By Dr. V. Anantha Nageswaran,
Jimmy Lee,
Ang Seok Peng
Client profile: 50 years old Chinese businessman with net assets of US$20m. Client has expressed a low risk tolerance and stressed on asset preservation. The reference currency is USD. In order to formulate an investment strategy, we have to balance client's needs against current market environment.
Here's a quick summary of how we see the markets in the short term:
• US stocks are expensive and earnings have peaked
• Asian equities have more room to drop, as they are not ready for China and US slowdown risks; better value might emerge at lower levels.
• European stocks might be cheaper to the US but they do follow US trends. In any case, the European macro-economic story remains unexciting
• US bonds are volatile and yields could rise further in the near-term
• US dollar is stronger for now but its long-term future is still down
• Oil prices likely to stay firmer for longer and comfortably above US$30. Short-term risk of considerably higher oil price, that could de-rail global economic recovery, is significant
Based on these considerations, our current asset allocation suggests for an investor with moderate risk would be: cash at 28%, overall equity at 21% (US 6%, Europe 6%, Asia Pac 5%, Japan 2% and Latin America 2%), bonds 18% (US zero, Europe 10%, Asia Pac including Australia and New Zealand 4%, Emerging markets 4%), alternative investments at 15% and gold and real assets at 18%.