The year 2015 holds a lot of uncertainties for Malaysians. As it is, the rising cost of living and removal of fuel subsidies late last year have generated much concern in the nation. According to the Malaysian Institute of Economic Research, the economic outlook this year will likely be mixed due to the dip in crude oil prices. Then there is the implementation of the Goods and Services Tax (GST), which has come into effect in early April. The financial implications of the new taxation system has been widely discussed from many angles, but the full extent of its after-effects still remains to be seen. With all these factors to consider, the burning question when it comes to investing remains – is it better to buy or to sell in these volatile times?
Should investors buy or sell in 2015?
Danny Chang, Head of Product Management and Managed Investments, Wealth Management, Standard Chartered Bank Malaysia said now might be a good time to snap up equities. “The US Federal Reserve is expected to raise interest rates later this year. In the past three rate hike cycles, both Developed Markets (DM) and Emerging Markets (EM) equities tend to perform better in the months leading to a rate rise,” he said. “With the expectation of the first US Federal Reserve rate rise deferred until the end of 2015, the (current) climate remains supportive for global equities.” For those who are new to equities investing, Chang opined that now might be a good time to explore, especially in global equities, which provide significant exposure into DM equities in the US, Europe and Japan. “Investors should diversify their investments into multiple asset classes,” he said. “Don’t put all your eggs into one basket – spread your investments into different instruments that can generate both medium- and long-term returns. Look at asset classes, geographies or funds that you may not have considered before. Also, have some in cash and put aside an amount for equities based on your risk profile.”
What investments should we look out for in 2015?
According to Chang, global equities will continue to outperform bonds. “Within equities, we once again start the year with a preference for DM equities given the continued focus on supporting growth,” Chang said. “On country basis, we remain overweight on Europe (forex-hedged), Japan (forex-hedged), Thailand, Taiwan, India and China. We are bullish on US equities although this will likely move to being less supportive after the US rate hike. In relative terms, European equities is preferable to US equities. We also believe that investors, even those who are not focused on income generation, could benefit from a diversified income portfolio.
Are there any investments we should avoid?
The risk areas that investors should approach with carefully this year include commodities, Chang cautioned. “In our view, a largely unchanged demand outlook, still-high or growing inventories, and a modestly stronger USD will work against commodities in 2015. “Oil prices may weaken further before a supply response provides support. While this may be positive news for oil importers, larger producers and oil exporting nations may be impacted.” He also pointed out that although EM equities (including Asia) had historically performed well prior to the federal’s rate hike over the past three rate tightening cycles, investors should avoid excessive exposure this time around. “Market expectations of further delays in the first US interest rate hike provide opportunities for Asian equities. However, in 2015, the “right-sizing” of Asian equity exposure is critical as most Malaysian investors have a bias towards the region,” Chang explained.
Who should invest in what?
Some investors have inherently greater appetite for risk while others avoid risk completely. Chang offered some advice for both beginner and advanced investors:
- For beginner investors:
Stick with core investment holdings. Typically a simple global equity fund and/or global multi-asset income fund would provide sufficient diversity to participate into investment opportunities globally, notably in US, Europe and Japan equities. For new investors, the mode of entry may be via systematic investment technique to increase the probability of positive returns.
- For advanced investors:
In addition to adopting the strategy for investors that are just starting out, advanced investors should endeavor to add depth to their portfolio. This could be in the form of applying tactical investment opportunities that may arise from: – Diversifying their investments using different assets like bonds and covered strategy – Utilising different currencies to protect against unexpected currency vitality, and – Recognising opportunities in specific region or sectors.
When is the right time to start investing?
“Yesterday! By starting investing earlier in their lives, people will have a longer time to make their money work, thus increasing the potential for more returns.” He added that younger investors can also afford to take more risk as they have time and future earnings to make up for potential losses. However, Chang noted that unlike the 80s and 90s, the current interest rate level is close to an all-time low. In some years, the interest rates after inflation may even reach negative. Hence, ensuring your funds are put to work early would be a wise move. In general, if you have saved the equivalent of six months’ salary, you should start looking at investing, he said.
How can investors grow their money?
“By and large, Malaysian investors still prefer income-generating instruments, such as fixed deposit. In a low interest rate environment, bond yields can be unattractive and fixed deposit may not generate enough to counter the effect of inflation,” said Chang. To make your money work harder, Chang recommends setting aside an amount – depending on your risk appetite – to dabble in equities. “Consider global markets instead of limiting yourself to local markets. Speak to a personal financial advisor to learn about other strategies to widen your sources of income generation beyond traditional fixed deposit, such as multi-asset income strategy and foreign currency denominated bonds,” he said. Market volatility is normal, and as conventional wisdom says: “What goes up, must come down.” While investors tend to be wary during volatile times, choosing to stay invested can be a great option if you are confident in your strategy. The approach to take during all kinds of market movements is to be realistic. Have an investment plan, stick to it, and strike a comfortable balance between risk and return.
