An exclusive with Gautam Duggal, Regional Head of Wealth Management for Africa, the Middle East and Europe—Head of Wealth Management for the UAE at Standard Chartered Bank, on market intricacies, investment strategies and projections
editor's pickTuesday 28, August 2018
What are your views on the macro-economic landscape of global markets this year and what kind of bearing does this have on Standard Chartered’s activities in the region?
From a broad economy perspective, we continue to see the global economy as being in the late stage of the economic cycle, as envisaged in our 2018 Outlook. We see a bull and crunch from gradual heating up of inflationary pressures, increase in policy rates and strong equity market performance. The US economy is leading the global growth due to the tax cuts and benefits introduced last year. China is still balancing growth, moderation and structural reforms but I do see it coming out strong soon. However, a fullblown trade war between the US and China is not good for anyone.
The crucial question on most people’s minds is the US-China tensions. Looking at it as an outsider, I’d say that the Government of China has a broader view, looking at it as a long-term trading discussion. Both countries appear to be attempting to use their negotiation skills against each other to reap the most benefit for their respective economies. I do not see this as a long-drawn dispute; I highly doubt it because neither party would want a win at the cost of their own economies, and this I believe will be the tipping point. I wish I could set a certain time frame for the trade war, but it has hot and cold periods—it occasionally heats up and dies out, fuelled to test each other exploring the extent of pushing the opponent and seeing when to draw the line before someone breaks apart. Both the US and China are trying to push the boundaries to the maximum to gain as much benefits as they can, but I doubt it will go beyond the tipping point because no one wants to have a broken economy, but it will definitely have its ups and downs—that is how I look at it. In spite of this, we remain bullish and diversified.
Our portfolios remain well positioned despite elevated uncertainty and we remain watchful. The message we convey to our clients is the belief that global equities [primarily US equities] need to grow, therefore it is important to stay bullish. However, having said that, diversification is extremely important in mitigating the risks and this is also something that we share with our clients over the last few months. I’d therefore say that we are continuously optimistic and bullish about things.
How have asset classes performed and what are your projections for the rest of the year?
US securities will continue to see ups and downs; as for bonds, which have higher interest rates, are slowly picking up [especially emerging market bonds]. Therefore, over the next six to nine months I expect to see that asset class pitching back as you need a better portfolio of investments in that space. Saudi Arabia is a key market— everybody would like to be there in some shape or form.
While we do have a capital market office there, Standard Chartered is still evaluating the best way to be present in Saudi to contribute to the economic transformation, as well as consider what suits our clients’ profiles. As far as Saudi equities are concerned, opportunities are not something I will look at immediately because markets are volatile. There is a lot of right intention talks happening, with right incentives there from the Government, and the number of banks penetrating the Saudi market. However, I believe that the next 12 months will provide a fair sense of how the market is really evolving and where you can draw a bigger picture. We should have a fair assessment of the effectiveness of Government policies by Q1 2019.
What are your preferred asset allocations and how does this correlate with the diversification of a client’s portfolio?
As I mentioned earlier, diversification is extremely important and this is something that we keep talking about to our clients. By maximising returns through a diversification of risk portfolios, as any asset class will always have an external dependence. The first advice I would give to our clients is diversify—asset classes always changes. Apart from US and global equities, in the next 12 to 18 months bonds might be back in favour. One area that I see picking up today is technology— these are the kind of opportunities we look at in the future, in the way you look into artificial intelligence, etc.—all of them are going to be there for the next couple of years and I do not see them going away.
I would say this is applicable across the world, that is why you see number of fund houses looking into technology funds for potential investment, which gives a fair sense assessment of the field. Additionally, consider diversifying in different asset classes of technology, so you are not just putting all your funds into one type of social media stock, but also into their equivalents—basically to diversify across technology value chain.
How would you describe the investment appetite across markets you operate in?
There are broad assets classes where it is common to invest in and there are other asset classes. We often suggest our clients to invest in currencies such as the dollar or the euro; thus, if an investor has the appetite for currency investment they should look at those. As for Gold, we take a neutral stand. It is always better to have a small percentage of exposure to gold—there is no harm in doing that. The broad classes under which we look at in the next five to six months are currencies, gold, bonds as well as global equities and US stock securities. Having a diversified portfolio balances it out, so if your equities goes down for two weeks, your gold will better it off. Gold balances other investment portfolios and that is why we do not give a significant weight to it, but having an allocation balances any major swings and gives things a stability factor.
Considering the global market landscape and regional intricacies, how would you compare the risks in the MENA region to other emerging markets?
There are opportunities in both GCC countries and the MENA region, as well as in emerging markets—that is the beauty of these markets. Reflecting on the last 12 months, it was a period of lower utility— something that investors have gotten used to. In other words, the markets have gone to its natural state and some clients have become a little concerned about the geopolitical reasons behind it. What we aim to do is educate clients about the need to look at the portfolio more closely and evaluate if they should diversify or if their investments are over reliant on one asset class in giving them returns.
The question always is—‘Have you taken the market for granted?’ I keep telling everyone to never time a market and never take it for granted—those are two things that if they boomerang, they really boomerang bad on you. When I say never take a market for granted, I meant to diversify your portfolio in a way that you do not depend on one asset class or any one market. In terms of timing the market, for example, in the Middle East we can talk about Saudi Arabia as a good place, to be but should one continuously keep on waiting and then put everything across in any kind of investment? Another example is oil prices, investors keep holding on to their investments and make business decisions based on those values. These regional intricacies do have an impact on global investment scenarios as well as the way investments happen.
Where do you see opportunities?
From an investment point of view, one of the key factors I look into when a client asks me this question is whether their investment is long-term or short-term and what are their risk appetites and for me to combine both of them. Otherwise, taking equities as an example, if an investor does not have the risk appetite for equities, I will turn to bonds. We ensure that we marry the duration of a long-term or short-term risk, versus the risk appetite and look at diversification on the portfolio. These are the parameters we use with clients while assessing and looking at the portfolio holistically. This applies to asset classes and markets, the investment horizon as well as the investment capital.
What are your concerns moving forward and how do you see things transpiring for the rest of 2018 and going into 2019?
One big concern that we touched on briefly—and is something that will remain constant—is the duration of the dispute between US and China. This will be something that constantly nags on every financial adviser’s mind for as long as it persists. The market has to appreciate in order to absorb these short and longterm trade war utilities and shocks. Both China and the US are financial power houses, and any decision from any one of them may have an immediate shock reaction which will potentially destabilise the market for a certain period of time.
Thus, I would suggest diversifying investments, portfolios as well as asset classes and always look at it from one’s own risk appetite and not what somebody else is doing. We are quite bullish, we are definitely going bullish, because primarily we do see US equities driving the agenda that will have an impact on the world economy and we continue to look at that horizon positively. Real market assessments will materialise sometime in Q4 2018 and hopefully by then we would have seen some stability coming across. Therefore, if the dispute does not get resolved then it’s going to be a different projection for Q1 2019, which I would not dare to do now because you just do not know what will happen between now and Q4 2018. Markets are always exciting times as they go up and down. It is the patience and stability that an investor has that counts. I always advise my clients that it’s not always about immediate returns but the return you have planned for the future.