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SCMP Reporter

THERE ARE PLENTY of commentators around proclaiming the virtues of getting into stocks now while valuations are cheap. But there is no need to rush as global markets are unlikely to see rapid gains in the next few months, according to Agnes Choi, head of Barclays Private Bank for south Asia.

'I don't think the market is going to go up very fast, it is going to take some time to recover,' Singapore-based Ms Choi said.

'Over the next six months to one year we may be looking at a range type of trading and not so much of a significant recovery type of story that you may think you may be looking at after a two or three-year decline.'

She suggests investors should be slowly shifting money out of defensive bonds into stocks.

'Over the next year it would be a good time for people to accumulate stocks on a long-term basis.'

Ms Choi's clients are typically companies and wealthy individuals in Southeast Asia with more than US$3 million to invest. Their assets form part of the GBP88 billion (about HK$1 trillion) Barclays Private Bank has under management. Ms Choi's work advising clients and helping manage their money is backed up by the house's research group, based in London and Geneva.

A typical asset mix she recommends to clients looks pretty defensive with 10 to 15 per cent in funds of hedge funds, 35 to 50 per cent in cash and bonds and the remainder in stocks.

This is a far cry from the aggressive asset allocations of up to 80 per cent in stocks recommended by Wall Street's top strategists. But the name of the game for Barclays' clients these days is wealth preservation as much as making capital gains, whereas before the Asian crisis struck, high returns were the aim.

'Prior to 1997 anything less than 15 per cent and people were not interested,' Ms Choi said.

'People have to get used to an environment where a return of 6 to 8 per cent is considered a good year.'

Ms Choi, a Hong Konger who has worked in private banking in her home city for most of her career, says familiarity tends to push clients towards Asian stocks over names in other markets.

There may also be some sense in thinking Asia is further through its profits-sapping deflationary bust than Western countries.

'I believe we are at the stage of potentially looking at the next economic cycle [in Asia],' she said.

When this will come is hard to say but 'we always remember the phrase that it is darkest before dawn'.

'Asia has got its problems but it has certainly started its correction much earlier than the US and Europe - but having said that it doesn't mean [Asian markets] are going to start moving ahead without the US moving.'

The smaller regional economies of Thailand and Indonesia are already showing robust domestic demand growth.

'They were the first to fall in the Asian financial crisis but having said that you need to be aware they are not as related to US exports as in places like Hong Kong, Singapore or to a certain extent Taiwan,' Ms Choi said.

The end of the 18-year bull run in the US forced institutional investors to rethink their bias towards making returns by beating benchmarks and begin moving more in line with retail investors.

'There is a lot of change in terms of people's perception of investment versus before,' Ms Choi said. 'The traditional way of managing money is the buy-and-hold scenario and also looking at the long-term story.

'Now they are looking more at an absolute return type of environment where people are looking much more at funds of hedge funds-type of investment which is absolute return on a month-on-month basis.'

Besides this, Ms Choi is recommending her clients invest some of the money allocated to stocks into equity-linked notes which typically have more defensive properties than straight stocks.

For example, an equity-linked note based on HSBC has been issued with the stock trading at HK$91. Clients earn a coupon of more than 9 per cent at the end of the one-year life of the notes, which were packaged and issued by Barclays Capital, the investment banking sister of the private bank.

If the stock price at that stage has fallen to HK$80, the client has to take delivery of it. But the coupon means the investor is effectively getting the stock for only HK$73 or HK$74.

'There we are looking at a situation where you are hit with the stock, you are happy holding it. If you have not got hit with the stock, you are happy with the 9 per cent plus type of return. It's becoming a more popular type of instrument with investors,' she said.

Ms Choi has also recently been offering one of Barclays' capital-guaranteed products, which packages a basket of 12 of the world's leading financial companies.

Depending on how the underlying stocks perform, when the note matures in three years investors at worst get their money back or at best make a profit of 50 per cent.

When it comes to stock-picking Ms Choi tends to steer her clients towards well-managed blue chips. While small caps could have more upside potential they also carry more risk. Besides in a rally 'usually big blue chips would move faster first', she said.

Agnes Choi

1983: Graduated from the University of Alberta.

1984: Started work as an invest ment adviser then invest ment director for Standard  Chartered in Hong Kong.

1993: Vice-president with Salomon Brothers.

1994: Executive director of private client unit for Morgan Stanley in Hong Kong.

2002: Moved to Singapore to be come head of South Asia for Barclays Private Bank.



Don't rush back to shares