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Five private banks reveal their allocation to equities

The Covid-19 outbreak has resulted in disparate views on equities. Five private banks tell us what their current allocations are as part of a balanced portfolio.

HSBC Private Banking – 31.5%

HSBC currently allocates 31.5% to equities, similar to what it had at the beginning of the year.

The bank tends to have a defensive tilt when selecting sectors, shared Patrick Ho, chief market strategist for North Asia.

For that reason, it favours healthcare, communication services, consumer staples and utilities. It also likes technology as a long-term structural theme.

Lockdown measures have highlighted the need for technology infrastructure, with people working and buying from home, Ho told Citywire Asia.

‘As investors are weighing the headwinds in the economies and earnings, and the support from the government and central banks, we still prefer a balanced portfolio strategy focusing on resilience and quality,’ he said.

HSBC Private Banking – 31.5%

HSBC currently allocates 31.5% to equities, similar to what it had at the beginning of the year.

The bank tends to have a defensive tilt when selecting sectors, shared Patrick Ho, chief market strategist for North Asia.

For that reason, it favours healthcare, communication services, consumer staples and utilities. It also likes technology as a long-term structural theme.

Lockdown measures have highlighted the need for technology infrastructure, with people working and buying from home, Ho told Citywire Asia.

‘As investors are weighing the headwinds in the economies and earnings, and the support from the government and central banks, we still prefer a balanced portfolio strategy focusing on resilience and quality,’ he said.

Standard Chartered Private Bank – 36%

Standard Chartered began the year with a 42% allocation to equities in its Asia-focused portfolio.  

The bank had reduced this to 36% by April. Meanwhile, it slightly raised its allocation to bonds, gold and cash.

StanChart recommends that investors allocate 40% to Asia ex-Japan, 32% to North America, 15% to Europe ex-UK, and 4% each to the UK and Japan, within equities. It suggests allocating 5% to other emerging markets.

The bank likes the Asia ex-Japan region, that is arguably further along the Covid-19 curve. It also favours the US for its strong policy response to the outbreak. 

‘Risky assets may be at risk of renewed short-term weakness if economic reopenings or policy efforts disappoint.

‘However, we would continue to adopt an averaging-in approach on more attractive valuation levels in equities, multi-asset income strategies and gold,’ StanChart said in its latest global market outlook.  

UOB Private Bank – 45%

UOB has not changed its allocation to equities since the start of 2020.

The Singapore lender’s balanced portfolio currently allocates 20.3% to the US, 11.3% to Europe, 9% to emerging markets in Asia, and 4.5% to Japan.

CIO Neo Teng Hwee noted that equity and bond prices were recently driven by buyers who were captivated with valuations, after the fastest decline ever seen.

Still, he believes an imminent pullback is likely. Equity markets have run-up faster than the economic reality, as seen from leading economic indicators.

The somewhat ‘unlimited’ quantitative easing by the Fed is also slowing on a weekly basis. ‘Yet, we do not expect this pullback to test the 23 March low,’ Neo said.

‘This is because many countries are experiencing lower daily incremental cases of Covid-19 infection, while policymakers have chimed in to render unprecedented support, alleviating liquidity and credit stresses.’

Deutsche Bank Wealth Management – 45.5%

Deutsche Bank has reduced its equity allocation from 46.5% to 45.5% with the coronavirus outbreak.

The bulk of this is being invested in the US, that accounts for 17% of its balanced portfolio.

Within the market, Deutsche likes consumer staples, healthcare and IT, specifically online business models such as e-commerce and online entertainment.

Covid-19 induced demand for household and personal care products has boosted consumer staples, noted Jason Liu, head of chief investment office for emerging markets.

‘But as most of the uptick in demand and subsequent earnings growth has been priced in, it is no longer cheap from historical and relative valuation.

‘A possible strategy going forward may be to go for high quality stocks at better prices, with a selection of cyclically-tilted value stocks,’ Liu said.

These stocks are expected to weather the recession, and take disproportionate advantage of an economic recovery, he added.

UBP – 50%

UBP is underweight on equities, although it allocates almost 50% to the asset class.

Around 70% of this allocation is direct, while the rest is through products that also offer some downside protection, said Kieran Calder, head of equity research for Asia.

‘Total equity allocation in our balanced portfolios has increased by around 9% since January, but not in a straight line.

‘We were most underweight equities in March but have since added back. By factor we have moved to increasingly overweight growth, quality and carry, with a focus on sustainable dividends,’ Calder told Citywire Asia.

The bank likes US equities and favours the technology, healthcare and global payments sectors.

Covid-19 will speed up the rate electronic payments takes market share from cash. The increased demand for ‘work from home’ applications also supports global semiconductors, Calder said.