This article first appeared in The Edge Financial Daily on April 24, 2018

KUALA LUMPUR: It is premature to call the end of the bull market in equities just yet, as most bull markets end with a recession and currently, the risk of recession in any major economies is low, according to Schroders Australia head of product for fixed income and multi-asset Stephen Kwa.

Though he maintained that markets are not markedly different from what they were a few months ago, he acknowledges some aspects may have shifted.

“Firstly, the evidence is continuing to support the idea that core inflation is starting to rise in the US and that this is increasing the uncertainty in the future course of monetary policy. The US’ latest pronouncements on tariffs and trade wars have also elevated the uncertainties in trade, retaliation and by extension, growth,” he said in a statement yesterday.

“Secondly, while economic conditions have been good [with decent growth, improving profits and low inflation] and the US tax cuts a clear pro-cyclical boost to growth and profits, the exponential rise in equity prices through the December to January period was an overexuberant response, leaving sentiments extreme and valuations extended.”

Nevertheless, Kwa pointed out that structural equity valuations, especially for the US, are still demanding. “Likewise the gap between interest rates [short- and long-term] and the economy remains large, meaning the upside risk to yields remains [despite the moves we had seen]. Therefore, we see valuations as still too expensive although we are judiciously adding some risk, so far mainly in higher yielding credit at the expense of more vanilla fixed income, but for the reasons outlined are treading cautiously,” Kwa said.

Kwa’s market outlook and portfolio positioning is shared in a statement issued by Affin Hwang Asset Management Bhd to announce the launch of wholesale feeder fund, the Affin Hwang World Series — Global Target Return Fund (WS-GTF), yesterday.

Affin Hwang said the fund seeks to achieve capital appreciation over the medium- to long-term period by investing in a collective investment scheme — the Schroder International Selection Fund Global Target Return, referred to as the target fund.

The target fund is a Luxembourg-domiciled fund managed by Schroder Investment Management, in which at least 80% of WS-GTF’s net asset value will be invested, Affin Hwang said, while the remaining 20% will be put into money market instruments, deposits and/or liquid assets.

Affin Hwang chief marketing and distribution officer Chan Ai Mei said WS-GTF will benefit clients by focusing on absolute returns, to minimise volatility and the risk of huge losses.

“In an environment of heightened risks and increased volatility in markets, an absolute return-focused strategy has never been more relevant than it is now. As markets enter a new transition phase, the demand for a dynamic and flexible approach to asset allocation has become more punctuated,” she said.

Affin Hwang said the target fund will invest in a broad range of asset classes and investment instruments from global equities, global investment grade bonds, currencies and high yielding credit to other real estate, infrastructure and commodity-related securities.

WS-GTF’s base currency is in US dollar, and is offered in eight currency classes — USD, MYR-Hedged, SGD-Hedged, AUD-Hedged, GBP-Hedged, EUR-Hedged, RMB-Hedged and HKD-Hedged.

Affin Hwang noted the Schroder International Selection Fund Global Target Return is designed to deliver on a clearly defined target return-risk objective of USD 3-month Libor plus 5% per annum returns, while minimising portfolio volatility by lowering the standard deviation to below 8%.

Schroders boasts assets under management totalling US$604.7 billion as at Dec 31, 2017, in which its targeted return strategy has yielded an annualised return of 7.78% per annum since inception.