The famed Swiss bank has warned investors of continued volatility in the aftermath of a broad-based sell-off in Asian equities at the start of the fourth quarter.
This is a significant reversal, because UBS, like many other private banks, has placed a big bet in Asia. The Swiss bank and others like it have benefited from the booming Asian markets and a willingness by Asian clients to borrow money and trade.
The bank expects home prices in Hong Kong to soften by as much as 10-15% over the next six months to one year. Intensified China-US trade tensions and fears of a weakening economy have already weakened home prices by 2% from a previous peak in August.
UBS expects home prices in Singapore—while not buoyant—to remain at least range-bound, not because of any macro-economic worries but because of the government’s property cooling measures. The rising SIBOR(Singapore Interbank Borrowing Rate) and HIBOR (Hong Kong Interbank Borrowing Rate) pose further problems for property prices in the region.
Mark Haefele, UBS’ private bank investment chief believes consensus 2019 earnings growth forecast of 11.5% is aggressive, and has been revised down to 7.6%. His fear that Asia-Pacific currencies could fall by as much as 2% on average against the US dollar over the next three to six months—could be one reason for the skepticism.
However, an escalating trade war with the US is the main reason for concern. Haefele expects China’s growth to slow visibly to 6% in 2019, from 6.5% this year and cautions investors to hedge their CNY exposure, with a target of 7.3 against the dollar by the end of 2019.
Haefele, along with APAC investment chief Min Lin Tan, remains overweight on China, South Korea, Singapore and Thailand versus Taiwan, Hong Kong, Philippines and Malaysia.
A 35% oil price inflation from the 2017 average, against the backdrop of tighter monetary policies, is expected to put a moderate brake on Asian economic growth, provided there are no further supply shocks.