Standard Chartered turned overweight on India while keeping a neutral stance on global equities and fixed income. Sumeet Bhambri said, "The house view is that we are now in the mid-equity cycle." The bank expects market volatility to remain high, so it advises clients to maintain a diversified core allocation.
Standard Chartered expects equity returns to moderate and market volatility to remain elevated as global markets enter the middle phase of the current cycle. The bank maintains a neutral stance on both equities and fixed income as investors navigate persistent market risks.
"The house view is that we are now in the mid-equity cycle, where returns from here are likely to be more muted compared with the early phase of the cycle, and volatility is expected to remain high," said Sumeet Bhambri, Global Head of Advisory and Managed Investments at Standard Chartered, in an interview with businessline.
The bank expects volatility to remain elevated, with markets continuing to react to developments such as trade barriers, crude oil prices and geopolitical tensions. However, this does not mean investors should exit equities, Bhambri said. Instead, the bank is advising clients against taking an overweight position in the asset class and recommends maintaining a diversified core allocation.
The bank has a neutral weight on equities overall, although it has recently turned overweight on India as it sees scope for a re-rating. Allocations to India among the bank's overseas wealth clients remain low relative to their overall portfolios, suggesting room for further increases, Bhambri said.
Bhambri said the bank continues to maintain significant exposure to fixed-income assets, and clients are still investing. Some are beginning to consider taking on more duration exposure as interest rates may be nearing their peak, but remain selective because inflationary pressures persist. He said clients are likely to hold on to existing investments rather than make significant additions to their portfolios.
The volatility in equity markets is also contributing to growing interest in hedge funds. Standard Chartered is seeing a "huge amount of interest" from clients globally in increasing their investments in the segment this year. Higher interest rates, market volatility, and divergences in the performance of asset classes and markets have created more opportunities for hedge fund strategies, Bhambri said.
"One is uncorrelated returns. Because you've seen the performance of equity markets being quite volatile, and they expect that to continue," Bhambri said. Hedge funds could deliver high single-digit to low double-digit returns, or 8 to 10 per cent in US dollar terms, while exhibiting significantly lower volatility.
Standard Chartered uses gold as its only alternative investment in its Foundation asset-allocation model, which is designed for retail investors. Adding private markets and hedge funds to this model could affect its eligibility as a retail product in several markets, he said.
The bank also runs a separate model, Foundation+, for sophisticated or accredited investors. The portfolio allocates between 15 and 25 per cent to alternative assets, including private equity, private credit, real assets, infrastructure, hedge funds and commodities. It also has a small exposure to digital assets, with Bitcoin accounting for 2 per cent of the allocation.
However, the bank does not currently have a fund based on Foundation+ in any of its 14 markets, though it is working towards launching one.
"Having a large allocation to private markets has its own challenges around liquidity and portfolio construction. So we are working through that, but that could be something we are actively considering," Bhambri said.
In the bank's balanced portfolio, gold accounted for 6.5 per cent of the overall allocation as of September-end, while cash and money market funds accounted for 3 per cent.