Citi Says Asian Clients Are Still Cautious to Join Stock Rally

(Bloomberg) -- Asian investors are holding high levels of cash as they await more clarity on corporate performance amid the coronavirus outbreak, according to Citigroup Inc.

Many people in the region are not making long-term decisions on their portfolio at this point, Julia Raiskin, the bank’s Asia head of equities and securities services, said in a phone interview. The American bank’s clients want to distill the impact of the Covid-19 pandemic and macroeconomic developments on specific stocks before dipping their toes in, she said.

Money managers have questioned the sustainability of the recent global equity rally, citing uncertainty around profit impact and the risk of another wave of infections. Goldman Sachs Group Inc. has forecast a 22% slump in earnings of Asia Pacific ex-Japan companies in 2020, while Fidelity International analysts are bracing for a full-year earnings cut of 44% on average across companies globally.

“We are just in a period of reassessment. We did see decent regional buying into the early stage of the sell-off particularly from Hong Kong and China,” the Singapore-based executive, who took on her new role in August, said. “We are not seeing much of that right now.”

According to Raiskin, those clients in Asia who supported markets at the start of the rout are now stepping back to assess the economic damage and impact on dividends from the global health crisis. Earlier this year, Asian investors particularly in China were “active buyers” at a time when stocks were a primary asset class that could be sold for liquidity because financing and fixed income markets “froze up,” Raiskin said.

‘Caution Is Warranted’: Fund Managers’ Playbook as Results Start

Raiskin said the bank’s wealth management clients have liquidated some of their structured product positions for now. “For a lot of investors, they are trying to formulate their investment thesis in the current environment and are trying to understand what is the recovery -- ‘V’ or ‘U’ shaped -- and what the relative impact of this is going to be on different sectors,” she said.

The MSCI Asia Pacific Index rose 1.9% on Friday, just one index point shy of entering a bull market.

Other highlights from the interview include:

• There have not been any “major issues although sometimes we do find that country and regional networks can become slow during periods of high usage,” Raiskin said about operating under lockdown. “All of us expected this to be a much crazier situation than it has been so far from an operational perspective.”
• With a majority of Citi’s clients working from home, the lender has also seen a notable increase in engagement with investors, who are reading and “speaking to us much more than they have before,” Raiskin said.
• The virus outbreak has slowed down the approvals process for Citi’s onshore wholly-owned securities business in China but the bank is “committed” to operating a securities brokerage in the country.
• Getting an onshore custody license in China is another priority and will allow the bank to service domestic clients including private funds set up by global asset managers in China.

©2020 Bloomberg L.P.