SC Bank: "Beware of 'Recency Bias'... Increase Bonds Next Year and Focus on Asia"

SC Jeil Bank Global Financial Market Outlook and Investment Strategy Report

[Asia Economy Reporter Minwoo Lee] A warning has been issued to be cautious of 'recency bias,' which is the excessive focus on the latest information. For the new year, it is analyzed that investors should pay attention to higher interest income by increasing bonds instead of stocks and focus on undervalued assets in the Asia region.

On the 27th, SC First Bank announced the release of the '2023 Global Financial Market Outlook and Investment Strategy Report' for wealth management (WM) clients the day before, containing these insights.

Through the report, investment strategy experts from SC First Bank and its parent company, Standard Chartered (SC) Group, identified key variables to gauge the direction of the global economy in the new year: recession in the US and Europe, economic recovery in China, global inflation slowdown, the US Federal Reserve's (Fed) pause in tightening in the first half of the year, and interest rate cuts in the second half.

Regarding inflation, while the economic slowdown in the US and Europe can significantly contribute to reducing upward pressure, it is still expected to persist above central banks' inflation targets. In China, with the easing of COVID-19 prevention policies, gradual lifting of movement restrictions, and strengthened policies focusing on economic stabilization, an economic recovery trend is anticipated. Between the US recession and China's economic recovery, a different market flow and investment environment from 2022 are expected to form.

SC First Bank recommended strengthening the foundation of investment portfolios in the new year amid ongoing domestic and international economic uncertainties. Detailed investment strategies include ▲ increasing the proportion of bonds over stocks by focusing on higher interest income ▲ increasing interest in undervalued Asian region (excluding Japan) stocks and bonds from an asset allocation perspective ▲ using government bonds, cash, and gold as defensive measures against unexpected risks ▲ expanding investment areas through multi-asset income strategies and alternative investment strategies.

In particular, to seek additional profit opportunities, Chinese consumer discretionary and communication services sectors, which can benefit from the resumption of economic activities, were identified as preferred sectors among Asian stocks. Additionally, among major currencies, the euro (EUR) and Japanese yen (JPY) are expected to show relative strength within the next 12 months.

Especially, Steve Bryce, Chief Investment Officer (CIO) of SC Group, emphasized the importance of reflecting on the past year but warned against excessive focus on recent experiences, known as 'recency bias.' He stated, "The era of composing portfolios with a 60:40 ratio of stocks to bonds is gaining skepticism, and it is true that responding to the market with only traditional assets is becoming difficult." He added, "Although private assets performed relatively well this year, this should not be interpreted as the decline of traditional assets. Since private assets generally have the disadvantage of low liquidity, the two asset types should be regarded not as superior or inferior but as having different characteristics, and it is necessary to build a portfolio that appropriately combines them."

This content was produced with the assistance of AI translation services.