Investors should not only focus on the potential returns that investments offer, but on their (priced in) expectations and risks, said VP Bank Group’s Head of Investment Research, Mr Bernd Hartmann.

VP Bank announced its 2018 Investment Outlook , addressing prospective themes and market trends for Asian investors. The Liechtenstein-based boutique private bank predicted a challenging financial market environment that will require both investors and central banks to perform a delicate ‘balancing act’ this year.

Hartmann, who is also the bank’s Chief Strategist, forecasted that the financial market is set to remain upbeat for the first half of 2018, and the market cycle’s present advanced stage will be seen to be characterized by heightened valuation levels in all asset classes. Investors should, therefore, ensure that they are properly positioned.

First, investors should focus within their allocation on regions with an attractive growth to valuation ratio. After the long-lasting bull run on stock markets, Emerging Asia is one of the rare asset classes where valuation levels are still not expansive. Growth rate are strong and thanks to further margin expansions they have further potential.

Within industrialized fixed income and equity markets, alternative investment options offer interesting possibilities for investors who do not wish to expose themselves to increased market risk. Hedge funds and gold, for instance, are assets that VP Bank forecasts a growth in the next three to six months.

The third recommendation for a proper positioning is to identify secular growth topics. However, identifying attractive investment topics is in theory much easier than in practice. Addressing the main challenge that investors face, especially with new market players, Hartmann said,

“While the future of investments is filled with uncertainty, it is important to note the hidden risks amidst the potential high returns offered. In spite of the ideal market expectations, the underlining reality is that departure from traditional investment players does not equate to certain profits.

Investors should not be hasty to jump at these opportunities, but instead weigh the long-term gains and risks against their dependencies.”

According to Hartmann, e-automotive, robotization and crypto-currency are currently appealing to investors as dominant investment themes in the global market for the year ahead.

E-Mobility: The electrifying automotive sector

While the global automotive industry is fast-evolving, forecasted vehicle sales of conventional engine vehicles are still expected to continue to rise, with 644 million cars expected to be sold between 2018 and 2025. While e-car manufacturers like Tesla look to be here to stay, analysts are not predicting a fast departure from conventional engines;

Hartmann suggests that this is due to the fact that e-cars are not yet a cost-effective alternative for a majority of the population, and that the universal problem of air pollution is not immediately solved with the prohibition of diesel engines.

While there had been hype surrounding Tesla Inc. in end 2017, Hartmann opined that this was ‘exaggerated’. He shared that the transition towards e-vehicles becoming mainstream will be evolutionary rather than disruptive and that this transitional uncertainty offers an opportunity for investment.

With hybrid models representing an important transition technology, there is more potential investing in established automobile companies, than with e-vehicle producers. Hartmann’s recommendation for investors would be to keep an eye on these traditional providers, whose shares are currently cheap.

Robotics: Trend towards automation

The cost of manpower is steadily rising – not just in industrialized countries that are seeing a shortage of skilled workers, but also in former low-wage countries. In contrast, thanks to technological advancements, the cost of robotization is falling.

There are currently around 2 million industrial robots installed globally, mainly in the automotive, electrical and metal industries –this makes up 62% of the robotics market, while at least 12% are service robots catered for personal and domestic use.

These factors have contributed to growth rates in of around 12 to 15%per annum in the robotics industry, and with its rapid expansion into a large variety of fields, can be quite attractive for investors. However, because of the fast-moving nature of the industry and its complexity, Hartmann recommends a managed investment solution to best capture the potential of this automation trend.

Bitcoin & Co: What’s behind the hype?

The charm of cryptocurrency lies in its sophisticated creation, limited supply, and decentralized custody. However, it comes with a fair amount of risks and uncertainties, including regulatory uncertainty, security concerns, and great volatility. ICOs, or Initial Currency Offerings, are also gaining popularity, but investors should be reminded that these are often unregulated pre financings of mere business ideas. While there are roughly 600 ICOs in the pipeline, some are already turning out to be a Ponzi scheme.

Hartmann warns against being blinded by the on-going extreme hype around crypto-currencies. These financial products are subject to speculation, and due to high volatility and great regulatory uncertainty, they have not yet considered a ‘safe’ investment.

An industry veteran with more than 15 years of private banking experience, Hartmann’s portfolio includes the analysis of currencies, bonds, equities and alternative investments; as well as macroeconomic analysis. Based in Liechtenstein, he is a member of the VP Bank’s Investment Tactics Committee and is jointly in charge of determining the tactical positioning and mandates of VP Bank’s portfolio management.

Featured image via https://sg.vpbank.com/en