Singapore: Citigroup Inc’s private banking arm is warning wealthy Asian clients that emerging markets are likely to suffer further losses in coming months, particularly in countries where political uncertainty is high.
The firm is urging clients to favour defensive sectors like healthcare, utilities and infrastructure, as well as keeping their holdings diversified, said Jennifer Tay, Asia-Pacific head of portfolio counselling for Citi Private Bank.
“For the next few months, anything that is emerging markets oriented, they would have a further beating, that is what we anticipate,” she told the Reuters Wealth Management Summit in Singapore.
“It doesn’t help that the geo-political situation in this area is also not great, Thailand and the situation there and Russia for example.”
The Singapore-based executive noted many emerging markets have heavy exposure to beaten-down commodity prices and that corporate failures are likely to increase across Asia as the global financial crisis, and its impact on access to credit, drives weaker firms to insolvency.
Asian and emerging markets and value-oriented funds have been the two worst recommendations the bank has made to clients in the past year, she said, adding one of its best call was to encourage them to cut commodity exposure about 4 months ago.
Dash to cash
Citi’s Asia Pacific wealth management unit, which includes Citi Private Bank, helps oversee more than $300 billion in assets. The private bank focuses on clients with a net worth of at least $10 million.
Tay said these clients, many of them self-made Asian entrepreneurs, have not been immune to the fear and panic that have gutted financial markets as investors react to the greatest financial crisis since the Great Depression.
She said the portfolios of clients who took a diversified approach were probably down about 10-15 percent this year. Clients who invested more aggressively in asset classes like currencies or in commodities only have fared worse.
In many cases they are now fleeing equities, commodities and currency bets, intent on preserving capital even at the risk of forfeiting yield.
“They are moving more into cash, partly to meet margin calls and partly they are afraid of what’s going to happen moving forward. So we have seen a lot of clients moving money into cash, near cash,” she said.
“Even deposits are questioned as to which institutions are actually guaranteeing the deposits. So that’s post-Lehman and post-AIG.”
She said much of that capital has gone into safe-haven U.S. Treasuries. Some clients had also put money into debt and preferred shares issues by Singapore’s DBS Group, United Overseas Bank and Oversea-Chinese Banking Corp
“They are still quite keen on the Singapore banks. They still view them as too big to fail or backed by the Singapore government to some extent,” she said.
Fasten your seatbelt
For Tay and other advisors at the private bank, much of the focus is now on ensuring clients don’t “throw the baby out with the bathwater” and maintain some exposure to equities to capture any potential rebound.
Most Asian stock markets rose slightly on Monday after policymakers around the world took increasingly bold steps to rescue the financial system, including guaranteeing bank deposits and taking stakes in banks.
Tay said the bank is keen on the healthcare sector because of its more defensive nature and has pointed clients to funds investing in firms like Japanese drugmakers Eisai Co, Takeda Pharmaceutical Co Ltd, and Shionogi and Co. Ltd.
She said utilities, despite steady cash flows that lead many to view then as a safer investment, have cheapened because of the stock market selloff. And even with a growing number of funds looking to invest in infrastructure, she said huge demand in Asia would ensure good opportunities.
Tay said she was optimistic enough about the prospect for an eventual rebound to have begun “nibbling” on investments other than cash in her own personal portfolio.
“You need to just put on your seatbelt and say this is going to take a while,” she said.
“You are seeing the worst markets in 75 years or so. So you got to wait 75 years for another opportunity like this. So I definitely don’t want to be out of the market.”