Asian investors, who hoped the 2008 meltdown would be just a "normal crisis", like the others of the previous decade, have learned that recent history is not always the best guide. Bouncing back this time requires considerably more than a bit of belt-tightening and a few quick fixes. At the policy level, as Europe's leaders continue to prove, no one knows quite what to do. As they feel their way through uncharted territory, it has become clear to many high-net-worth individuals that only one investment strategy makes much sense: playing it safe. "The shift in attitude among our clients, which began in 2008, is continuing," says Bassam Salem, CEO of Citi Private Bank for the Asia-Pacific. "They are still focused on reducing risk, improving yield, increasing transparency and improving liquidity." Risk appetite may not have vanished completely. In most cases, though, it is firmly under control. The one-time level of interest in things like complex accumulators, high-concept internet stocks and currency plays in Brazil has mostly faded to a hazy memory. Instead of just taking a punt as they might once have, clients now typically ask more questions about products and expected proceeds, and thoroughly examine the risk profile of personal portfolios. "They not only want more detail about the overall structure of an investment product, but also probe for more information about the various constituents," Salem says. "Clients are now far more diligent about how they invest. This 'behaviour' can be traced back to the crisis, but ongoing uncertainties about Western economies and concerns over growth in China serve to strengthen such attitudes." Partly in response to this, the bank launched its own "investments lab" in Asia in 2010. Its main purpose is to provide targeted analysis and specific advice for ultra-high-net-worth investors. Many of them have benefitted from Asia's increasing wealth and, in the current climate, are concerned about aspects of wealth preservation more than performance stability. "Our team conducts independent portfolio analysis, but will also help to identify investment opportunities," Salem says. "These might, for example, be as a co-investor or taking a cornerstone position in an equity offering." More broadly, the search for reliable yield and manageable risk has prompted a move to greater diversity. This has seen Asian investors adjusting their usual bias towards equities and looking instead to add less familiar - but perhaps safer - asset classes to their portfolio. As a result, bonds and exchange traded funds (ETFs) have taken on new prominence, with fixed-income instruments generally gaining allure. Of the factors likely to affect investor sentiment over the next six to 12 months, Salem sees corporate profitability as one of the most important. "It will be a major driver in determining whether higher stock market levels can be sustained," he says. "As global growth slows, it is going to be difficult for companies to maintain earnings." What no one can predict is just how government and central bank policies may change course. With leadership decisions pending, most notably in the United States, China and Germany, investors and their advisers are entering a period where "risk-free" options become all the more attractive as they become harder to find. Salem says: "We really don't know how reactive or proactive governments will be in stimulating the global economy. That will determine market direction." In the meantime, the "wait and see" option is likely to become one of the more widely preferred investment strategies. Looking specifically at the mainland, it appears the intentions of policy makers are as hard to read as ever. There were widespread expectations they would aggressively ease monetary and fiscal policy at any sign of a slowdown. So far, though, the government's main measures have been to approve a range of infrastructure projects and tinker with banks' reserve requirements. In Salem's opinion, the authorities remain acutely aware of the adverse effects of the credit bubble which built up in 2008 and 2009. There is still a huge debt overhang and property prices remain too high. With agricultural commodities also costing more, policy makers are in a bind. "In this environment, we advise clients to stay in defensive and consumer-driven sectors and to look for US bond opportunities," Salem says.
