, Amazon.com Inc, Facebook Inc, Tencent Holdings Ltd and Alibaba Group Holding Ltd.
During the panel discussion moderated by Ho Kay Tat, publisher and group CEO of The Edge Media Group, Curtis noted that the use of algorithms and artificial intelligence (AI) are becoming increasingly pronounced across sectors. “One of the exciting businesses is trying to disrupt some legacy industries and using data to do so. When we invest in AI, we really think about it from two sides. The first is the supply side — companies that are providing the enabling technologies that make AI possible. Companies that deliver memory silicone, for example, such as Samsung Group as well as companies that deliver processors such as Nvidia Corp.
“We have holdings in these 10 companies as well as 70 others in our portfolio. We work really hard to identify the more unknown companies such as Twilio Inc.
“This company provides access to two applications on every single phone on the planet — the messaging and phone app. Every smart and dumb phone has one of these and every business on the planet that has some sort of consumer relationship engagement is trying to develop more intimate and more real-time relationships with their customer base. So, Twilio helps to connect the legacy web world to the very trusted telecommunications network on which these two apps are active.”
Asked whether tech companies could one day take over the responsibilities of financial institutions, particularly banks, Curtis said that while regulatory frameworks make it fundamentally difficult to unravel the role of financial institutions, companies such as Alibaba — through its subsidiary Ant Financial Services Group — and Tencent have already eaten into key components of the banks’ retail business, such as digital payments and e-commerce.
Is cryptocurrency fading?
Another area of interest is blockchain technology — a digital ledger that records just about any transaction — which has been disrupting the financial services sector over the last few years.
As cryptocurrencies operate on blockchain technology, Ho questioned the viability of these currencies as an asset class. He also highlighted the frenzy digital currencies such as bitcoin, ethereum, litecoin, monero and ripple had created in the financial markets last year.
“In 2017, we saw one of the strongest years for global stocks in 10 years. Global equities gained a record US$6 trillion in value, with the MSCI All Country World Index gaining 22%. The FBM KLCI also did well, rising 9.4% last year, marking its first annual gain in three years,” said Ho.
“Still, the so-called asset class that stole the show was cryptocurrencies. Crypto-euphoria swept across the globe. Bitcoin, the biggest star, rose by more than 1,000% last year. But there have been setbacks recently. So, the question is whether the role of cryptocurrencies will continue and whether it will a viable asset class going forward.”
Ho’s comments resonated with the 500-strong crowd and sparked a lively discussion on the controversial asset class.
Citi’s Tiwari, however, said the bank does not recognise cryptocurrencies as an asset class yet, considering the numerous regulatory and liquidity risks associated with them. “There is no intrinsic value, so it is very hard to keep track of them. At the end of the day, if you suddenly find that there are no buyers for your cryptocurrencies, who do you go to? This is clearly a major hurdle with cryptocurrencies going forward,” he added.
“Our view is that the whole development of cryptocurrencies came about as a result of investors losing confidence in some major currencies, as central banks around the world such as the European Central Bank and Bank of Japan are increasingly pessimistic and depressing their currencies. But as yields start to rise, when investors regain confidence in these currencies, I suspect that the interest in cryptocurrencies will start to fade.”
While BlackRock does not regard cryptocurrencies as an asset class either, Moeller stressed that blockchain technology is of great interest. “We are quite bullish on blockchain technology and its underlying components, but we don’t consider cryptocurrencies as an asset class. We find it difficult to do so because there isn’t an income stream or valuable asset that allows you to define what the value of the cryptocurrencies is,” he said.
“At this point, it is pure speculation … how you define the value of cryptocurrencies, something like bitcoin. And then, if you look at the volatility in the cryptocurrency market, it far exceeds any other developed or emerging asset class.”
Multi-asset strategy gaining traction
The attendees of the forum were interested to know whether their investments would be able to generate double-digit returns following the strong rally last year, on the back of robust global growth, as opposed to the single-digit returns expected this year. “If I still want that 20% return that I have been getting and am not happy with the 7% that we can achieve, what should I do?” asked Ho.
Tiwari said such growth would only be possible if investors took on a more aggressive stance. “It depends on how much you value your sleep at night. You can certainly have 20% growth by adding some aggressive stocks to your portfolio. We have equities and fixed income as well as currencies.
“The concern that I have is that if you are looking for returns of 20% in such a volatile environment, you will have to very, very actively manage your portfolio because you are taking a high level of risk.”
Moeller said investors around the world, including large institutional funds, have to reset their expectations. “They are all adjusting downwards their returns expectations. They have really enjoyed a great environment over the last five years, with the Sharpe ratios — the unit of returns — at all-time highs. So, in our mind, the 20% is not realistic.”
This also applies to riskier investment such as private equity, where investors have to bear some liquidity risks, he added.
Ho asked whether applying a multi-asset strategy would mitigate one’s losses. “It really varies by the individual’s needs and objectives. If you are young and have a longer-term horizon, you should be really focused on growth and not worrying about income. But if you are older and thinking of your retirement, you will need to supplement your income. So, you will be more concerned about using a multi-asset income approach,” said Moeller.
The attendees also asked the speakers about their outlook for local stocks. A member of the audience also asked whether now is a good time to dive into the oil and gas sector with crude oil prices stabilising at about US$65 per barrel.
Teng said the financial sector is currently on Affin Hwang’s radar screen as the banks’ returns on equity are improving. “We also saw banks in Malaysia and the region averaging their cost downwards over the last few years. Their rate of non-performing loans are also dropping. That is probably why this is the most preferred sector at the moment.”
As far as the O&G sector is concerned, most Malaysian companies are still holding on to “very expensive assets” whereas regional companies are undergoing restructuring to reduce deficits and raise capital or attract new investments, said Teng.
“In Malaysia, we have not seen a lot of asset write-offs. They are carrying very expensive assets on their books. So, if the cycle comes back, will they be able to price their contracts well? My answer is that they will not be as good as in 2015,” he added.
Teng stressed that while some O&G stocks may be well-priced or even cheap, they may not be of good value. “I don’t mind buying stocks that are well supported by good fundamentals, where you get nice reasonable earnings and yield. To me, stock prices must reflect the fundamentals over time,” he said.