Saikat Kumar

Strategic asset allocation has never been more critical

In periods when the economic outlook is uncertain, investors should prioritize rebalancing. Although it is difficult to predict what the global pandemic will really hold for different asset classes, leading finance expert Saikat Kumar underscores that rethinking one’s asset allocation strategy amidst the current market turmoil has never been more important.

 “There is no doubt that the economy and markets will spring back especially with the many progress being made to overcome this global crisis. However, full recovery might take time, and so it is crucial for investors to add some resilience into portfolios in order for them to meet their financial objective,” says Kumar, Founder and CEO of the Dubai-based global financial services firm SKYCAP Investment Management Ltd. 

As there is much that can distract investors in stressed markets, he says, it is just prudent to work with investment professionals in order to achieve a deeper level of insight to smarter wealth
management. 

“Given the inherent uncertainty about how the current situation will evolve, we at Skycap believe we should be modestly overweight equities, fixed income and real estate at this point of time. Gold remains a strategic and important asset so it is a part of our core holding. It is best to stay away from commodities and related companies for now.”

Equities

Kumar favours equities in the US region and suggests overweight, noting that the monetary policy environment will remain supportive of equities in 2020. 

“We believe lower interest rates and low inflation make US equities more attractive. Valuations are not cheap for US equities but we recognize that valuations have not often been a good predictor of equity performance in the shorter term,” he says.

Skycap, he says, is modestly bullish on Japanese equities, given the firm’s vision of a moderately brighter economic picture for Asia. He also said that emerging markets would benefit from accommodative Federal Reserve Policy, saying that search for yield will drive investors to emerging market equities.

Providing a sector-by-sector look on the biggest winners and losers in this economic downturn, Kumar identified e-commerce, pharmaceuticals, video conferencing, and entertainment streaming and gaming on top of the list of sectors weathering the pandemic. On the other hand, travel, airlines, tourism and oil and Gas are the industries facing the sharpest end of
the crisis.

Fixed Income

“There are compelling reasons for us to think interest rates will remain at or near their current very low levels for some time. The trend was apparent over recent years, even before the coronavirus hit: central banks have repeatedly showed their willingness to loosen the reins in the face of economic headwinds,” Kumar said.

With this in mind, Skycap remains underweight investment grade bonds and modestly overweight high-yield bond. The advisory firm also expects annualised returns on developed government-bond markets to be in the low single digits. Within the emerging markets space, Skycap maintains positive investment positioning with EM Real yields, said to be currently at record highs relative to developed markets.

Alternative investments

Within alternatives, Kumar says most real estate investments should continue to deliver moderately positive returns. The veteran banker also remains modestly overweight to gold, while his outlook for the global base metals industry is negative.

On private equity, there are rising start-ups in Tech space that would generate exceptional returns. With this, Skycap expresses confidence on fintech as the more promising space for PE compared to traditional brick and mortar firms.

And where foreign exchange is concerned, the U.S. Dollar, he says, is still a safe-haven currency, adding that he remains bearish on Australian Dollar and New Zealand Dollar, and neutral on Japanese Yen and Euro. 

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