Asian family offices are bracing for ongoing market volatility in the coming months, as the US enters an uneasy and disputed presidential transition period and Covid-19 cases continue to soar across much of the western world.

The investment arms of some of the region’s wealthiest families say they are focused on selectively investing into equities, high yield debt and alternative assets, while also looking to bolster investing into environmental, social and governance (ESG)-friendly assets.

The most immediate challenge for these investors is to navigate the fractious political environment in the US. President Donald Trump has yet to concede defeat from the November 3 election, despite clearly losing in states he needed to retain power. A hand recount of votes in Georgia is highly unlikely to change president-elect Joe Biden’s 14,000 vote lead in the state. Even if it did, he has more than enough electoral college votes to win.

In addition to Trump’s intransigence, a run-off election for two US Senate seats is set to take place on January 5, which will determine the control of Congress’s upper chamber.

The combination of Trump’s lack of grace in defeat and unwillingness to begin a smooth transition period means the incoming Biden administration may find itself unfamiliar with the status of the US government’s Covid-19 response and the health of the economy. It may well also stymie another fiscal stimulus bill.

Cheong Wing Kiat,
Business Concept

Family offices say they are taking the resulting market volatility in their stride. Their capital is patient and has different mandates from the investment houses, said Cheong Wing Kiat, the chief executive of Business Concept, a Singapore-based single-family office and advisory firm.

“We do not change our investments every four years, and we take a longer-term outlook,” he told AsianInvestor, referring to the US presidential election term.

His view was echoed by Noel Neo, the managing partner at single-family office Asia Pacific Real Estate Holdings: “We invest without paying undue attention to the US election, save for sitting pat while markets are volatile.”  

SEEKING BETTER RETURNS

While investors believe the eventual ascension of Biden to the presidency appears to not be in doubt, one likelihood is that the Federal Reserve’s benchmark interest rate remains at an ultra-low level (the central bank held it in a range of 0%-0.25% on November 5).

Given this low-yield environment for US Treasuries and investment grade corporate bonds, regional family offices say they have been looking to riskier assets

Paul Tay, Raffles Group

“We are still optimistic about equities in this low rate environment, with regards to both value and growth stocks. At the same time, we are not neglecting the 5G digitalisation theme for the longer term,” said Paul Tay, senior vice president for trading and advisory at multi-family office Raffles Group.

China has been leading the charge for the next generation of mobile connectivity in Asia. Hong Kong, Seoul, Sydney, Taipei, Manila, Tokyo, Bangkok and Singapore are also rolling out the technology.

COVID-19 CONCERNS

The family offices are also weighing the impact of the Covid-19 pandemic. The three family offices AsianInvestor spoke to said they expect more market volatility in the short term as due to a spike in coronavirus cases in the US and European countries – and this issue could be exacerbated if the Trump administration continues to refuse to initiate the transition period.

The delay in getting the incoming administration up to speed on Covid-19 could hurt the US economy, as well as causing more infections than might otherwise take place. In addition, an overhang of antitrust rules for the tech sector as well as Brexit and other issues will ensure that market volatility remains substantial, predicted Tay.

According to the S&P Global Market Intelligence, surging number of new Covid-19 cases in the US has pushed the S&P 500’s CBOE volatility index (Vix) up to the 96th percentile of its historical range.

In this environment, Neo said he believes there is more “alpha”, or growing excess investment returns, in real estate. “Risk assets have been battered by the Covid pandemic and there is much scope for capital appreciate as markets normalise to a pre-pandemic state,” he told AsianInvestor..

Noel Neo,
Asia Pacific Real
Estate Holdings

Cheong said he is focusing on the strong long-term fundamentals of infrastructure assets. The SFO has invested into such assets, but Cheong did not provide allocation details. He noted that many family businesses are battling “headwinds caused by the pandemic, as well as the pressure to adapt to new technologies”.

His office is 80% invested in the family business, with the remaining 20% in stocks, fixed income and private equity assets, including warehouses.

In addition, Cheong said his family office has been increasingly allocating into ESG-friendly assets. The ESG investing trend has picked up pace across the world in the last few years,  despite Trump’s dismissive attitude towards climate risk, and this pace could well accelerate under Biden, he said.

Biden has said one of his first executive orders upon becoming president on January 20 will be to have the US rejoin the Paris Climate Agreement to combat climate change. Trump signalled in 2017 that the US would withdraw from the accord and it formally did so the day after the presidential election this year, on November 4.

The family offices are also cautiously optimistic over the geopolitical friction between the US and China. Most investment experts expect this antagonism will continue under Biden, but that the incoming administration’s US trade and foreign policy will likely be more predictable than Trump’s.

“Under Biden, the trade and tech war between the US and China won’t go away, but the magnitude [of the tension] would likely be milder,” said Cheong.

That at least makes for a relatively predictable investment environment, with less likelihood of shock new tariffs or sanctions.