TheStar
KUALA LUMPUR: In the current macro- and micro-economic conditions, many wonder what kind of investments will still yield income.
Despite the gloomy global economic outlook, investors will still want to protect their capital against inflation and, if possible, generate positive returns for their investments.
At the Second Institutional Investor Series Seminar: Maximising Returns in Uncertain Times, organised by the Securities Industry Development Corp (SIDC) yesterday, the panel of speakers attempted to provide some perspectives.
SIDC chief executive officer John Zinkin said policy makers of emerging economies were finding it tough to take appropriate measures that would allow them to head off inflation while not allowing their currencies to appreciate unduly against the US dollar.
“This makes building portfolios and protecting asset value more challenging than ever,” he said in his opening speech.
Aberdeen Asset Management senior investment manager of global equities Jeremy Whitley said investors should be aware of the global factors while being prepared to invest in individual companies.
“Instead of asking where the bottom is, take a mid- to long-term (investment) perspective of five to seven years,” he said.
Roy Diao, managing director and head of client service for business development and marketing non-Japan Asia for BNP Paribas Investment Partners, suggested inflation-linked bonds (ILBs) as a measure to hedge against inflation.
He said the instrument performed best in a low-growth and high-inflation environment as an inflation rate coupon was attached to the bond. The return on the ILBs will be from the real yield, inflation accretion and capital gains/losses from the real yield movement.
As ILBs were not available in Malaysia, institutional funds with an international portion could consider putting part of their capital into foreign ILBs, Diao said.
The issuance of ILBs by central banks indicated that they were determined to control inflation, as they would have to pay more money based on the inflation rate coupon attached to the bond, if inflation were to escalate.
Meanwhile, Dr Hai Xin, head of Overlay Asset Management Asia Pacific, said investors could also use a currency pure alpha strategy to enhance yield of investments.
Pure alpha means treating currency as an asset class of its own and allowing fund managers to invest in which ever currency that has the best returns on investment.
Traditionally, fund managers use currency as a hedging measure to protect other forms of investments.
“If I didn’t have portfolio exposure in the Chinese market, I won’t consider buying renminbi. But, in pure alpha strategy, I would buy renminbi, even if I don’t have other exposure in the market, as long as I believe it would make money,” Hai said.
On the local investment landscape, Zinkin said investors usually preferred predictability.
“The political situation makes people wonder what’s going to happen next so they wait,” he said.
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