Thursday 28 Mar 2024
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This article first appeared in The Edge Financial Daily on October 7, 2019

KUALA LUMPUR: The debate over whether or not the current economic slowdown will turn into a full-blown recession has kept market investors on the edge of their seats, wondering if they should ride out the market tides or run from danger.

But amid the ongoing late-cycle volatility spurred by geopolitical tensions and slowing global growth, an investment management expert is advising investors to stay in the market instead of taking their money off the table, by adopting a judiciously defensive and multi-diversified stance, which gives a natural hedging element.

Kirk West, executive director of international business and clients at Sydney-based Principal Global Investors (Australia) Ltd, said there is now heightened risk velocity, which refers to challenging risks that are able to move from peripheral threats to portfolio impacts at an elevated pace.

“From a risk velocity perspective, what it signals to me is the importance of a long-term investment approach. The market will be thrown about in the short term but in the long term, it always evens out,” he told The Edge Financial Daily.

“Hence, it all comes down to understanding what you’re investing in, the appropriate time frame, and putting money into a strategy that is consistent with that time frame ... active management will prove its worth,” he said.

Also present at the interview was Mohd Fadzil Mohamed, chief investment officer at Principal Islamic Asset Management Sdn Bhd, who concurred with the view.

Mohd Fadzil said active asset managers are seeing the current fluctuations and volatility as an opportunity to enter the market, whenever a market valuation mismatch is identified.

At this point in time, he sees high-yielding utility providers, telecommunications companies, firms involved in green technologies and non-discretionary consumer staples as defensive assets worth looking at.

Islamic finance has also been an asset of choice for institutional investors and millennials seeking to invest in environmentally friendly and ethical products, said the asset manager who has seen commendable growth in this segment of his portfolio.

Mohd Fadzil said the environmental, social and governance investing space has historically been driven more by European investors, who are proponents of this market segment, but institutional investors in Malaysia are now very supportive of this effort.

West added that long-term investment opportunities are also emerging in “enabler” companies associated but not directly involved in the building blocks of the digital economy, such as 5G infrastructure providers, besides those in the services sector against the backdrop of rising Chinese tourist arrivals.

China, alongside the emerging markets, is still charting expansion and is expected to continue registering positive economic growth over the next two to three years and help put out the global economy from a recession should that happen, said Mohd Fadzil.

“As for Malaysia, while it takes us time to rebound, the Malaysian market has been resilient as it historically does not react too much to any market selldown.”

“Malaysia is not spared ... but if there is increased volatility in other surrounding markets, then Malaysia would be seen as a defensive market, and that would attract inflows as well,” he said.

Mohd Fadzil said historically, November has been key in helping to dictate market movements and there has been a tendency for investors to flock into the market at the beginning of the year due to a reallocation of asset classes.

But whether the “Capricorn effect” plays out as we enter 2020 will have to depend on policymakers and economic numbers in the remaining two months of this year, he said. Factors that would have an impact include the US Federal Reserve’s (Fed) monetary stance, US-China trade war negotiations and how Brexit unfolds.

Other economic indicators, such as the US job creation numbers, may also affect market sentiment following weaker manufacturing data in the US and Chinese markets released, he added.

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