With the worst behind us in 2021 and the first quarter of 2022 well underway, many economies are already in the endemic phase of Covid-19.
Let’s take a quick recap of the market performance in Q4 2021. The fourth quarter of 2021 saw central governments play a delicate balancing act of managing inflation, and concerns over tightening monetary policies lingered. To add to that, a new, more transmissible variant of the virus emerged - Omicron – which temporary halted rallies.
Looking at China, the Hang Seng China Enterprise Index (HSCEI), which acts as the offshore China index, continued its downward trend, declining 5.6% in Q4 2021. From a peak in February 2021, the HSCEI gave up more than 30%, making it one of the worst performing markets that year.
Meanwhile, the Malaysian equity market remained relatively flat, with marginal upside.
Global markets growth in 2021
Source: Lipper Investment Manager as at 31 December 2021
A broad asset view
Here’s what’s been happening Q1 2022 and some ideas to help you strategise the diversification of your portfolio. RHB maintains our overweight outlook view on equities and alternative assets, such as REITs, while we are neutral on fixed income and underweight in cash.
Tighter monetary policies from the largest economies, while still remaining accommodative, are expected to impact the global economy. Central banks of emerging markets have begun the tightening process, and Malaysia could follow suit to curb inflation. Overall, growth in the equities space has been slower compared to 2021, although the global growth outlook is still solid enough to warrant continued optimism.
Earnings remain strong as companies ease their supply bottlenecks and push to meet rising demand for products and services. A few factors to look out for include inflation and the Fed’s monetary policy, continued supply chain disruptions, risks within the China market and any future Covid variants.
While inflation is a valid concern and a source of volatility, the flip side is that it also makes stocks an attractive option among major asset classes. Within equites, we prefer the developed markets over emerging markets, so for now, any dip in the global equity market is a good chance for bargain shopping.
The Fed has taken on a more moderate policy for 2022, although speculation still surrounds its expected move to increase interest rates in March. However, from a broader view, the monetary policy remains accommodative to growth. Historically, it has been shown that any weakness in the equity market following the first hike will be reversed within the following three months.
Recovery in the global equity market has been more synchronized, and China has shown more stabilisation. There is a potential for moderate growth recovery from mid-2022 onwards.
Following the fund flow
Let’s look at the fund flows of the previous quarter (Q4 2021).
When tax incentives for money market funds ended, most corporate investors swapped over into bond funds. Technology stocks and global equities took the cake, bringing in the bulk of inflows. This was helped by investors who took profit from their technology investments in Q3 and poured the money back in to take advantage of the lower price levels. Inflows to China-related equity funds subsided, compared to the previous quarter. Investors are expected to take a wait-and-see approach before re-entering China. For Malaysia, investors were still unconvinced, with net outflows exceeding inflows in the last quarter of 2021, compared to the previous quarter.
Top inflows and outflows in Q4 2021
Source: Lipper Investment Manager as of 31 December 2021
While certain asset classes may perform better than others at different times, it’s always preferable to diversify your investments to avoid taking a huge hit should the markets suddenly take a turn. Sediakan payung sebelum hujan, as they say.
These are some options to help you diversify your investments into a broader range of asset classes.
Mixed assets and fixed income
In Q4 2021, emerging market assets showed marginal movement, with the exception of global mixed asset funds such as RHB Global Shariah Dynamic Income, which rode on the performance of the US equity market. That being said, mixed asset and fixed income funds should remain a key component of a portfolio, as these can cushion volatility. These also tend
Investors with more experience can consider investing in the Malaysian market through funds like Affin Hwang Select Balanced or Asian mixed asset funds like RHB Asian Income.
For those that prefer to include a fund that provides a regular income over a long term horizon, Principal Lifetime Bond is perfect. The fund aims for long term capital appreciation through investments primarily in Malaysian bonds.
Fund performance for Affin Hwang Select Balanced, RHB Asian Income, RHB Global Shariah Dynamic Income and Principal Lifetime Bond
Source: Lipper Investment Manager as at 31 December 2021
Real estate, the other cushion
Besides fixed income or mixed asset funds, investors can consider REITs as an alternative cushion to add to their portfolio. REITs offer both the benefit of capital gains and an income payment via investments in real estate.
The outlook on real estate is positive. Companies have returned to the office space, or are adopting a hybrid approach. Co-working spaces are increasing in popularity. Shopping malls, which were affected by the various movement restriction orders, are coming back to life, with many repurposed to provide experiential shopping (entertainment, health and wellness, F&B) instead of straightforward brick-and-mortar shops. The boom in e-commerce, tied to an improving economy and increased income, has resulted in the uptake of logistics-related properties such as warehouses and distribution hubs.
REITS offer a good opportunity to ride on rising inflation (which we should see soon), as rental yields are tied to inflation rates.
Manulife Shariah Global REIT has done well over the past two years. As at 31 December 2021, the fund is up 34.41%. The fund is suitable for Investors who wish to have investment exposure through a diversified portfolio of Islamic REITs globally, seek regular income and potential capital appreciation over medium to long term and prefer shariah compliant investments.
Another similar option is Manulife Investment Asia-Pacific REIT, which is more focused on real estate in emerging markets. The fund is down slightly by 1.16% as at 31 December 2021 due to the slower vaccination rates in emerging economies
Investing in a new lifestyle
Millennials and Gen-Z are an interesting lot. Their habits and lifestyle are a reflection of the changing times. The way they work, communicate, shop and entertain themselves is all centred around the internet (online shopping, video streaming, online meetings, health and wellness), and everyone else followed suit during the lockdown.
Principal Global Millennial Fund invests in companies that benefit from their spending habits, in line with the recovering consumer economy. These habits are expected to extend beyond Covid-19.
The fund aims to achieve capital appreciation over the medium to long term through investments primarily in a portfolio of global equities. This is suited to investors who are willing to take moderate risks for potentially moderate returns over the medium to long term.
TA Asia Absolute Alpha invests in companies that benefit from the region’s economic recovery. Its mandate allows the fund to invest in global stocks that benefit from the Asian recovery story. As at December 2021, the fund’s main exposure is in Asian equities, but this could extend to the US and European markets. This is an absolute return fund and over the past year, has garnered a 10.01% return.
Investing ethically
The effects of climate change, compounded by the pandemic, have highlighted the urgency for immediate action in the area of sustainability. The issues of societal wellbeing and sustainable development have taken centre stage in all social, political and business affairs. Environmental and social responsibility go hand in hand with corporate profitability, and since the pandemic, Environmental, Social, and Governance (ESG) values have become a central component to all investment decision-making processes.
RHB established the RHB Sustainability Framework in 2019, which outlines and embeds sustainable practices into its business and operations in line with our vision of Building a Sustainable Future.
With this aim, RHB launched the RHB Climate Change Solution Fund in January 2022, which acts as a feeder fund for JP Morgan Climate Change Solutions Fund. This fund provides the opportunity to invest in forward-thinking companies that develop and scale solutions to address the drivers of climate change.
Key Climate Change Solutions
Source: J.P. Morgan Asset Management (“JPMAM”), RHB Asset Management Sdn Bhd (“RHBAM”), January 2022.
The fund is aimed at investors who are willing to take on the risk of investing in developing technologies to make long term capital gains. Overall, it’s a good addition to an existing portfolio as a means of diversification.
Investors who prefer a diversified portfolio of global equity funds with ESG integration may consider RHB i-Global Sustainable Disruptors. Since inception (6 January 2021) the fund is up by 8%. This fund is managed by RHB Islamic International Asset Management with JPMorgan Asset Management (Singapore) acting as the investment adviser.
Like ESG investing, shariah-compliant investing adheres to the principles of socially responsible investing.
Despite the challenging investment environment in the Chinese equity market in 2021, RHB Shariah China Focus Fund gained 12.64%, outperforming the broader China onshore index (-3.76%). We saw some stability in the Chinese equity market in the first month of 2022, and we continue to suggest that investors consider as an option to diversify into emerging markets, including China. The fund focuses its investments into the China A shares market. The investment adviser for the fund, China AMC, has highlighted a potential upside in the Chinese technology and consumer sectors.
RHB Shariah China Focus Fund vs FTSE China
Source: Lipper Investment Manager as at 31 December 2021
Those who want to have their feet in both equites and fixed income and prefer to let their fund manager determine the allocation may find a mixed asset fund to their liking. RHB Global Shariah Dynamic Income fund invests into global equities and fixed income instruments, and adheres to Shariah investing principles. The fund is managed by RHB Islamic International Asset Management and advise by Schroder Investment Management (Singapore) Limited. Since inception (17 January 2020), the fund has generated 14.80% in returns to investors.
If any of the above interest you, RHB Bank’s Relationship Managers and Investment Specialists are ready to help you diversify your portfolio according to your risk profile and long term investment goals. Contact your nearest RHB Branch today.
Disclaimer:
This article is strictly private, confidential and personal to its recipients and should not be copied, distributed or reproduced in whole or in part, nor passed to any third party, without obtaining prior permission of RHB Bank Sdn Bhd (“RHB”).
This article has been prepared by RHB and is solely for your information only. It may not be copied, published, circulated, reproduced or distributed in whole or part to any person without the prior written consent of RHB. In preparing this article, RHB has relied upon and assumed the accuracy and completeness of all information available from public sources or which was otherwise reviewed by RHB. Accordingly, whilst we have taken all reasonable care to ensure that the information contained in this presentation is not untrue or misleading at the time of publication, we cannot guarantee its accuracy or completeness and make no representation or warranty (whether expressed or implied) and accept no responsibility or liability for its accuracy or completeness. You should not act on the information contained in this podcast without first independently verifying its contents.
Any opinion, management forecast or estimate contained in this article is based on information available as the date of this podcast and are subject to change without notice. It does not constitute an offer or solicitation to deal in units of any RHB fund and does not have regard to the specific investment objectives, financial situation or the particular needs of any specific person who may receive this. Investors may wish to seek advice from a financial adviser/unit trust consultant before purchasing units of any funds. In the event that the investor chooses not to seek advice from a financial adviser/unit trust consultant, he should consider whether the fund in question is suitable for him. Past performance of the fund or the manager, and any economic and market trends or forecast, are not necessarily indicative of the future or likely performance of the fund or the manager. The value of units in the fund, and the income accruing to the units, if any, from the fund, may fall as well as rise.
A Product Highlights Sheet (“PHS”) highlighting the key features and risks of the Principal Lifetime Enhanced Bond Fund dated 25 June 2021, Global Shariah Dynamic Income dated 17 January 2020, Affin Hwang Select Balanced dated 20 December 2019 and Asian Income Fund dated 30 September 2019, Affin Hwang Select Opportunity Fund dated 18 July 2017, Principal Lifetime Bond Fund dated 25 June 2021, RHB Shariah China Focus Fund dated 8 March 2021, Manulife Asia-Pacific REIT Fund dated 3 July 2017, Manulife Shariah Global REIT Fund dated 10 February 2021, Principle Global Millennial Equity Fund dated 1 November 2021, TA Asia Absolute Alpha Fund dated 4 January 2021, RHB Climate Change Solutions Fund dated 13 January 2022 (“Fund”) is available and investors have the right to request for a PHS. Investors are advised to obtain, read and understand the PHS and the contents of the Information Memorandum and its supplementary (ies) (if) (“the Information Memorandum”) before investing. The Information Memorandum has been registered with the Securities Commission Malaysia (“SC”) who takes no responsibility for its contents. The SC’s approval and authorization of the registration of the Information Memorandum should not be taken to indicate that the SC has recommended or endorsed the Fund. Amongst others, investors should consider the fees and charges involved. Investors should also note that the price of units and distributions payable, if any, may go down as well as up. Where a distribution is declared, investors are advised that following the issue of additional units/distribution, the NAV per unit will be reduced from cum distribution NAV to ex-distribution NAV. Any issue of units to which the Information Memorandum relates will only be made on receipt of a form of application referred to in the Information Memorandum. The printed copy of prospectus and Product Highlight Sheet is available at RHB branches/Premier Centre and investors have the right to request for a Product Highlight Sheet. Investors are advised that investments are subject to investment risk and that there can be no guarantee that any investment objectives will be achieved. Investors should conduct their own assessment before investing and seek professional advice, where necessary and should not make an investment decision based solely on this update.
A Product Highlights Sheet (“PHS”) highlighting the key features and risks of the Principal Lifetime Enhanced Bond Fund dated 25 June 2021, Global Shariah Dynamic Income dated 17 January 2020, Affin Hwang Select Balanced dated 20 December 2019 and Asian Income Fund dated 30 September 2019, RHB i Global Sustainable Disruptor Fund dated 6 January 2021, RHB Asia Sustainable Leaders Fund, Affin Hwang Select Opportunity Fund dated 20 December 2019, TA South East Asia Fund dated 1 June 2021, RHB Shariah China Focus Fund dated 8 March 2021, RHB Global Artificial Intelligence dated 12 November 2018 Fund (“Fund”) is available and investors have the right to request for a PHS. Investors are advised to obtain, read and understand the PHS and the contents of the Information Memorandum and its supplementary (ies) (if) (“the Information Memorandum”) before investing. The Information Memorandum has been registered with the Securities Commission Malaysia (“SC”) who takes no responsibility for its contents. The SC’s approval and authorization of the registration of the Information Memorandum should not be taken to indicate that the SC has recommended or endorsed the Fund. Amongst others, investors should consider the fees and charges involved. Investors should also note that the price of units and distributions payable, if any, may go down as well as up. Where a distribution is declared, investors are advised that following the issue of additional units/distribution, the NAV per unit will be reduced from cum distribution NAV to ex-distribution NAV. Any issue of units to which the Information Memorandum relates will only be made on receipt of a form of application referred to in the Information Memorandum. The printed copy of prospectus and Product Highlight Sheet is available at RHB branches/Premier Centre and investors have the right to request for a Product Highlight Sheet. Investors are advised that investments are subject to investment risk and that there can be no guarantee that any investment objectives will be achieved. Investors should conduct their own assessment before investing and seek professional advice, where necessary and should not make an investment decision based solely on this update.
The Manager wishes to highlight the specific risks of the Principal Lifetime Enhanced Bond Fund are Returns not guaranteed, Market risk, Inflation risk, Manager risk, Financing risk, Credit and default risk, country risk, currency risk, interest rate risk, Company specific risk, risk associate with investment in warrants and/or options, Risk associated with investment in structured products, Risk associated with investment derivative, Risk of investing in emerging markets. The specific risks of Global Shariah Dynamic Income are Management Risk, Redemption Risk, Loan/financing risk, Risk of non-compliance, Returns are not guaranteed, Risk of Termination of the Fund, Inflation Risk, Investment Derivatives Risk, Shariah-compliant Equity Related Securities Risk, Market risk, Credit/Default risk, Currency Risk, Profit rate risk, Country risk, Reclassification of Shariah status risk, Unrated Shariah-complaint Securities Risk, Liquidity Risk, Shariah-compliant Equity Risk, Regulatory Risk, Risk of Use of Rating Agencies and Other Third Parties, Market Risk in Emerging and Less Developed Markets. The specific risks of Affin Hwang Select Balanced Fund are Market risk, Fund Management Risk, Performance risk, Inflation risk, Liquidity Risk, Operational Risk, Loan financing risk, Stock specific risk, Credit and default risk, Interest rate risk, Warrants investment risk, Country risk, Currency risk, Regulatory Risk. The specific risks of Asian Income Fund are Market risk in Asia, Credit Risk, Investment grade, below investment grade and unrated debt securities risk, Risks relating to distributions, Emerging markets and frontier, Derivatives risk. The specific risks of Manulife Asia-Pacific REIT Fund are Fund Management Risk, Liquidity Risk, Market or Price Risk, Timing Risk, Company/Stock Specific Risk, Interest Rate Risk, Inflation Risk and Credit Risk. The specific risks of Manulife Shariah Global REIT Fund are Market Risk, Manager’s Risk, Liquidity Risk, Stock Specific Risk, Risk Associated with Investments in REITs, Reclassification of Shariah Status Risk, Country Risk, Currency Risk, Taxation Risk and Risk Considerations for investing in Islamic Hedging Instruments. The specific risks of Principal Global Millennial Equity Fund are Stock Specific Risk, Country Risk, Liquidity Risk, Currency Risk and Risk of investing in Emerging markets. The specific risks of TA Asia Absolute Alpha Fund are External Investment Manager’s Risk, Equity and Equity-Related Securities Risk, Financial Derivative Instruments Risk, Currency Risk, Country Risk, Liquidity Risk, Concentration Risk, Risk of investing in emerging and less developed markets, Political and Economic Risk, Small Capitalisation Companies Risk, Settlement Risk, IPO Securities Risk, Counterparty Risk. The specific risks of the RHB Climate Change Solutions Fund are Management risk, Liquidity risk, Currency risk, Country risk, Interest Rate risk and other general risks are elaborated in the Information Memorandum. The specific risks of RHB Shariah China Focus Fund are Country Risk, Currency Risk, Market Risk, Particular Security Risk, Reclassification of Shariah Status Risk. The specific risks of RHB Global Artificial Intelligence are General market risk, Currency risk, Company specific risk, Volatility risk, Emerging market risk, Liquidity risk, Concentration Risk, Derivatives risk and other general risks are elaborated in the Information Memorandum.
This article has not been reviewed by the Securities Commission Malaysia (SC).
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