Interestingly, the last two “Years of the Pig – 1995 and 2007” – unfolded very differently.
December 1994 saw the birth of the internet, the beginning of the dot.com boom and one of the most pronounced bull markets in history. In contrast, no one needs reminding of the global financial crisis, which started unfolding in the spring of 2007 and resulted in the worst bear market investors had seen in decades.
So it doesn’t look like history is anything to go by in this case. Being in the Year of the Pig could be positive, or not. To me, 2019 will likely be a volatile year, but the good news is – volatility means opportunity.
After a relatively strong 2017 characterised by synchronised global growth, 2018 was a rough ride and hard to anticipate.
It started with markets reacting to US-China trade tensions, headlines like tech juggernaut Apple hitting USD1 trillion in market cap1 (a first for any US corporation), and yet - like most equities - it tumbled a bit. That’s how markets work – they ebb and flow.
Take for instance the S&P index which tracks the largest 500 US corporations. It grew 22% in 2017 but lost 4% last year.2
With macro and political uncertainties surrounding broader trade protectionism and Brexit lingering, volatility is likely to be a constant companion in 2019. Despite these challenges, fundamental indicators look solid and recession risk is modest in our view. However, we’re unlikely to see high single digit to double digit growth again as China, the second largest world economy, is transforming from high growth to quality growth.
China is undergoing a transition from investment to consumption-led growth. This means increasing domestic demand is expected to continue fueling China’s economic engine.
The government has also demonstrated continued opening up of capital markets like the expansion of onshore equity and bond market. This sets the stage for foreign investors to increasingly tap into the Chinese economy.
Our economic outlook for China remains positive in 2019. Government policies to stimulate growth look robust, with greater focus on stabilising the economy. An increased emphasis on more quality, sustainable growth bodes well for long term investors.
People born in the Year of the Pig are considered to be realistic. So following a realistic approach, valuations of Chinese assets seem very reasonable now compared to where they were a year ago.
Now if you wish to tap into the China growth opportunity but are cautious of volatility, you could consider a diversified multi-asset approach that is combining Chinese equities and bonds in a single portfolio. This way, you could capture the full opportunity set that China offers whilst balancing growth and stability.
To me it’s not that much about being bullish or bearish. It’s about accessing China in a way that suits your risk appetite. If you wish to have a smoother investment ride, then a balanced approach can help you achieve this and, as a result, you could enhance your risk-adjusted return.
Regardless of where or what you intend to invest in, at the end of the day, the most important thing is to have an investment plan.
Investors who identify the right strategy for their circumstances and take steps to protect their portfolios from short-term bouts of volatility will stand a better chance of coming out as winners in 2019.
As far as Asian investors are concerned, the diversification of investments remains crucial. More than ever, investors stand to gain by broadening their horizons beyond domestic markets or single asset classes. And remember, don’t just focus on the returns, but also consider the risk that you take to get that return.
I hope the Year of the Pig brings you prosperity and happiness.
A contribution piece by Puneet Chaddha, Chief Executive Officer & Head, South East Asia, HSBC Global Asset Management, first published in The Straits Times on 18th February 2019.