SINGAPORE (June 11): Gerald Ambrose, CEO of Aberdeen Standard Investments in Malaysia, says with the heightened volatility in financial markets, investors should consider adding more alternative investments that generate stable returns and provide lower volatility to their portfolios.
For one, he suggests that investors acquire some holdings in safe-haven assets such as gold as an insurance policy against the elevated fears in the market. “In my opinion, the ultimate alternative asset is gold. It is not a way to get rich, but a way to protect your wealth. Historically, gold outperforms equities in a bear market and is a good tool to protect investors from the effects of monetary policy measures. While paper gold would be sufficient, it would be best for investors to hold on to physical gold as paper gold is next to worthless when it comes to actual practical use as currency.”
On June 7, the spot price for gold was hovering at US$1,300. According to a market commentary by Oanda Asia-Pacific head of trading Stephen Innes, a rising US dollar remains the primary headwind for gold prices, which are offset by the escalating fears of a trade war between the US and China. Going forward, a significant bounce in gold prices could be seen if the US dollar buckles on weaker-than-expected economic data.
Ambrose says investors could turn to passion investments that have a low correlation to the equity and fixed-income markets such as fine wine. “The growth in fine wine as an asset class is being driven by the huge wealth growth in China. They are paying crazy prices for some of the finest wines in the market. However, the prices of fine wine may be affected if the wealth in Asia and the US declines.”
Fine wine is known to demonstrate distinct defensive qualities that can insulate investors from some of the risks inherent in an equity-based portfolio. A May 28 research report by Cult Wines found that Liv-ex Fine Wine 1000 — an index tracking the prices of 1,000 wines from top wine-producing regions in the world — compared favourably with the FTSE All Shares Index and gold futures, especially during the depth of the global financial crisis from 2008 to 2010 and the peak of the economic recovery that followed from 2015 to 2017.
One alternative asset class that seems to provide opportunity at the moment is industrial commodities. According to Ambrose, there has been very strong domestic demand for steel in China. While manufacturers previously met the demand, the supply may dwindle soon and this could lead to higher prices, says Ambrose.
“In the past, every time the price of steel [went] up, the Chinese factories [would] just pour out more steel to meet the demand, effectively bringing down the price. This time, mainly due to ecological and environmental grounds, President Xi Jinping is not allowing sub-standard steel companies to continue their operations. So, a lot of steel mills there have stopped operations completely, which means the supply is no longer growing,” he says.
Another commodity that investors can consider is palm oil, which is also the industry that helped Malaysia ride out the economic downturn during the Asian financial crisis. Although Ambrose does not think the palm oil sector will sharply outperform this year, Aberdeen remains overweight on the sector.
Meanwhile, he has a neutral stance on cryptocurrencies. Even though he understands the logic behind the demand, he thinks gold could provide a similar hedge for a portfolio.
“I used to think it was just Bitcoin. But cryptocurrencies are really blooming and proliferating. Now, there are thousands of them out there. I understand why one would invest in cryptocurrencies. If central banks in the West are behaving irresponsibly by printing money to overcome their monetary problems, then people would have more trust in currencies that cannot be increased in supply just like that and blockchain seems to be a foolproof system for that,” says Ambrose.
“However, I think investors can certainly switch to physical gold instead. The world’s supply of gold can fit into an Olympic-size swimming pool. So, I can’t help feeling that if investors need an insurance policy to protect them against currencies that can be adjusted in supply, then gold is the way to go.”
Khairani Afifi Noordin is a senior writer with Personal Wealth at The Edge Malaysia
