Asia’s rich trim US exposure, head to Europe amid tariff turmoil

[SINGAPORE] Asian private banking clients sprung into action over the past month, refusing to sit idle despite the whiplash in global financial markets caused by the tariff turmoil. Individuals have been rebalancing their portfolios, according to some senior private bankers whose clients each have at least S$2 million in investible assets.

Global financial markets have been see-sawing between gains and losses since “Liberation Day”, when US President Donald Trump slapped a broad range of tariffs on key trading partners on Apr 2, but have erased those losses following a truce between the US and China on May 12. Even with Moody’s downgrade of the US credit rating a few days later, the MSCI World Index, which tracks 1,352 large and mid-cap stocks in 23 developed markets, has risen 3.8 per cent between Apr 2 and May 23.

To shock-proof their portfolios, HSBC Global Private Banking said Asia’s wealthiest are adopting a counter-cyclical, long-term approach.

“Compared to previous market downturns, clients’ behaviour this time appears more measured,” Tommy Leung, HSBC’s head of global private banking, South and South-east Asia, told The Business Times. “Many investors have applied lessons from recent years, resulting in portfolios that are more diversified across markets and sectors, with lower leverage and higher cash balances… They’ve positioned for resilience.”

UOB’s rich clients are also taking the developments in their stride, relatively more calmly than compared with the shock that Covid-19 levelled at global markets in 2020.

“There is comparatively less panic this time round as investors recognise that the tariffs, unlike the pandemic, can be reversed. The recent announcement of a pause in the tariff war between the US and China, which came just over a month after ‘Liberation Day’ tariff hikes by the former, is early evidence of this,” Neo Teng Hwee, chief investment officer at UOB Private Bank, told BT.

Dialing back on US exposure

One common thread the private banks noticed among their rich clients is the scaling back of their exposure to US equities and the greenback.

LSEG Lipper data showed that American equity funds had net outflows for a fourth straight week through May 7. Concerned about the impact that tariffs would have on the US economy, investors withdrew a net US$16.2 billion from these funds during the week – the most since Mar 19.

At the same time, worries that the tariff war will hurt the US economy dragged the greenback lower. Against the Singapore dollar, the US currency has depreciated about 5.7 per cent this year, as at Monday (May 26).

HSBC’s ultra-high-net-worth clients in particular are hedging against their foreign exchange exposures, while UOB’s clients are conducting similar trades, amid concerns over a weaker greenback.

UOB’s Neo noted that the bank hasn’t seen a large-scale exit of US dollar assets.

For this year at least, corporate profit growth in the US will be stunted, said Pictet Wealth Management. With a sizeable amount of its assets under management under discretionary mandates, where the fund manager makes buy-and-sell decisions for clients, Pictet said this “warrants caution with more risky assets, and US equities in particular”.

“Leading companies are laying off workers and grappling with supply chain issues, and many are unable to provide guidance as they simply don’t know what to expect,” the Swiss private bank said in a May 12 report.

To be sure, Asia’s rich aren’t throwing out the baby with the bathwater. While scaling back their exposure to US equities and currency, some private banking clients are taking the opportunity to pick up American companies on the cheap.

UOB’s private banking clients have been “selectively buying” US large-cap quality stocks, “given the likelihood of a negotiated settlement between the US and China in the ongoing tariff war”, said Neo.

Pictet Wealth Management favours American financial companies in the next three to six months, even though it’s recommending an overall underweight position on US equities.

Other assets

Rich Asians are also increasingly interested in European markets, “with a focus on German, Swiss and French equities”, said Rishabh Saksena, co-head of product specialists at Julius Baer.

Apart from quality large-cap US names and European stocks, the private bankers noted strong client demand for alternative investments, which are typically less volatile since they are private and not actively traded.

“Client demand for alternative investments remains strong, driven by an increased focus on diversification in times of higher market volatility. Within alternatives, strategies such as private infrastructure have gained traction on the back of an uncertain inflation environment,” said Saksena.