By Abby Schultz
When you talk to a banker at Goldman Sachs Private Wealth
Management about how to manage the money you haven't thrown into
growing your business, the conversation is likely to turn to how to
diversify your wealth, and how to keep it safe and liquid.
That's because many of Goldman's private wealth customers --
people who have at least US$100 million in investable assets -- are
pretty good at snagging huge returns from their business. Safety
isn't a word they usually associate with capital they have on hand
to invest. Yet, what many of Asia's wealthy need to do now is
preserve wealth for their families. As China's economy slows and
the property market cools, more of Goldman's customers in China --
who represent about two-thirds of the Asia private bank's business
-- are ready to hear and act on this advice.
"The number one thing is safety, low risk," says Jiming Ha,
chief investment strategist for China at Goldman's private bank.
"Now they are starting to realize there's an important element in
this investment philosophy, given that domestically things aren't
as bright."
If you're a Goldman customer in what some call the ultra-high
net worth echelon, chances are what you need out of your
investments may not be typical. And that's where the conversation
begins -- about what you need or want out of your wealth. For
example, if you're funding a charity, you may want to put some of
your money in securities that generate predictable income, like
bonds. If you're creating a family trust, you may be more
interested in stocks with a stable growth outlook, says Bryce Wan,
head of the portfolio management group in Asia at Goldman Private
Wealth.
What you'll end up with is a bespoke portfolio that draws from
the firm's technical and strategic research from across the globe,
including a team of seven investment strategists led by Ha in
Asia.
Since 2010, Goldman has recommended a tactical overweight
position in U.S. large-cap banks. One reason is U.S. bank capital
leverage ratios are now about eight times assets, which is very low
compared with 13 times or more just before the financial crisis, Ha
says. "We think financial institutions are already in a position to
re-leverage," he says. "And alongside the pick-up in economic
growth in the U.S., we think the financial system will
benefit."
Meanwhile, the bank reduced a two-year overweight position in
large-cap pan-European stocks to neutral in the second quarter.
Goldman doesn't recommend backing away from European stocks
altogether. The sector should return 10% over the next three to
five years, Wan says. Goldman's tactical tilt within this neutral
stance is to overweight Spanish stocks and underweight French
stocks, given the slow pace of economic reform in France.
The firm is not upbeat about emerging market stocks either. It's
neutral on the sector, and it closed an overweight tilt toward
Indian stocks after the market appreciated in the wake of business
reformist Narendra Modi's election in May. Indian stocks are
already up 32% so far this year.
In February, Goldman also recommended avoiding copper. That call
reflects a slowdown in China's economy, but also the realization
that copper speculators within China are unwinding complex bets on
the metal's rise. Recently, it also recommended leaning away from
gold.
In fixed income, Goldman is recommending that customers
underweight investment-grade bonds, believing they are fully
valued, but they still like U.S. high yield, a position they have
held since deep in the financial crisis in 2008. The firm no longer
likes local currency bonds from Asia, given that they only give
customers a roughly one percentage point pick-up over U.S.
high-yield, which is not enough to pay for the risk. And while
clients will often ask about U.S. dollar-denominated bonds issued
out of Asia, Goldman isn't a big fan. Bonds from high-quality
Chinese state-owned enterprises don't offer enough yield, and
higher-yielding Asia bonds denominated in U.S. dollars often are
too risky.
Ha also steers any customers who ask away from so-called shadow
banking investments - essentially non-bank products bought In China
that are often opaque in nature, but can carry returns in the high
teens. Ha forecasts China's economic growth will slow to about 7%
in 2015 and 6% over the medium term. Customers start to realize
that "some of the products probably carry interest rates that are
much higher" than the risk level they can take.
Email: abby.schultz@barrons.com
Comments? E-mail us at asiaeditors@barrons.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires