This month’s comment comes from Willem Sels. Willem Sels is the Global Chief Investment Officer, Private Banking and Wealth Management at HSBC. He is the Chairman of the Global Investment Committee and is responsible for developing the house view, asset allocation, thematic ideas and thought leadership pieces.

When we talk to our Asian clients, the discussion tends to centre around the short-term challenges and the long-term opportunities.

As both the US and European equity markets have been hitting new records and economic data have become more mixed, many Asian clients wonder what lies ahead in the coming months. They’re not alone: surveys show that institutional investors have very low conviction levels, and many have closed very popular cyclical and value-oriented consensus trades, going back to a more neutral positioning.

An unpredictable future and an uncertain market

The market seems to be waiting for more clarity on the economy and monetary policy. On the economy, our view is that we are in the mid-cycle stage. Historically, this is still a positive environment for equities, but the upside for stocks may slow. On monetary policy, Fed Chairman Powell’s speech at Jackson Hole confirmed that the Fed will take a very gradual approach to tapering and rate hikes will most likely only materialise in 2023.

Still, there is a lot of uncertainty around these topics, not least because of the resurgence of COVID-19 in many Asian countries and in the US. So it makes sense to build resilient portfolios: we advise clients to focus on quality stocks and take profit on some early cyclicals, like materials and industrials, as the reflation trade is fading.

We also like dividend-paying stocks – a favourite investment theme for our yield-seeking Asian clients. When companies raise their dividends, it’s a sign of their confidence in the future. This is the type of companies that we want to own when the cycle slows somewhat. More importantly, our clients look at dividends to supplement the income that they can get from bonds. The multi-year rally in bond markets has compressed the yields, so clients need to widen their search for yield to include dividend-paying stocks.

Long-term investment opportunities in technology

From a longer term perspective, we see two types of opportunities: First, investments related to the digital transformation which continues apace, enabled by innovations such as AI, 5G, automation, much increased computer power and very significant investment in R&D. China plans to upgrade its manufacturing sector and become self-sufficient in key technologies.

The long-term nature of the plan, and the strong commitment to these goals, give clients confidence that these investment themes are well supported. Hence, there remains strong interest in technology-related themes in spite of recent volatility induced by regulatory uncertainty.

Increased interest in ESG and sustainability

The other long-term trend generating strong client interest in Asia is sustainability. Many factors, including recent floods in China, the UN’s climate change report and governments’ increasingly detailed and ambitious climate plans, make this one of the most-discussed themes these days.

There’s a growing consensus that companies cannot avoid the climate agenda, and that those that adapt more quickly than others (by developing new products and services, or avoiding bad ESG-related publicity) will do better than others. So clients can do well while doing good. Our most popular ESG investment themes in Asia centre around China’s green revolution, climate change mitigation and adaptation, and sustainable healthcare.

So private investors will do well to remain invested in resilient portfolios in spite of the decline in short-term visibility. Sitting on cash isn’t a real alternative and the long-term opportunities remain too interesting to miss.

About Willem Sels

Willem Sels is the Global Chief Investment Officer, Private Banking and Wealth Management at HSBC. He is the Chairman of the Global Investment Committee and is responsible for developing the house view, asset allocation, thematic ideas and thought leadership pieces.

About The Lede

This article was originally published in The Lede, Transmission Private’s monthly newsletter that tracks the future of reputation management. Featuring interviews with leading private client advisers from the worlds of law, finance, and accountancy, sign up today to receive the newsletter in your inbox every month.