For investors, 2020 has been a challenging year. The global economy has been battered by Covid-19, and the ongoing trade dispute between China and the United States continues to put a strain on markets. Furthermore, there has been a return to volatility due to issues around trade, recession fears, Brexit and an inverted yield curve.
Nevertheless, many in Singapore are still keen to invest despite the various headwinds facing the global economy. In this article, we look at three of the more popular multi-year-growth investment themes. We will explore what exposure could mean for Singaporean investors in the future, before examining how investing in diverse portfolios through solutions like OCBC’s RoboInvest could help mitigate risk and potentially maximise returns.
Economic recovery and growth in China
Many investors in Singapore will be interested in the opportunities afforded by the China growth portfolio. The country’s economy has achieved phenomenal growth, and this looks set to continue for the foreseeable future – despite challenges posed by Covid-19.
Since China’s economy opened up to the world in 1978, it has achieved growth of almost 10% each year and nearly one billion people have been lifted out of poverty. And from this incredible development has emerged a burgeoning middle class of consumers who drive the domestic economy. By 2022, it is estimated that this section of society could number as many as 550 million people.
Even within the context of Covid-19, China’s economy has made a remarkable recovery. The International Monetary Fund has predicted that the country will be the only major economy to grow this year. It is expected to expand by 1.9% compared with last year’s growth of 6.1%. With the country leading the world in the pace and breadth of its recovery, the yield advantage offered by Chinese assets could draw more global asset allocation. Furthermore, compared with its global peers, China’s central bank has a greater policy cushion in terms of monetary policy. This indicates that the country’s economy is better placed to deal with the next global crisis.
Yet despite the welcome return to economic recovery and growth, there is still the risk of volatility caused by the ongoing trade dispute with the United States. It is uncertain how long this will continue, although under President-Elect Joe Biden it is expected that the US will take a more constructive approach, which is likely to ease tensions and reduce uncertainty of investors in China. But in the event that the situation is not resolved, many are likely to avoid investing heavily in China’s equity markets. That said, it is likely that equity valuations across Asia, excluding Japan, will be marginally higher than those of the US in the year ahead, mainly driven by optimism about China’s recovery.
Rising affluence among Millennials and Generation Z
Today, there is a marked increase in affluence among Millennial and Generation Z consumers. Many are entering their mid-30s, which are their prime spending years. Indeed, it is predicted that their contribution to the United States’ economy will go from US$1.2 trillion to US$2.1 trillion over the next 15 years. For this reason, many investors in Singapore are curious about investing in sectors that are affected by increased Generation Z spending.
In terms of consumption patterns, Millennials and Generation Z members are changing. They tend to use smartphones or the internet to shop for the best deals rather than visiting supermarkets; they pay particular attention to ingredients and favour organic to processed food; they are also concerned with environmental, social and governance issues when investing, and they tend to invest ethically.
In terms of the growth in Millennial and Generation Z spending, their changing consumption patterns could be to the detriment of other industries – thus affecting investors with exposure to certain disadvantaged sectors. For example, fewer Millennials own cars. Between 2007 and 2011 in the United States, the number of cars bought by people aged 18 to 34 fell by 30%. So, while it is good for them individually that they are getting more affluent, it might not be such good news for certain sectors that find themselves in the firing line of these changing consumer preferences.
The growth of cloud computing
A further area of interest for investors in Singapore is the cloud computing industry. Industry leaders such as Amazon Web Services, Microsoft Azure and Google Cloud Platform are helping to transform the way businesses operate by removing the need for physical servers on premises.
As an example of how important cloud computing has become, during Covid-19, remote working and video conferencing have necessitated a move to the cloud for many businesses around the world. The industry has been predicted to grow from US$371.4 billion in 2020, to US$832.1 billion by 2025. So it seems, then, that the future course is set, and cloud computing portfolios are an attractive prospect for investors in Singapore and beyond.
However, there are risks. For organisations, these are privacy and security concerns – especially regarding data leaks and cybercrime. Up to 60% of companies are concerned about regulatory, governance and compliance issues and, alarmingly, more than half of organisations lack employees with cloud computing experience. This could be a concern to potential investors in the cloud computing space.
One way for investors to mitigate these potential future risks is to diversify their portfolios. A convenient way to achieve this is to consider a multi-asset portfolio. In Singapore, banks, such as OCBC offer a range of risk-based portfolio solutions to help investors weather any storms that might appear in the future.
For example, OCBC’s RoboInvest provides 34 portfolios across six markets for a range of risk appetites. Investing is convenient, and starts at just US$100. There are no fees or charges for topping up or withdrawing your investments through an OCBC deposit account, and you can rebalance portfolios as markets change to help maximise your returns. You can rest assured in the knowledge that you are investing with a trusted financial institution recognised for its stability and wealth management expertise.
For ideas about how to diversify your investment portfolio, visit https://www.ocbc.com/personal-banking/investments/roboinvest and discover more ways to help grow your wealth.
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