Tuesday, January 31, 2023

Play it Safe – Standard Chartered advises Investors

Standard Chartered is recommending “Play it Safe” investment strategy for its investors in Kenya.  This is in response to expected recessions in  the US and Europe, a recovery in China, a slowdown in global inflation and a pause in Fed rates in H1 23, followed by cuts in H2 23. This advice was shared by Manpreet Gill, Chief Investment Officer, Africa Middle East Europe(AMEE) during a media and analysts briefing in Nairobi.

Manpreet commented,

“ While financial markets experienced strain in 2022, with stocks and bonds down, we believe that 2023 holds promise for investors as markets respond to performance adjustments.

We see opportunities in consumer- focused equity sectors in China as economic activity gradually normalizes. In Foreign Exchange, Standard Chartered is bullish on the EURO and Japanese Yen on a 12-month horizon.”

He encouraged local investors to leverage the bank’s

“ combination of deep understanding of local markets on the ground with its global reach to access wealth and investment solutions from the world’s leading financial centers.”

Paul Njoki, Head of Affluent Banking and Wealth Kenya & East Africa said,

“Our research reveals that clients are keen to increase their regular cashflows to cater for life goals such as children education, retirement, and improved lifestyle.

The current environment offers a rare opportunity to secure higher yields by investing in high-qualify bonds and diversifying in currencies. Further, a deliberate asset allocation will be key for investors who are looking to benefit from possible market correction in 2023. We have a comprehensive suite of wealth management products coupled with a team of relationship managers and investment advisors to help our clients navigate the uncertain economic environment.

Playing it SAFE – Key Insights

Positioned against a challenging economic backdrop driven by a rapid US Fed interest rate hiking cycle as well as energy price shocks in Europe, a playing it SAFE investment strategy speaks to a prescribed way of building safe foundation allocations in 2023 by:

  • Securing your yield
  • Allocating to Asian assets offering long term value
  • Fortifying against further surprises
  • Expanding beyond the traditional

Thematic Predictions

While we expect central banks to continue tightening policy in the first half of 2023, potentially surprising investors with the size of rate hikes, we believe they will reverse course in the second half of the year as it becomes clear that economies are heading into recession. Therefore, we believe bond yields will fall as we move through 2023.

Backed by China’s easing mobility restrictions, expansionary economic policy settings and targeted measures to support the property sector, we believe that Asian assets are set to outperform.

Standard Chartered – Q3 2022 Results

Asia USD bonds have already outperformed other major bond markets markedly in 2022, but the rise in risk-free USD yields meant they still delivered double-digit negative returns. We expect continued outperformance in 2023, but with significantly positive returns. We also expect the risk-reward balance to be more favorable for the more attractively valued Asia ex-Japan equities than for global equities.

We anticipate that a recession is likely in the US and Europe in the first half of the year. Once the Fed pivots from focusing on bringing down inflation to supporting growth, likely in the second half of 2023, equity markets are likely to become increasingly attractive.

Our Asset Class Outlook

We see today’s bond yields as one of the best opportunities of 2023. We are Overweight bonds – including government and high-quality corporate – relative to equities and cash.

We believe the unusual rise in stock-bond correlations in 2022 is unlikely to last into 2023. Nevertheless, the experience means the demand for relatively uncorrelated assets, or less volatile substitutes for traditional asset classes, is likely to sustain.

Within Asia ex-Japan, we are Overweight Chinese equities as we expect them to outperform the region given their inexpensive valuations and positive catalysts (we, however, expect temporary setbacks, given the reopening experience of other major markets).

Indian equities could struggle to replicate their spectacular regional outperformance in 2022 given elevated valuations, but still-robust earnings growth and the return of foreign investment flows mean we expect them to perform in line with the region and outperform global equities. In India, we are Overweight large-cap equities.

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We also see long-term value in Asia USD bonds. While pockets of High Yield bonds could remain under some stress, we believe c.6.5% yield is an attractive value for an asset class where 85% of bonds are Investment Grade-rated.

We believe the USD is likely to turn lower over the next 6-12 months as the Fed pauses in its rate hiking cycle. Elevated valuations make the USD more vulnerable as the Fed cycle turns.

We are bullish on the EUR and JPY and expect them to be strong performers on a 12-month horizon.

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