Tan, who advises on portfolio construction, working with institutional investors in Hong Kong, Taiwan, China and Korea, noted that central bank intervention in markets has pumped up investor confidence, but risk is mispriced and a lot of capital is available in the market.
“In terms of portfolio construction, it’s time to think harder about not just holding plain equities and credit and relying on central banks to keep things safe for investors,” Tan told FSA. “The sensible use of alpha [products] so there is less of a downside has become a stronger theme in 2016.”
She added that a tilt to alpha does not only mean moving from a passive to active products, but a variety of other strategies, for example, going from hedge funds to private markets.
Other themes, all of which were discussed at Mercer’s Global Investment Forum last week in Singapore, include positioning the portfolio for reduced market liquidity, as Mercer expects “more volatility and larger market selloffs” and opportunities as the credit cycle matures, with clients particularly looking into private debt strategies as well as holding cash.
Stock Connect fizzle
Market volatility, government intervention in markets and policy missteps in China have raised investor concerns and dampened sentiment toward the mainland.
Institutional investors in Asia don’t seem to be more interested in China investment in 2016 than last year, Tan said. However, the number of mainland-based clients who want to hear about how they could invest internationally has increased.
One disappointment has been the Hong Kong Shanghai Stock Connect, which hasn’t lived up to expectations, she said.
“We thought it would be more of a game changer, but in fact it contributed to a lot more volatility and actually caused some political tension about too much capital going north and not much south. The Stock Connect continues to be good idea, but there is still a lot to learn.
“At this moment it’s hard to be bullish on China, but neither are we writing it off.”
In the second half of 2016, she expects a positive shift in investor sentiment. She pointed out that in China, changes have recently been made among top management of key institutions, such as the China Securities Regulatory Commission.
“There has [also] been movement at the top management level of securities and asset management firms and banks. Part of it is the crackdown on corruption, part of it is the government’s reaction to the market volatility.
“When top management is affected, it will set the direction for business.”
"When there is uncertainty for business, then simple economics will affect the perception of investors. Toward the end of the year we’ll see more stability.”