The first choice — the Goldman Sachs India Equity Portfolio — was in line with a decision a few weeks ago to reinstitute an overweight on India equities. In February, StanChart had closed its overweight on India due to concerns about slowing reforms, the monsoon season and central bank policy. It reinstituted an overweight because the risk has eased and inflation seems more under control now, Brice said.
“From a portfolio perspective, the difference between China and India is that China is very cheap and waiting for a catalyst,” Brice told Fund Selector Asia.
“India is not cheap, but we think catalysts will keep rolling in. India is more of a structural story. Growth acceleration, a decline in inflation, more reforms in the next 5-6 years.
“Of course, we will get disappointments along the way. But we believe in the long term story.”
In regards to China, despite the recent market events the bank hasn’t changed its 12-18 month view and in the context of Asia exposure, it remains overweight China equities.
“[The overweight] worked for us for but the last few months we lost value. What catalyst is there to become bullish on China? We’ll struggle with that for the moment.”
Cheap valuations alone aren’t enough, he said. “We could do with more certainty about policy reaction function.
“What’s been difficult from our point of view is trying to understand what the policy objectives of the authorities are. What they say and what they do doesn’t always add up. They seem to be quite fluid in their responses, one might even say reactive.”
Another adjustment a few weeks ago came after the bank examined the comparative benefits of being in US equities versus US high yield.
“The spread has widened on high yield in the past few months, justified by credit quality deterioration in US companies,” Brice said. “The widening spread is become increasingly attractive. We prefer US corporate risk through high yield rather than through equities at this stage.”
The bank selected the BlackRock GF US Dollar High Yield Bond Fund to address its constructive view on high yield.
The third fund — Schroder ISF Euro Equity Fund — was selected because StanChart decided to focus more on Eurozone stocks rather than a more diversified European exposure, Brice explained.
“Volatility may well continue in the short-term, but we still believe developed market equities are in a bull market. This is good opportunity for clients to take exposure to equities in Europe and Japan, which are our favourites, and to an extent, the US.”
Alexis Calla, global head of investment advisory and strategy across the entire wealth business, said Standard Chartered’s wealth management clients tend to have a fixed concept of the world that reinforces a home bias, and it is difficult to change that perception.
“With most clients, there is almost an emotional attachment to the success of Asia,” Calla said. “The model is that the old world is dying and the new world in Asia is rising.
“Any good news is something people often want to use to reinvest. The constant question is, `Is it time to go back in?’
“With allocation advice we have to go against some pretty strong pre-determined views. When we go neutral on Asia, our clients get very excited. When we go overweight the US, Europe and Japan, it’s a difficult sell.”