You may recall that in March of this year a team of fund
managers from far corners of the globe came to Bali to meet
our group’s clients and give their views on where they
expected the world’s markets to go. The same experts
are on the road again, but this time for Indonesia it was
Jakarta’s turn. Since what they discussed is of equal
value to all expats and international investors I will share
their latest views with readers.
Asia to shine among stock markets
The speakers were not enthused about short term prospects
for the US or European stock markets. They were unanimous
however in believing that the strongest growth over the next
year is likely to be in Asia. One fund manager is increasing
his Asian weighting from 4% to 17%. Japan could also be on
the way out of its long period in the doldrums now that reform
is more likely under Koizumi’s new mandate.
Bonds not in favour
Bonds are generally considered sound and secure investments
that should be part of everyone’s portfolio. If you
have a company pension scheme, for example, you will probably
find your fund has a very large holding in bonds. Not surprising
since they provide a high degree of security and, if needed,
a steady income stream. But in times of rising interest rates
and inflation, as we are seeing now, capital values can fall.
A few weeks ago there was heavy selling of mutual funds in
Indonesia. These funds were invested in bonds which fell sharply
in value when Rupiah interest rates rose. This surprised many
investors who did not realize that a fixed interest fund can
fall in value. The best time to go into bonds is when interest
rates are falling or are expected to fall.
Currencies – US Dollar looking good for the short term
The resilience of the US economy, coupled with the prospect
that interest rates will continue to rise, is giving a short
term boost to the US Dollar in relation to other major currencies.
Twelve months from now, however, the trend could be reversed
again unless the US can bring its excessive borrowing and
spending under control. The British Pound could be entering
a period of weakness as growth slows down. The Australian
Dollar may also drift down against the USD but could prove
more resilient due to its strong position as an exporter to
Asia, particularly China. The likely movement of the Rupiah
was not discussed.
Residential property
As interest rates rise in most western countries the impact
is being felt on the residential property market. Prices are
generally expected to fall, although the US property market
has proved surprisingly resilient and has in fact helped to
keep the US economy buoyant. The Australian market is expected
to fall by around 20% although the speaker could not say over
what period of time.
Other asset classes
Speakers again emphasized the need for diversity. Despite
slowing economies stocks and hedge funds were preferred to
bonds at this point in time. Hedge funds were a solid option
even if returns of late have not matched those of previous
years. Gold was still seen as a good investment. One manager
was adding traded endowment policy funds to his portfolio.
TEPs as they are called have been out of favour for a while
but they still offer good long term value.
How certain are the predictions?
Investing is not a precise science. What we hear from the
experts is the likely scenario given the facts and data that
we have today. If there are no major changes then the predictions
are likely to be reasonably accurate, as we have seen from
previous visits from the experts. But things could be different
if there were upsets such as a major flare-up in the Middle
East or another sharp rise in the price of oil. For this reason
investors must always be prepared for the unexpected. The
best way to be prepared is to have a diverse basket of assets.
It is very unlikely that all assets would fall at the same
time. More often, as one asset falls, another rises. For example,
if the price of oil rises too quickly, stock markets fall
but if you have a holding in energy and gold that holding
would normally rise in value. Cash can give a better return
than property when interest rates are high and property values
are falling – and so on. No single asset can be hailed
as the best at all times. -Apart perhaps from your own ability
and efforts. This means we should also be investing in our
own learning and training. But I digress!
Colin Bloodworth is a senior adviser with Financial Partners
International. The opinions expressed are his own. If you
have any questions regarding personal finance you may contact
him at 021 520 8099 or colin.bloodworth@financial-partners.biz
