Investors gravitating towards non-ringgit assets

KUALA LUMPUR: The depreciating ringgit has spurred changes in the thinking and behaviour of investors, who are now gravitating more towards non-ringgit assets.

“Investor sentiment is moving from capital appreciation to yield enhancement. They are looking for exposure into foreign currency assets without taking exchange rate risks,” said Pramod Veturi, head of wealth management at Standard Chartered Bank Malaysia Bhd.

“With exposure into international assets and assets which give yield, they can maximise the investment power,” he said at the bank’s press conference on Wealth Power, its new credit facility.

Veturi said investors have shifted from the mindset of having their capital appreciate to focusing more on the yields they can gain.
He added that developed market equities are seeing significant uptake due to the recent global political scenario, which has had investors worried over whether these equities are overpriced.

Danny Chang, head of managed investment and product management, Standard Chartered, said the onset of the weakening ringgit in the last three to four years has resulted in a swing of clients moving out of ringgit assets partly because the performance of non-ringgit assets has been better.

He said factors such as an inflation rate which is at 4.5% and falling interest rates have caused conservative investors to look for assets that will not make them lose out on yields or returns.

“The situation now is that inflation has gone up and interest rate has fallen. Investors here continued to be squeezed,” he said.

Chang said the bank’s clients are seeking alternatives and are rising up to the fact that they need to hedge not only their investments but the currency, hence are turning to non-ringgit assets as alternatives. This sentiment, he opined, will continue given that the knowledge of hedging against the currency seems to be getting more widespread.

In view of these conditions, the bank has introduced Wealth Power, which is a form of leverage financing that helps investors magnify their investments capital in a foreign currency with bank borrowing of up to nine times. The client will then be able to invest in an asset.

With this credit facility, clients will be able to minimise exchange rate risk by borrowing and investing in assets in a foreign currency or non-ringgit assets such as corporate bonds and foreign currency unit trusts.

“With Wealth Power, the risk of foreign currency is minimised because the client is investing in the same currency they are borrowing. If the client is putting money in US dollar assets or Australian dollar assets, the borrowings are also in that currency,” he said.

The facility is available in seven currencies, including the ringgit, US dollar, euro and Australian dollar. The yield rate is dependent on the currency the investment is in.

Not ruling out the risk associated with borrowing and investing, Tan said the bank’s role in reducing the risk is by helping to identify suitable instruments that match an investor’s risk profile.

An investor will incur a borrowing cost in terms of a floating rate in the form of currency interest rates and a fixed one, in terms of the bank’s spread, at 1.5%.

One of the funds Standard Chartered is featuring in Wealth Power is the CIMB-Principal US Mortgage Fund.