By Jon Chivers, Head of Wealth, Retail Banking and Wealth Management HSBC Malaysia
2019 saw dramatic surges in both equities and bonds. Total returns on global bonds rose to 10.8 percent while global equities’ returns registered 26.6 percent. Big swings in markets caused by political events such as US-China trade tensions and Brexit favoured active investors with foresight, while central bank rate cuts rewarded protective, loyal investors with bond investments. Mere observers, with minimal participation in the unpredictable but up-trending markets, did miss some golden opportunities.
Looking ahead in 2020, investment banks are generally optimistic about equities, and point to the markets that are more solid in fundamentals. Malaysia’s economy is also projected to expand at a relatively moderate pace in the face of continued uncertainty and external headwinds. In bond markets, yield enhancement comes back into the equation as yields may remain at low levels.
Malaysian businesses are optimistic about the outlook in 2020, with 81 percent of Malaysian companies forecasting sales growth, mainly through improved productivity and entering new markets. The Gross Domestic Product growth in Malaysia is expected to be supported by infrastructure projects such as the Kuala Lumpur-Singapore High Speed Rail, Mass Rapid Transit Line 3 and the Penang Master Plan.
Robust domestic consumption and private sector activity is driving economic growth with Malaysia forecast to enter the ranks of high-income countries, as defined by the World Bank, by 2024. However, private consumption is moderating after years of strong performance. As such, the outlook on the Malaysian market remains defensive at this stage.
With these key points in mind, here’s how three investors with different personalities can look at creating wealth in a risk-controlled manner in 2020:
Observers: Monthly investment plans for careful thinkers
- Observers always think carefully. Facts are essential to their decision-making process, so fundamental factors are critical when it comes to investment. Noises in the market as well as looming economic outlooks this year may have affected their thoughts and made them hesitant about investing.
- In 2020, with central banks, including the US Federal Reserve System and the European Central Bank, lowering interest rates in the second half of 2019 and with improved economic data seen so far in early 2020, the belief that the global economy might be running into recession has subsided. The possibility of a US recession is now lower at 23.6 percent by December 2020 compare to 29 percent in October 2019, according to the Federal Reserve Bank of New York, as at 20 January 2020. After flat earnings growth in 2019, corporate earnings of US equities are expected to rebound in 2020 with a 4.4 percent increase for 1Q 2020, to accelerate to 9.6 percent for the full year. The trend is on the way up despite some volatility.
- Careful minds like observers are more comfortable investing step-by-step. A monthly investment plan is a systematic way to invest regularly in equities and funds. If they are looking for returns that synchronise with market performance, having a monthly investment plan enables wealth to grow in the long run, in a balanced way.
Protective loyalists: Reconsider the source of investment income
- Protective loyalists always show tolerance and hope for stability. They stand by their investments no matter how the market moves. As dividend-seekers, they should have been enjoying the stable income if they invested in some bonds or bond funds last year. However, as central banks gradually lowered their rates, bond yields have fallen. This create difficulties in earning high income from bonds. Distribution yields of bond funds are also under pressure. As such, it would not be unwise to other sources of investment income.
Active achievers: Downside protection is beneficial
- With the courage to maximise returns by reaching out for new things, achievers are decisive. The US-China trade tensions which created volatility in markets last year are expected to remain as the main source of volatility in the year of the US presidential election. In times of volatility, any downside protection leaves active achievers with more breathing space to navigate any adverse environment.