Our mentor Ray is a bit under the weather, so to speak, living in HK. So here I am again writing on his behalf.
I take the opportunity to share my blog which you may find informative too.
Tonight I attended a UBS cocktail followed by a presentation at the ballroom of the Ritz-Carlton, Singapore. The buffet spread was good but being conscious of my weight, I ate sparingly with a swig of red wine. I hardly know the crowd as I mentioned to one guest: these days the young are the ultra high net worth clients! But one young lady told me she was representing her mother. Still, I am sure there are just as many young as old clients of ultra high net worth among the crowd, numbering about 500 when seated at the ballroom.
Two speakers of UBS flew in : Andreas Hofert from Switzerland and Yonghao Pu from HK. They both paint a cautionary tale for 2011 for both developed and emerging markets.
Mr Pu was very humourous in his presentation: digging at Singapore eg: Singapore wants mainland Chinese money to be spent in Singapore, in luxury goods and especially at the casinos. The Chinese with money love Singapore for its good infra-structure and clean air but HK has more ‘life’ and this poses a dilemma where to invest in a second home!
Another dig was at the world accusing the US, Western countries , Tokyo of printing more money; but no finger was pointed at China which was also printing money like the others.
The best joke was about China prohibiting married couples from buying a second property on loan ; the smart ones ‘pretend to be divorced’ to circumvent this rule and to buy a second property on loan! The audience was in stitches.
Now to the serious notes.
Views By Andres Hofert:
Deflationists camp stress points to the lingering credit crunch from stressed financial sectors, the conspicuous slack in economic activity due to rising unemployment.
The inflationists camp stresses the impact on prices of surging government debt and overactive money-printing.
Both scenarios present opportunities and risks, and it is vital to understand which asset classes tend to outperform under each condition.
One can say that an investment that is positive in an inflationary environment is negative during deflation.
Those who expect inflation are best to stay with consumer-discretionary and capital-goods stocks, inflation-linked bonds and the euro.
Those expecting deflation will benefit from healthcare, energy and insurance stocks, nominal government bonds, the dollar and the yen.
Gold should prove resilient either way, given its status as an alternative currency.
Against this backdrop, global investors should diversify, as not all markets and regions experience the same level of inflation.
Investors in the West may want to invest in emerging markets in Asia, which reflects inflationary trend.
Views by Yonghao Pu:
Both East and West can take advantage of this investment opportunity. Those who believe in deflation have sheltered in government bonds, while those in the inflation camp are venturing into risky assets eg stocks, gold and real estate.
He believes the more accurate scenario in the world is now in a ‘coflation’ period; developed markets suffer deflation and inflation, while emerging markets experience inflation.
Investment opportunities exist across the board with a clear bias towards emerging markets.
Real estate is most likely to perform best as it is the least affected by global factors. Favourable local conditions have a positive effect on property prices, and with low interest rates, investors in emerging markets are likely to channel funds from deposits to property.
Result: virtuous circle of rising asset prices reinforcing local inflation, and high inflation expectations spurring buying activity.
Emerging market stocks should also strive such as department stores and automakers and luxury goods companies.
Fixed-rate credits, will prove attractive amid falling government bond yields.
Growing emerging market demand does not translate to higher commodity prices eg crude oil. Some agricultural commodities have good prospects, eg gold, with its safe-haven status.
Selective currencies eg from China resists appreciation while that of India is more tolerant.
If inflation rises in emerging markets as deflation ends in the developed world, aggressive monetary tightening in both economic regions will follow.
This will lead to high borrowing costs and end the liquidity-driven asset-price inflation in emerging markets.
The Fed will probably raise rates when it sees an end to deflation.
This is the key development to watch out for.
IDKIT aka Ana