Recovering economy, reinforcing Chinese equity opportunities
Looking at China’s economic recovery and the beneficiaries in the long term.
It’s customary to give red envelopes during the Lunar New Year. Commonly called “hongbao” in Mandarin, “lai see” in Cantonese or “ang pow” in Singapore, these red envelopes containing “lucky money” are generally given out by married adults.
While the tradition is focused on children, they could also be given to the elderly, other relatives, friends or colleagues as tokens of good fortune and blessing.
Making your “lucky money” work harder
Some could spend their red envelope money on their favourite things, while others may save it or even donate it towards a worthy cause.
This could be a chance for the younger ones to learn about money management. Saving for the future instead of spending it straight away could be a good start.
Or better still, one could make their “lucky money” work even harder by investing, and reinvesting the dividends earned over a long-term horizon1. The power of compounding could greatly enhance potential returns, as the chart2 shows.
In addition, time is on the side of the younger ones, and they could further optimise the power of compounding by considering different ways of investing.
The power of compounding in equity investing
There are different types of equities across regions and industry sectors. Based on their investment objectives and risk appetite, investors seeking capital growth opportunities may consider investing in fast-growing markets or sectors1.
On the other hand, those seeking potential income opportunities may consider high-dividend paying equities1. Still, within a specific equity sector, stock selection backed by rigorous research is key.
Our equity view:
Currently, our Multi-Asset Solutions (MAS) team keeps a preference for US stocks1 but notes that they are waning a little at the margin. Still, should global economic data pick up stronger than our forecast, emerging market equities could likely be a beneficiary, alongside other more cyclical regions, such as Japan. (Read more: Make equities a partner in your multi-asset journey)
Expand income potential with flexible fixed income investing
Fixed income1 could also play a role as it covers a diverse3 spectrum of bond sectors across geographies, offering a wide range of income sources. Some bond sectors also have lower correlation to equities and could help build portfolio resilience. (Read more: 1Q 2020 bonds: where we see opportunities)
Our fixed income view:
Within fixed income, our MAS team believes that current fundamentals remain supportive of high-yield (HY) bonds4, with sound corporate balance sheets and stable leverage. On the technical front, positive flows and below average net issuance also support HY bonds. Nonetheless, we are mindful of the increase in valuation and risks in a late cycle, and thus we have been investing selectively with a quality bias.
To manage the risk premium of HY bonds, asset-backed securities (ABS) 1 and mortgage-backed securities (MBS) 1 could be considered because they tend to have lower correlation to HY bonds, as well as equities. Unlike HY bonds, which are more closely tied to corporate balance sheets, ABS and MBS optimise the balance sheets of consumers because the underlying assets are mostly loans extended to individuals.
Explore our investment solutions
As you welcome the Year of the Rat, it’s a good time to have a rethink about money management, and how to make the “lucky money” work harder to achieve your financial goals.