The trade dispute between the US and China and slowing global growth remain key concerns for Tai Hui, Hong Kong-based strategist at JP Morgan Asset Management.
Global growth is under pressure and is not expected to improve anytime soon, said Hui at a recent Hong Kong media briefing.
Additionally, economic expansion since the 2008 financial crisis is in a late stage and investors should remain vigilant of potential downside risks and build resilient portfolios, he said.
“That’s again the key theme for us in 2019,” he said.
Hui prefers fixed income “slightly” over equities, given its lower volatility. In addition, fixed income provides investors with a consistent income stream via the coupon.
“In the next 12-18 months, fixed income will play perhaps a slightly more prominent role than equities,” he said, but did not elaborate on which asset classes he prefers.
However, he is cautious on Asian and Chinese corporate bonds, given that “some of these companies’ balance sheets have very high risks”.
Earlier this year, Hui had already warned investors to prepare for the end of the economic cycle. At the time, he recommended investors allocate to US and German government bonds.
Still positive on equities
Key market indices are buoyant this year. The S&P 500 is up 20.7% year-to-date and the MSCI World is up 18.3%, according to FE data.
“We still think that equities will deliver,” Hui said. “As the second half of the year begins, in the very short-term, tactically, it does make sense to revisit equities. But at the same time, in a longer 12-18 month horizon, risk management and resilience in the portfolio is key.”
Stocks he prefers are high-dividend-paying companies, which are expected to provide investors with a consistent income stream. However, these companies should be in sectors that are less sensitive to the economic cycle, such as healthcare and utilities, he said.
Within these high dividend-paying companies, Hui noted that there are more opportunities in Asia-Pacific compared to its global peers. The number of companies yielding at least 3% in Asia-Pacific is at 330, which compares to the 223 in Europe and 114 in the US, according to the firm’s quarterly guide to the markets.
A key risk on Hui’s radar is the possibility of a surge in US inflation.
“It would put downward pressure on corporate earnings and could force the Federal Reserve to hike interest rates,” he said.