James Cheo, Chief Investment Officer of Southeast Asia at HSBC Private Banking & Wealth Management

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The 2021 Investment Outlook:

On Economy, Capital Markets & Investment Outlook

The world expected this decade (2021 to 2030) to be disrupted by technology, new economies growing, wealth growth and the biggest wealth transfer taking place.  In 2020, COVID-19 strikes and the global economy comes to a standstill.  Certain sectors such as tech, internet economy, consumer staples are doing well whereas sectors such as hospitality, travel, luxury, retail, F&B, entertainment, real estate are suffering.

How do you manage $20 million to $3 billion assets in 2021?
How do you invest $3 million to $300 million in 2021?

The 2021 Investment Outlook:

  • What is the economic outlook for 2021 and beyond?
  • What are the new big trends and key risks for the next 1 to 3 years?
  • What are the investment trends & opportunities in 2021?
  • Where are capital flowing into? What is driving the market?
  • Any advice for investment managers, advisors, professional investors and HNW investors for 2021 and beyond on managing assets and investments?

 


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The 2021 Investment Outlook: James Cheo, CIO of Southeast Asia at HSBC Private Banking & Wealth Management

James Cheo, Chief Investment Officer of Southeast Asia at HSBC Private Banking & Wealth Management
The 2021 Investment Outlook: James Cheo, Chief Investment Officer of Southeast Asia at HSBC Private Banking & Wealth Management
We speak to James Cheo, Chief Investment Officer of Southeast Asia at HSBC Private Banking & Wealth Management, sharing his valuable insights on the economy, capital markets and investment outlook for 2021.

 

HSBC Private Banking is part of HSBC Group, one of the world’s largest banking and financial services organisations with $2.95 trillion assets as of 30th September 2020.  HSBC Private Banking seeks to be the leading international private bank for business owners and their families.

 

Highlights from The 2021 Investment Outlook:
  • Outlook: Global economy and corporate profits should be bigger and healthier in 2021
  • “Good news for riskier assets … Policy rates should remain very low and stable”
  • “That does not mean that 2021 will be without risks”
  • “Holding lots of cash is not the answer to managing the volatility”
  • “Capital is going to flow into asset classes that provide growth and income” 
  • Opportunities: Emerging markets in Asia
  • Overweight: Technology, Industrials, Materials, Consumer discretionary and Communication services
  • Diversifiers: Gold, high rated bonds, hedge funds and other alternative assets
  • “Value stocks have outdated business models”
  • On Sustainable Investments: “2021 is going to be a pivotal year for sustainability”
  • In Our View: “Performance will be better if they aren’t just part of it, but if they lead it”

 

” 2021 is going to be a pivotal year for sustainability “

 

Introduction

James Cheo, Chief Investment Officer of Southeast Asia at HSBC Private Banking & Wealth Management
Who are you, and what do you do?

James Cheo:  I am the Chief Investment Officer of Southeast Asia at HSBC Private Banking & Wealth Management.

  • Chief Investment Officer of Southeast Asia
  • HSBC Private Banking & Wealth Management

I spearhead the development of product strategies across all asset classes for clients in Southeast Asia.  I have more than 15 years of portfolio strategy, asset allocation and research experience.

 

 

1. What is the economic outlook for 2021 and beyond? 

Are governments going to restructure economy or are private enterprises & investments driving the economy our best hope?  (Given political & government uncertainties that will slow down economic policy planning & execution)

European Countries

James Cheo:  Global economic growth is improving, and broadening beyond manufacturing and the digital economy.  The vaccine should allow consumer confidence to pick up, and the all-important consumer sector to become an additional engine of growth.  At the same time, governments are rebuilding their economies, and the healthiest companies are investing to adapt to the new post COVID-19 realities and opportunities.

  • Global economic growth is improving
  • Vaccine allow consumer confidence to pick up
  • All-important consumer sector to become engine of growth
  • Governments are rebuilding economies
  • Healthiest companies are investing, adapting to post COVID-19
  • Global economy & corporate profits should be bigger & healthier in 2021

All of this means that the global economy and corporate profits should be bigger and healthier in 2021 than they are currently.

” Global economy & corporate profits should be bigger & healthier in 2021 “

 

2. What are the new big trends and key risks, given COVID-19 had changed the direction of the economy, perhaps at least for the next 1 to 3 years?
New York City, United States

James Cheo:  The good news for riskier assets is that policy rates should remain very low and stable.  Rising profits, combined with low rates, are a powerful combination for risk assets.  We therefore maintain our overweight on global equities.

  • For riskier assets – policy rates should remain very low and stable
  • Overweight on global equities

That does not mean that 2021 will be without risks.  First, the vaccine rollout is unlikely to be an entirely smooth process, and any delay or disappointment in adoption rates could lead to some temporary market volatility.  Second, we foresee some temporary upside in inflation readings early in the year, as crude oil’s fall from $70 to $20 between January and March 2020 will cause year-on-year base effects between January and March 2021.  Third, corporate default rates will probably go up further, before they come down.  And lastly, of course, the run-up in valuations to date can lead to profit-taking and adjustments in investor positioning.

Risks in 2021:

  1. Delay in adoption rates (Vaccine) could lead to temporary market volatility
  2. Temporary upside in inflation readings early in the year
  3. Corporate default rates will probably go up further
  4. Run-up in valuations can lead to profit-taking

” good news for riskier assets … … policy rates should remain low and stable “

 

3. What are the investment trends & opportunities in 2021? (And in the mid-term and the long-run?)
Shanghai, China

James Cheo:  The broadening of the economic expansion is naturally also broadening the sector leadership in the stock markets, and we thus hold overweight positions in technology, industrials, materials, consumer discretionary and communication services.  But this broadening does not mean that technology, which had been principal engine of stock markets, will underperform in 2021.

The digital revolution continues unabated, and technology leaders should continue to see strong growth in the medium term.  These tech leaders can be found outside of the tech sector as well, in areas such as automation, health technology and 5G.  Technological leadership is one of the key determinants of whether a company is fit for the future. By contrast, we note that many value stocks have outdated business models and investors should beware of falling into such value traps.

Holding lots of cash is not the answer to managing the volatility we will undoubtedly experience in 2021.

Investment Opportunities in 2021:

  • Overweight: Technology, Industrials, Materials, Consumer discretionary and Communication services
  • Technology leaders should see strong growth in the medium term
  • Tech leaders outside of tech sector: Automation, Health technology and 5G
  • Value stocks have outdated business models
  • Holding lots of cash is not the answer to managing volatility
  • Remain invested with a pro-risk and cyclical stance
  • Diversifiers: Gold, high rated bonds, hedge funds and other alternative assets

Rather, we remain invested with a pro-risk and cyclical stance, but with a selective approach and plenty of diversifiers, including gold, high rated bonds, hedge funds and other alternative assets.

” Holdings lots of cash is not the answer to managing volatility “

 

4.  Where are capital flowing into?

What is driving the market? The real economy? The financial markets?

Portfolio Advisory

James Cheo:  With interest rates at zero and the continuation of easy central bank liquidity, the search for yield is going to intensify.  For 2021, capital is going to flow into asset classes that provide growth and income.

From this perspective, we continue to see many interesting investment opportunities in emerging markets in Asia, which we prefer over other emerging markets.  China’s dual circulation strategy, focused on measures to boost domestic demand, technological innovation and market liberalisation should boost growth, give long term direction to investors and lead to fund flows into the region.

” Capital will flow into asset classes that provide growth and income “

 

5. Any advice for investment managers, advisors, professional investors and HNW investors for 2021 and beyond on managing assets and investments? 
Managing Assets

James Cheo:   2021 is going to be a pivotal year for sustainability.  For 2021 and beyond, investors have to future-proof their portfolios by investing in businesses that are part of both the digital and sustainability revolution.

And in our view, their performance will be better if they aren’t just part of it, but if they lead it.  This is because such businesses that rank best-in-class will be earlier to identify the ESG-related threats and opportunities, and be more likely to have the talent to adapt to them.

For investors, sustainability not only matters because it is a strong and durable trend, but also because 2021 should be a pivotal moment for sustainable investing, due to strong government commitments, rapid technological advances in this area, and the major expansion in investment options.

” 2021 is going to be a pivotal year for sustainability “

 

Thank you James Cheo for sharing your valuable insights on the economy, capital markets & investment outlook for 2021.

 

Related:

 

James Cheo, Chief Investment Officer (CIO) of Southeast Asia at HSBC Private Banking & Wealth Management
James Cheo, Chief Investment Officer of Southeast Asia at HSBC Private Banking & Wealth Management

James Cheo is the Chief Investment Officer (CIO) of Southeast Asia at HSBC Private Banking and Wealth Management based in Singapore.  James spearheads the development of product strategies across all asset classes for clients in Southeast Asia and have more than 15 years of portfolio strategy, asset allocation and research experience.

Prior to his role as Chief Investment Officer of Southeast Asia at HSBC Private Banking & Wealth Management, he was the Senior Investment Strategist at Bank of Singapore, and similar role at Barclays and Kazim Asset Management.  Between 2004 to 2008, James served as Senior Economist at Monetary Authority of Singapore (MAS), where he was part of the team that prescribed policy actions for Singapore during the 2008 Global Financial Crisis.

 

About HSBC Private Banking

As part of the HSBC Group, one of the world’s largest banking and financial services organisations, HSBC Private Banking seeks to be the leading international private bank for business owners and their families. It provides clients with wealth, business and family succession solutions in the largest and fastest growing markets around the world. HSBC Private Banking is the marketing name for the private banking business conducted by the principal private banking subsidiaries of the HSBC Group.

The Hongkong and Shanghai Banking Corporation Limited is the founding member of the HSBC Group.  HSBC serves customers worldwide from offices in 64 countries and territories in its geographical regions: Europe, Asia, North America, Latin America, and Middle East and North Africa. North Africa. With assets of $2.95 trillion at 30th September 2020, HSBC is one of the world’s largest banking and financial services organisations.

Visit: HSBC Private Banking




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