This article first appeared in Personal Wealth, The Edge Malaysia Weekly, on March 21 - 17, 2016.

The topsy-turvy global markets mean that it is tougher to get returns from go-to investments such as equities and bonds. In times like these, investors seek shelter in safe-haven assets such as currencies, precious metals and properties. But are these investments safe enough? Industry professionals give their views.

Properties

As global markets continue to experience turbulence, properties are seen as a way of diversifying your portfolio exposure as this asset class has a low correlation to equities and bonds. However, as the number of unsold residential units continue to rise, is it still viable to invest in properties, which are relatively illiquid assets?

According to VPC Alliance (KL) Sdn Bhd managing director James Wong, Malaysian properties are still considered safe-haven assets and have to be viewed as long-term investments. 

“Property prices have a cycle, and with the current market conditions, it is a good time to pick up properties and sell when the price goes up. Property is also a hedge against inflation,” he says.

There are plenty of segments that offer opportunities for safe-haven investors. Real estate investment trusts (REITs), for example, are a good investment, Wong says, pointing out that local REITs have outperformed both the FBM KLCI and Malaysian Property Index. The REITs experienced a growth rate of 0.14% compared with the FBM  KLCI’s -5.42% and Malaysian Property Index’s -8.94% in 2015. The Malaysian Property Index tracks property companies listed on Bursa Malaysia.

Wong says REITs also offer high dividend yields as they need to pay out at least 90% of their net income to be eligible for tax treatment. “In 2015, Malaysian REITs in general offered steady average yields of 5% to 8.5%. This compares with the 10-year government bond, which offers a yield of only 4.21%.”

There are close to 20 REITs in Malaysia, investing in top shopping malls and commercial properties. They had a total net asset value (NAV) of RM31,187.59 as at Dec 31, 2015.

REITs, unlike other investments, require only a small initial investment. “Most property investments require a significant amount of initial money to purchase a significant amount of initial money to purchase a property, including legal fees and stamp duties. But with REITs, anyone can start investing with as little as RM156 [100 shares of AXIS REIT at RM1.56 apiece].”

Wong says REITs are also highly liquid and have fewer risks. “Unlike physical properties, which normally take a few months to a year to dispose of, REITs are bought and sold like normal stocks.” 

When it comes to physical properties, buyers are also required to look for a tenant and to manage the upkeep of their properties, which have higher risks than REITs, he adds.

If investors are still interested in acquiring physical properties rather than REITs, Wong has this to suggest. “As housing projects with the developer interest bearing scheme (DIBS) ended in 2013 and the projects are expected to be completed by 2015/16, those who are unable to service the loan and cannot rent out the unit may be forced to sell the property at a lower price, maybe 10% to 20% lower. This will be a good opportunity to buy properties at marked down prices.”

Another opportunity he suggests is renting out a property. “Looking at the rising house prices, many in the medium-income group, such as young professionals, young couples and fresh graduates, may find it a struggle to own a house. As such, renting is an option they can go for.

“Investors can invest in houses with basic facilities, such as 24-hour security, near public transport, like the LRT, LRT extension line, LRT line 3 and MRT lines, and rent them out to this group of people.”

On rumours that Malaysia’s property bubble will burst, Wong says, “It will not burst in the near future, but transaction activity is expected to soften. We may also see a small price correction this year. Slower transaction activity in the next one or two years will lead to a more stable and healthy market as it needs time to absorb the current oversupply.”

Jurisdictions as a safe haven 

In times of roiling markets, perhaps one should take a leaf out of the book of high-net-worth investors and keep assets in safe-haven jurisdictions such as Singapore, Hong Kong, Switzerland, the Cayman Islands and the Isle of Man, says Hii.

“These countries have a tight regulatory system and strong governance to ensure the security of account holders,” he explains. “On top of the much higher sovereign rating, some jurisdictions provide a safety net such as a protection act or segregated portfolio company mechanism to ensure client monies are safe in the event of a bank run.” 

Hii points out that safe-haven jurisdictions with higher sovereign ratings are a good hedge against volatile geopolitical tensions. “Most safe-haven jurisdictions have a long track record of political stability, hence they are famous for safety. During periods of uncertainty, sometimes the inflow or outflow of capital will have an impact on your returns. For example, Russia and Brazil have enormous market volatility and their citizens would sleep much better if they moved their investments to the Cayman Islands or Switzerland.

“Most of the time, when it comes to global investments, currency risk is an unwelcome side effect that can eat into or destroy performance. Hence, many of these safe-haven jurisdictions provide multi-currency portfolios or currency-hedged products. Investors who want to diversify their portfolio need a secure jurisdiction and an easy, efficient way to access international markets with minimal currency risk, and be able to easily access the currency-hedged products available in these jurisdictions.”

However, one has to be careful when undertaking this because there are always unregulated parties, says Hii. “For investors to move their money to another jurisdiction, you had better be sure that the laws of that jurisdiction protect the account/policy holder. It is immensely important to identify and only associate with legal or licensed platforms.”

Although offshore investment platforms have been traditionally targeted at high-net-worth investors, these platforms are now available to Malaysian investors via the Labuan Financial Services Authority as “life insurance platforms”. Idi Irwan says these life insurance platforms give investors access to international asset managers or asset management companies, such as BlackRock and Franklin Templeton, and funds based anywhere in the world. 

“Three licences have been issued by Labuan FSA so far — to Hansard Global plc (based in the Isle of Man), Investor’s Trust Assurance (the Cayman Islands) and Premier Assurance Group SPC Ltd (the Isle of Man). We currently represent two of them, but we hope to represent all three,” he says, adding that some platforms do not provide feeder funds (which invest solely through a master fund), but provide direct access to individual funds. 

Hii explains, “What the platform does is provide institutional access for investors. With an investment as low as US$300 a month, funds can be bought at institutional rates or pricing.” 

Strategising for 2016 

Public Investment Bank’s head of research Ching Weng Jin says 2016 will be fraught with challenges as volatility is expected for quite some time. “If governments and central banks remain on course in what they have embarked on, we can hope to see some stability in the second half of the year. Thus, investors should consider positioning for the longer term.

“We acknowledge the fact that global growth conditions are slowing and taking a breather, but we do not see any slippages into recession, given the willingness of central banks to do the necessary come what may.”

Billy Hii Ding Leong, chief operating officer and co-founder of Bill & Morrisons Ltd, says he does not see “any indication of a financial tsunami alà 2012” as there is no catalyst in the market. The US economy, though slow, is doing fine, he adds. “There are two issues that the world is facing at the moment — the oil price bottoming out and China’s hard landing. But I am sure China’s policymakers are going to do something about it.”

Hii says the heightened volatility we are experiencing is due to several factors, such as China’s foreign exchange policy and its transition from an export-led economy to a consumption and services-driven one, too much global debt, global oversupply of commodities and monetary policy divergence by central banks. 

Affin Hwang Asset Management Bhd chief investment officer David Ng says, “Given the volatility, investors need to stay abreast of financial market news and be nimble with their asset allocation. Investors need to diversify into fixed-income instruments, decent dividend-yielding equities and potentially gold and foreign currencies as well.”

Hii says that in times like these, it is important not to panic. “Speak to a licensed adviser, stay invested and adopt an active monitoring strategy.”

In a challenging economy, there are no hard and fast rules on how to restrategise one’s investment portfolio as it depends on the investor’s risk profile. Ching provides some pointers. “If you are a risk-taker, currencies and commodities can make you just as much returns in a challenging economic environment — provided one is vigilant. As the cliché goes, ‘Volatility is always a friend if you are able to spot the trend’. However, for someone more risk-averse, a mix of cash and equities could provide some relief.” 

Ng says, “The key is to always remain diversified and be nimble — change the asset allocation according to the outlook. For example, in the current challenging environment, an investor may allocate 45% to fixed income, 30% to equity, 20% to cash denominated in foreign currencies, such as the US dollar, and 5% to gold.

Hii points out that there are no safe and steady returns without risks. “In a non-volatile economic environment, we normally allocate 100% to equities, both high yield and low yield. Earlier this year, we stepped up our defensive mechanism (fixed-income instruments) by increasing 10% to 30% fixed income and other diversified asset classes to our portfolio to cushion the volatility. Equities are still the best option when it comes to risk versus return.”

Ng, however, cautions that equities are not a safe haven. “However, within the equities space, the ‘safe havens’ are the defensive and income-generating stocks such as real estate investment trusts and high dividend-yielding counters, which are likely to fare better than other sectors.

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