#Market Strategy — 17.05.2019

Stay in May and Diversify Away: Asia Navigator, May 2019

Prashant Bhayani, CIO, Asia


We are happy to share, with this month’s Asia navigator for May 2019, an update, firstly, on global asset markets.

Markets performed much better-than-expected year-to-date with double-digit returns across most asset classes. In fact, if this was a fairytale like Cinderella, if you're hard-pressed to choose which market is the “fairest of them all” with China up 30%, US S&P up 17% and NASDAQ up 23%, year-to-date.

It’s gratifying, as if we reflect back on our 2019 investment themes, 7 out of 10 have double-digit returns, and 8 out of 10 ahead of their benchmarks year-to-date, against a very gloomy consensus back in January.

Called another FairyTale, but the Goldilocks environment of benign inflation and moderate growth has proved a tonic for markets. So what is the next chapter you should be considering as an investor?

We’re looking currently at volatility: it's actually near historic lows in equities, fixed income and FX. Hence, there is a little bit of complacency in markets currently.

We still expect greater than 3% global growth, and moderate inflation this year, but markets need to consolidate gains, and volatility could gradually rise. So what is our strategy currently?

In a nutshell, stay in May, and diversify away. Firstly we’d look at alternative strategies, we are overweight both macro and long-short strategies, these provide low correlation to market, and able investors to extend volatility and have firepower later in the year as markets gradually resume their rise upwards.

We’d also focus on non-traditional income sources as the correlation between bonds and equities are high, and also to give diversification potential. Finally, with volatility being very low, for clients that have already overweight risk assets, hedging securities are cheap and easy to implement.

To conclude, like Cinderella we’d advise investors to find the strategy that gives them both the diversification potential to extend market ability and to take advantage of the market context as we progress through the year. Thank you.