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In the second of two articles, Mozamil Afzal, Global Chief Investment Officer of EFG Asset Management, continues his overview of the investment scenario in 2021.

With vaccination programmes underway and continued engagement from governments and central banks in supporting their economies, hopes are growing of a faster than expected economic recovery this year, even given the threat of new virus variants. This is certainly evident in equity markets, whereby US and Chinese stocks continue to test all-time highs and major indices are in positive territory for the year thus far. The Lunar New Year has offered a chance to reset focus and the investment outlook. Much like the Ox, we hope that the year will deliver positivity and strength to markets.

Environmental investments have transitioned into the mainstream, having been on the sidelines just a few years ago. Public opinion has grown in support of the environment, there’s been an explosion in the number of environmental, social and governance funds, and even central banks are taking action on climate change. The ECB announced the establishment of a climate-change centre to coordinate its activities in this area, and the Federal Reserve is establishing a Supervision Climate Committee with the same objective. With the major central banks moving ahead, many smaller central banks will undoubtedly follow. Furthermore, the Biden presidency should be a catalyst for the trend.

Furthermore, the Biden presidency should be a catalyst for the trend.
The increased demand for electric vehicles will be part of a general trend towards electrification of economies – including other forms of transport, heating and industry; the trend will be especially notable across Europe, China and the US. Aligned with that trend will be a change in energy production, away from fossil fuels and with a much greater emphasis on electricity from renewable sources. Importantly, wind and solar power are now in many cases much cheaper than fossil fuels. This is a year when we expect the forces of creative destruction to be truly unleashed.

The huge expansions in central bank balance sheets alongside engagement in quantitative easing programmes feeding into economic growth have raised the question as to whether inflation pressures will be triggered. The recent sell-off in US Treasuries would seem to suggest that investors are expecting inflation to rise, whereas the Federal Reserve views any price increases as just transitory. It’s important to remember that despite a recovery in demand, many sectors of the global economy will be characterised by excess capacity in 2021. That will be the case in sectors such as energy, which have a particularly important effect on the overall inflation rate. The evidence from those economies that have made a good recovery from Covid-19 is that inflationary pressures are muted. Consumer price inflation in China was once again negative in January, while producer prices also remain tame.

There’s been a sharp increase in the monetary base, which has been similar to that seen in the Global Financial Crisis. In contrast to the GFC, broad money growth has increased: this potentially poses a bigger threat to future inflation. However, the increase in broad money growth has largely reflected precautionary behaviour by the private sector: for consumers, an increase in bank deposits as consumer savings rates have surged; and, for businesses, an increase in their bank deposits as credit lines have been drawn down to bolster balance sheets and investment spending has been delayed. So, unless this faster broad money growth is maintained – which we think is unlikely – the threat of higher inflation, certainly in 2021, seems exaggerated. That expectation is reflected in financial markets’ pricing of future inflation in the major advanced economies.

With inflation expected to remain low across advanced economies for some time to come, longer-term government bond yields are also likely to remain anchored. However, the durability of US low inflation and bond yields has been questioned repeatedly in recent years. In 2021 the main concern is that with high deficits and debt levels, governments may not be able to borrow as cheaply. Rising bond yields and the associated capital losses are a real concern. Nevertheless, fixed income still has some interesting areas. Look to convertible bonds, which could be set to continue their positive trend seen over the last few years. We also believe there should be emphasis on wealthy nations issuers, which have stronger financial positions than many developed countries and their sovereign and quasi-sovereign bonds can offer an attractive yield pick-up. Finally, the global recovery will provide a supportive backdrop to emerging market debt.
On the equity side, it’s interesting to note that in 2020, global small cap stocks outperformed large cap stocks. This particularly reflected the stronger performance of small cap stocks in Asia.

"With inflation exprected to remain low across advanced economies, longer-term government bond yields are likely to remain anchored"

Mozamil Afzal

We think the performance of small cap relative is due a revival for three main reasons. First, the agility and flexibility often found in small companies can allow them to be leaders in innovation. Second, small companies typically focus on a narrow area in which they have expertise. Third, plentiful liquidity has been built up to support such companies. This is seen in the high levels of private equity dry powder and the recent growth of SPACs (special purpose acquisition companies), which seek out small private companies to take public. It’s still early on in the year, but so far US small caps are outpacing larger peers and we hope for this to continue as we await the next wave of destruction from small innovative companies.

The healthcare sector is our contrarian pick for three main reasons. First, it offers exposure to one of the most important global social megatrends – an ageing population and increased demand for healthcare for the elderly. Second, large healthcare companies are still relatively defensive, dividend-paying businesses, which are attractively valued. In aggregate, the companies in the US S&P 500 healthcare sector trade at a lower forward price/earnings multiple than most other sectors. We think this partly reflects concerns about the possible policies of President Biden, but any likely changes seem well discounted in current valuations.

Finally, the entire sector was disrupted by Covid-19, and the opportunities arising from that will, we think, come to greater fruition in 2021 and beyond. Most importantly, Covid-19 has triggered a much broader adoption of new digital technologies, especially remote patient consultations and diagnostics. At the same time, wearable devices for activity tracking, health monitoring and screening look set for much broader adoption. Minimally invasive techniques and robotic procedures are being seen in areas from heart surgery to orthodontics. The introduction of many of these new technologies is likely to be led by tech, rather than healthcare, companies further enhancing the competitive dynamic in the industry.

Overall, uncertainty remains, but as 2020 highlighted, despite a difficult environment there are new market opportunities out there.

The post 2021 Investment Scenario: Ox-market Opportunities appeared first on Prestige Online - Hong Kong.

The investment quality of professional sports has become uncertain and volatile.

First they tell you it’s a business, not a sport. Then when you agree it’s a business, they call it a sport. For decades, professional sports franchises used to be recognised as a reliable long-term investment and an ideal private-equity asset class for ultra-high-net-worth diversification. Recent events have revealed how social media innovations have spawned an entirely new and unpredictable set of risks that threaten their value.

The data points to a grave prognosis. The NBA is suffering the most. In the US, according to Gallup, the percentage of people with a positive impression of sports has declined by 30 points over the past year from +20 to -10 nationwide. NBA first-round playoff viewership ratings plummeted 27 per cent, a 40 per cent drop since 2017-18. A Harris Poll observed that 38 per cent of sports fans explained that the NBA being “too political” is the reason why they’re watching fewer games. That represents a precipitous fall since last summer.

And the NFL is not immune from the social media-driven fan backlash. Sunday Night Football ratings fell by 28 per cent. Fans in attendance are openly booing players. A stunning collapse. Fans appear to be losing interest in sports.

[caption id="attachment_211699" align="alignnone" width="768"] (Image: Stephane Coudassot/Unsplash)[/caption]

The NFL and NBA are among the most popular sports leagues in the social media universe. Their content represents leading feeds on Twitter and Instagram. And yet despite their proven position in public, their ratings continue to plummet.

But not all leagues are waning. The UFC (Ultimate Fighting Championship) is experiencing strong gains. Despite basketball playoffs being played on a daily basis, NBA playoff viewership has declined from 2.39 million average viewers in 2019 to 1.68 million in 2020 – a 30 per cent decline. Meanwhile the UFC’s four preliminary fight cards since its emergence from Covid-19 have generated an average of 1.17 million viewers across ESPN and ESPN+. That’s an increase of 30 per cent compared with the viewership of pay-per-view preliminary fights in 2019. Average UFC ratings are trending upwards at a time when the NBA’s are shifting downwards.

More people should be watching pro-sports since many are homebound during the pandemic. Despite the re-opening of cinemas, attendance is falling, as box-office numbers have demonstrated. While it appears that fans resent the direct engagement of players and teams in social justice issues, greater technological forces are at work which may change the very idea of how professional sports are valued and governed.

Professional sports leagues have historically generated healthy, long-term private-equity returns – they’ve been a source of smart diversification for billionaire investors and syndicates. It’s a reputable private-equity class that allows owners a high-profile, celebrity status. They are also platforms for philanthropy and community affairs.

For example, Joseph Tsai, co-founder of Alibaba, is estimated to have paid US$3.3 billion for the Brooklyn Nets and Barclays Center. The previous owner, Mikhail Prokhorov, invested and spent about US$1.5 billion nine years ago. So doubling your money in nine years is a respectable return on a private, billion-dollar investment.

[caption id="attachment_211700" align="alignnone" width="1024"] (Image: JC Gellidon/ Unsplash)[/caption]

Recent events have pushed owners to decide if they’re investing in a sport, a social organisation or a business in the post-pandemic and Black Lives Matter era. Then are the players actually business partners with the owners who provide all the capital? Owners could have disagreed with player demands to support Black Lives Matter, but at a high cost. The business schism between owners and players threatens to destroy or split the league and make pro sports an unattractive investment.

The outcome for the sport as a business has impaired or confused corporate governance within the NBA as owners have been subverted. Their commissioners are supposed to work for the owners, not the players. Unless this division is resolved, the league’s corporate mission, message and product will be irrevocably divided. Fans will be confused and seek alternate and substitute forms of entertainment.

Players used to audition for teams. Now teams audition for players. The emerging ownership-player-fan relationship model may look nothing like the traditional one. Post-pandemic, league revenues may fail to recover and severely impact their social and financial model.

Social justice is only a current topic in this sports revolution. Technology’s relentless role in subverting and disintermediating established groups and relationships is unpredictable and unstoppable. It empowers and consumes everyone in its path. Social media and mobile computing have opened the door for anyone to either broadcast within their social silo or to the outside world.

Twitter was initially called text messaging for people without friends. But why make friends when you can build a following – and change your world? It’s emerged as an unavoidable platform for the liberation of one and many. And this version of disintermediation is pernicious, because it takes on a life of its own, tearing apart a global brand, a jointly shared common community product such as sport, as frustrated fans retreat into their own social media silos.

This story first appeared on Prestige Singapore

(Main and featured image: Bertrand Gabioud /Unsplash)

The post What You Should Know About Investing in Professional Sports Franchises appeared first on Prestige Online - Hong Kong.

Assembling a collection of fine wine certainly seems like a glamorous way of storing your wealth, but does it really make sense as a hard-headed investment? Jon Wall asks the experts.

As an alternative to traditional investments in a diversified portfolio, wine is becoming popular among high-net-worth individuals. Although it can take several years before significant returns are seen, many investors believe that the rewards can be worth the wait – indeed, among the various classes of passion investments, wine has become as popular as, say, rare watches or classic automobiles.

As with any investment of this nature, however, wine obviously requires more than a modicum of passion – and that, surely, is a part of its appeal. According to Michelle Chan, head of the wine department at Christie’s auction house in Hong Kong, “We believe that the beauty of wine is that ultimately you can enjoy and share it with friends. So usually I wouldn’t advise clients to buy wine solely for investment purposes. I want them to enjoy it. Of course, there’s no harm in setting aside a portion that they can resell later, but I do think that clients should buy wines that they’d like to drink.”

[caption id="attachment_211485" align="alignnone" width="1024"] It's important to invest in wines you'd like to drink.[/caption]

Her view is broadly supported by Simon Tam, a Hong Kong-based wine expert and consultant who’s also a former auctioneer. “I would recommend wine as part of an investment portfolio, assuming that you love wine to start with,” Tam says, “though quite honestly, I think there are a lot of things in the world that yield a much higher return than wine.

“The idea I’d like wine lovers to consider,” he adds by way of explanation, “is that there’s nothing better than getting a really nice glass of wine for free and all because you invested wisely. For example, a lot of people bought 1982 Bordeaux, and those who got on to the bandwagon early made money and drank a lot of wine for nothing, because when they came to reselling their surplus quantities, their investment paid for itself many times over. Like many investments, however, you have to keep an eye on it, you have to keep an eye on the ball.”

Tam recalls a meeting he had with a prominent wine client when he first joined an auction house more than 10 years ago. “I asked quite innocently, ‘Why do you invest in wine?’” To Tam’s surprise, the client just laughed and said, “I don’t really invest in wine. I love wine, I love drinking it and I love learning about it.”

[caption id="attachment_211476" align="aligncenter" width="683"] Wine consultant and former auctioneer Simon Tam.[/caption]

Even given such a degree of passion, individuals who are considering devoting considerable sums of money towards the accumulation of an investment-quality wine collection should be aware of several caveats before they even start. There is, rather obviously, the fact that wine is a commodity that can change over time – to its benefit as well as to its detriment – and that, however good and worthy of laying down for three, four or five decades or more it may be, at some point it’s likely to reach a peak of flavour and complexity, after which it will probably deteriorate. There’s even the very simple issue – as Tam demonstrates by waving a cork – of the material most commonly used to plug premium bottles, poor examples of which can help “cook” or otherwise taint even the finest wines.

Bottle breakages don’t even bear thinking about, but they can happen too. So you need to take care of your wine, which in the vast majority of cases means proper, ie professional, storage in a darkened space where a constant temperature of around 12-14 degrees and humidity of around 70 percent are maintained, and which should preferably be vibration-free — and storage such as that is unlikely to be cheap.

“Too hot, too cold or too dry will do harm to the wine,” says Chan. Unlike rare coins, jewellery or watches, cases of wine take up considerable space, a factor that not only directly influences storage costs, but also the expense of shipping the wine from wherever you bought it (which is likely to be Europe or the United States) to the place that you intend to keep it.

[caption id="attachment_211477" align="alignnone" width="579"] Michelle Chan is head of the wine department at Christie's.[/caption]

“If you’re buying wine to be consumed within three to six months,” says Chan, “it’s OK to keep it in your home, though you should have a wine fridge. It would be even better if you had a basement, but in Hong Kong that’s unlikely! For long-term storage, say years, you really need a professional cellar, and that could be quite expensive. There are lots of private storage spaces for wine in Hong Kong, but the rent can be up to $50,000 a year for 50 square feet, which would house around 100 cases.

“Loose bottles are fine for short-term storage for your own consumption,” she adds, “but if you’re going to store the wine for years then I’d strongly recommend the original wooden cases.”

In an age and culture when apparently anything and everything can be faked, provenance is another issue that must be taken into account (though establishing a wine’s history isn’t solely concerned with whether or not it’s the real thing, but also if it’s been properly stored).

Are you sure that case of 1998 Château Lafite Rothschild you just shelled out a small fortune on isn’t some cheap plonk that’s been rebottled? Well, if you’ve obtained it through the proper channels – which generally means from a reputable auction house – you can be fairly sure it is. Any self-respecting auction house has its reputation to consider, so it will exhaustively research the history of the wines it’s offered – where and when they were bought, how they were stored, etc – and even sometimes taste them before agreeing to sell them.

[caption id="attachment_211482" align="alignnone" width="1024"] When it comes to wine investment, the list of bottles worth procuring is actually rather limited.[/caption]

As to the kind of wines that are likely to make good investments, the list is actually rather limited. “I would go for French wines,” says Chan, “wines from Burgundy, Bordeaux, Champagne and the Rhône Valley. Outside of France, you can consider top Italians and California wines.

“Of course you have to consider the vintage, too. The better vintages can last longer. Take, for example, [Bordeaux] 1993, which is not a very good vintage. If you bought, say, 20 cases, these are already past their peak and if you try to resell them now they won’t be worth as much. But in any case I’d suggest not focusing on a single vintage: your collection should spread out by decade. Even if you know that 2010 is considered a great vintage, don’t buy all 2010. Remember the best vintages and spread out. For Bordeaux, it’s 1945 – if you can still get some – ’47, ’49, ’59, ’61, ’80s ... You need to remember the good vintages for each region.”

Tam, meanwhile, warns potential buyers off Burgundy, which he says is a costly investment that’s unlikely to generate much in the way of returns. “The reality,” he says, “is that the wine world is driven by Bordeaux, and people like some Burgundy. For the past few years, Burgundy prices have reached a plateau and now they’ve got nowhere to go. The boom has passed, though top Burgundies [such as the near-legendary Domaine de la Romanée-Conti] will likely maintain their value because of limited quantity.”

[caption id="attachment_211480" align="alignnone" width="1024"] A 2006 Dom Perignon champagne.[/caption]

Tam, however, does make a strong case for champagne. “If you’re a wine lover,” he says, you’ll know that aged champagne – and this has been true for a few years now – is magnificent and you just can’t go wrong with it. I’m talking about champagne that’s got bottle age. That means you’ve got to buy and cellar for four, five or six years. In that time, you can make 20 to 22 percent, which is better than money in the bank – and that’s why it’s become a bit of a trend. There’s also a proliferation of auction houses and dealers who are eager to snatch it off you, because it’s increasingly hard to find. This requires passion, foresight, a degree of knowledge and not even that deep pockets to be honest.”

As for monetising your collection – or, at least, the part of it that hasn’t already disappeared down your throat or that you wish to put aside for future consumption – Chan says that the best option is to ask an auction house to give you an estimate.

“The usual procedure is that a client will send us a list – it could just be a simple spreadsheet – with wine names and quantities, and I’d ask where they got the wine from, where they’re stored – very straightforward questions. Then we’ll prepare low and high estimates, and negotiate as to whether they’re happy with that, and then we’ll agree on the list that they’d like to sell – and, of course, the more wine there is, the better the terms will be. I’ll also give them some recommendations: for example, if you have 20 cases of Latour 2005, I might not want to offer all 20 in one auction. Instead, I might recommend that they offer five cases in the first auction, five in the next and so on. I’d let them know our strategy."

[caption id="attachment_211479" align="alignnone" width="1024"] An array of wine bottles.[/caption]

“There’s another option,” says Chan, “and that’s what we call a private sale. But it has to be a high-value collection, and for a private sale it would have to be a separate proposal. It would have to be worth at least $1.5-$2 million potential. And we’d offer a net value.”

Assuming all goes well and you manage to dispose of a portion of your investment at a satisfactory price, you may not only have made a pretty profit on the transaction but also, as Tam suggests, have enjoyed several years’ of imbibing some of the finest wines known to mankind – and all for next to nothing.

Most Sought-After French Wines

According to Christie’s, at least some of these bottles should feature in any investment-quality collection.

Bordeaux
Château Lafite Rothschild Château Latour
Château Mouton Rothschild Château Margaux
Château Haut-Brion Château Pétrus Château Cheval Blanc Château Le Pin
Best vintages: 1945, 1947 1949, 1959, 1961, 1982, 1989, 1990, 1996, 2000, 2005, 2009, 2010, 2015

[caption id="attachment_211481" align="aligncenter" width="684"] A bottle of Chateau Haut-Brion.[/caption]

Burgundy
Domaine de la Romanée-Conti Domaine Armand Rousseau Domaine Georges Roumier Domaine Leroy
Domaine Leflaive
Domaine Ramonet
Henri Jayer
Best vintages: 1978, 1985, 1989, 1990, 1999, 2002, 2005, 2009, 2010, 2015

Champagne
Krug
Salon
Dom Pérignon
Cristal
Best vintages: 1982,1985,1996, 2002, 2008

[caption id="attachment_211478" align="alignnone" width="1024"] Krug champagne.[/caption]

(Main and featured image: Shutterstock)

The post Liquid Gold: Is it Worth Investing in Wine? appeared first on Prestige Online - Hong Kong.

Donald Han, CEO of Sabana Reit, shares his insights on the investment potential of industrial real estate.

The post Why the industrial sector might be the black horse in real estate investments appeared first on The Peak Magazine.

Donald Han, CEO of Sabana Reit, shares his insights on the investment potential of industrial real estate.

For more stories like this, visit www.thepeakmagazine.com.sg.

While many are panic-buying toilet paper, some astute investors are crisis-buying properties. Should you?

The post Covid-19: is it time to invest? appeared first on The Peak Magazine.

While many are panic-buying toilet paper, some astute investors are crisis-buying properties. Should you?

For more stories like this, visit www.thepeakmagazine.com.sg.

How do you invest during a crisis? We look to China and other foreign cities for property investment upsides.

The post Is it time to invest?: looking to China and beyond appeared first on The Peak Magazine.