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Winners & Losers Amidst Covid-19, Emerging Trends in Private Banking

2020 is the Year of Rat, the first of the twelve Chinese animals, signifying the start of a new cycle. 2020 is also the first year of a new decade. Yet 2020 will more likely be remembered as the year of the pandemic, as Covid-19 halted the global economy so drastically and so abruptly. Although many areas of the developed world have entered a phase of “lockdown exit”, the second half of 2020 may not prove to be a smoother ride. There are significant risks in the form of potential spikes of virus infections, uncertainties around US Presidential Election, UK’s Brexit negotiations, and geopolitical tensions that impact world trade. One thing however that has beaten most people’s expectations so far has been the S&P500 index. Having peaked at 3386 on 18th Feb, it went to the trough at 2237 on 22nd March (-34%), back at 3232 on 7th June (+44%), all in the space of 3.5 months; sadly this may not be a true reflection of the underlying real economy which potentially faces a long and challenging road ahead towards full recovery.

4 S&P 500 Circuit Breakers in 9 Days; Nasdaq up 17% YTD

Differing from the 2008 Global Financial Crisis, the 2020 pandemic-led market correction happened very quickly; the S&P 500 hit 4 circuit breakers (i.e. dropping more than 7% from the previous close) all just within 9 days. The last time markets experienced an S&P 500 circuit breaker was in 1997. Investors had little or no time to re-act or to re-position their investments, which resulted in extreme anxiety for those with overly concentrated or leveraged portfolios. With the benefit of hindsight, those who were able to ride out the wave of the volatility typically profited. This we believe validated the cornerstones of Barclays’ investment philosophy namely that

  • It is “time in the market, not timing the market” that predominantly defines long term returns and
  • A diversified portfolio with an appropriate spread of risk assets maximises investors ability to ride out market volatility.

The Winners and the Losers

The Technology sector has come through the pandemic so far as one of the only sectors that offers positive earnings visibility. As at the end of the 2nd quarter, the NASDAQ composite index (which is approximately 42% tech) was up 17% YTD vs. S&P 500’s (aprox 27% tech) flattish performance. The likes of FANG+ have posted 48% gains YTD. Looking at the real economy, many businesses have completed what would normally be 2 years’ worth of tech projects within 2 months. Whether it is e-commerce, cloud computing, automation or cyber security, many of the core technology trends have received an unexpected adoption boost in the wake of the pandemic.  Our expectation is that this trend is unlikely to stop and that the world post Covid-19 will be even more tech-focused. Such a relentless rally within such a short period of time raises legitimate questions around the healthiness of current valuations. Balancing allocations towards cash vs. the risk of “real value erosion” due to future inflation fears is becoming more pronounced; Investors will we believe need to re-adjust valuation expectations and be more focused on holding high quality investments to achieve longer term returns.

Sustainability the New Buzz Word

Sustainable Portfolios and Impact Investing are not new, but have certainly been brought to the centre stage amidst the pandemic, which has shone a bright light on things that don’t work well. The International Finance Corporation, the private sector arm of the World Bank, estimates that global investor appetite for sustainable investing is as high as US$26trn. Many consumers worldwide are adopting more sustainable behaviours. Across North America, Europe and Asia, 83% believe it’s important or extremely important for companies to design products that are meant to be reused or recycled. Compared to five years ago, 72% said that they’re buying more environmentally friendly products and 81% said they expect to buy more over the next five years.

In fact, sustainable investing is not just a ‘nice to have’, it is a key driver of financial returns. Companies that are environmentally conscious, have strong socially responsible values and uphold good governance are more likely to create long-term value than those that don’t. It is these businesses with positive working cultures, who treat their staff well and are interrogating the sustainable impact of their operations, who are increasingly most able to attract top talent and in turn benefit from higher levels of knowledge-based intellectual property. In a recent analysis, MSCI found that higher-scoring ESG companies have higher profitability, lower tail risks, lower market sensitivity and higher valuations. Alongside financial strength, these are precisely the characteristics that should allow a business to better weather a market storm, the likes of which have been seen in the Covid-19 market turbulence.

De-Globalization for Wealth Management?

Globalization has been in retreat for some time even before Covid-19, with the ongoing tension between US and China and the shifting of supply chain. On the contrary, global asset allocation and diversification for the UHNWs play an increasingly important role. Asian clients have continued to explore far-offshore centres (e.g. UK, Channel Islands), to complement near-offshore centres (e.g. Hong Kong, Singapore). This is accompanied by ever more sophisticated needs from the client base, which include acquiring alternative residency, family relocation, and the pursuit of family wealth protection and preservation via effective structuring and long term investment strategies. As for the argument of moving investments closer to home, it is in times like the pandemic that a jurisdiction’s resilience undoubtedly stands out, which shall be the driving force for asset allocation decision making, rather than home proximity.

UK Still a Preferred Choice For the UHNWs

In recent years, UK has become a very popular investment destination for property and business acquisitions by international investors for the quality of assets, cheaper currency, and lower cost of finance. Despite the challenges that the UK’s own economy faces amidst the pandemic, the deficit the government now runs, and the uncertainties around Brexit in the months to come, its attractions to the UHNW families have remained intact.  These include the UK’s stable and fair legal system, neutral political stance, a friendly time zone to Asia and access to top notch schools and universities. Client demand for distressed (quality) assets and routes to UK residency have been consistently strong, before, during and after the pandemic.

At the beginning of 2020, major banks’ economic outlook for 2020 looked very different to what the world has actually gone through, likewise at the bottom of the market in March, very few investors felt confident to enter the market at what we now know as the bottom. Covid-19 has served as an opportunity for us to reflect, re-think and re-position for the post pandemic phase. As for the UHNW families, their pursuit of wealth preservation and succession planning has become more relevant.  Staying invested for the longer term remains just as important as being selective on investment quality and ensuring that risks are diversified.

Joyce Zhou, CFA
Position: Director, Senior Private Banker
Firm: Barclays Private Bank

Joyce joined Barclays in 2015 as a private banker, having spent close to 10 years in the Investment Bank at JP Morgan, UBS and CICC. Now at Barclays UK International Private Bank, she has a focus on UHNW clients from the Far East and is the lead banker for the China Market. In addition to her IB credentials, Joyce’s expertise covers International Tax Planning, Family Trust, Complex Credit Solutions, RND offshore structuring, and UK Investor Visas. Joyce currently resides in the UK having previously lived and worked in China, Australia, Singapore and is multi lingual in English, Mandarin and Cantonese.  Joyce has Double Masters in Commerce and International Business from the University of Sydney, and is a CFA Charter holder.


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