Supporting clients in uncertain times

Excerpt extracted from an article published in The Business Times on 2 March 2022.

Supply chain bottlenecks and inflationary pressures have buffeted markets and economies over the past year, pushing some investors into safe havens. Yet, high-risk alternative assets such as cryptocurrencies are also gaining ground.

Vincent Magnenat, Limited Partner and Asia CEO, tells The Business Times in a roundtable discussion, on how private banks are helping their clients to safely navigate the current volatile markets by actively managing and protecting their investments.

The Business Times: What major client expectations do you foresee for 2022? Where will you be focusing more of your resources this year?

Vincent Magnenat: We recently engaged over 600 high and UHNW individuals across Asia in a study we conducted with our 6 strategic alliances and close partners. The outstanding finding we observed was clients' request for advice and guidance regarding their investments in the year ahead. This stood out across all categories (age and gender) of high and UHNW individuals and across all 8 markets.

There is a high level of nervousness among investors in these times of instability, volatility and divergence, with 1 in 5 of our clients acknowledging that they "feel lost" and would appreciate more guidance in navigating these difficult times. We also see an overwhelming majority of investors preferring to delegate the management of their portfolios to their banks. Banks such as Lombard Odier that have a proven track record of stability and can truly adapt their offerings to meet client's individual needs will be winners.

The pandemic has accelerated a lot of trends, and there are 2 key dimensions that we are focused on this year: recovery and sustainability.

As we hopefully turn the corner on the worst of the pandemic, we see an opportunity for investors to examine their allocations based on their risk profiles. Businesses that take measures to move towards a carbon net zero position will clearly be better positioned to capture better opportunities in the future and we can help them with this.

Read more about trends and changes among Asia's HNWIs.

The Business Times: This past year, cryptocurrencies have gained in popularity among high net worth investors. What demands are you seeing from your investors for such alternative investments, and how are you responding?

Vincent Magnenat: Interest has always remained strong overall but it has evolved rapidly over the last few months in an environment much less supportive of cryptocurrencies (lower liquidity/higher regulation). Clients are moving back to the theme of decentralised finance, involving markets' infrastructures, exchanges and also revised business models for long-established financial/payment companies.

This evolution ties in quite nicely with our own offering as we systematically stayed away from crypto assets' dealings, investments and custody given their excessive levels of market/operational/fraud risks while we have been an early player in the theme of decentralised finance and new technology payments, credit and insurance solutions through a dedicated equity strategy.

Read more about Asia CIO 2022 Macro Outlook.

The Business Times: Setting Covid-19 aside, what event is expected to have the greatest impact on portfolios this year, and how do you recommend clients protect themselves?

Vincent Magnenat: In the absence of a full-blown direct conflict between the North Atlantic Treaty Organization and Russia in Eastern Europe, which we continue to consider as unlikely, there is little doubt that the key and probably only serious mover for markets this year will be the Fed's monetary policy (as it has been already since the start of this year). Markets are now pricing in more than 5 hikes of Fed funds rates in 2022. While likely persistent strong data might maintain an upward pressure on those expectations over the next few weeks, we suspect they have now moved beyond what the Fed will actually deliver by the end of this year.

With underlying growth decelerating strongly later in 2022, the markets' worries will shift rapidly from inflation to recession fears. In the meantime, if the Fed has already tightened significantly, the perspective of a major policy mistake - already partially priced in by bond markets - would trigger an ultimate sell-off in developed stock markets. The good news is that capitulation would remain short-lived as the Fed will not have other alternatives than to reverse again the course of its policy. In the meantime, in our conviction portfolios, we have cut our exposures to US equities at the end of 2021 in favour of markets under strong reflationary policies (China, Japan) or cash that we intend to deploy only if and when this ultimate capitulation will take place.