The next recession will not be anytime soon and it is too early to get out of equities, according to a senior fund manager.
Mr Anthony Raza, head of multi-asset strategy at UOB Asset Management (UOBAM), said shares can still be expected to return 8 per cent to 10 per cent this year, given increasing corporate profits and growing economies.
However, UOBAM is pulling back slightly from investing in bonds, as interest rates are expected to go up and possibly hurt prices.
"We try not to be too alarmed. We don't think fixed-income returns are going to be negative, but still in the low single-digit range," said Mr Raza last Thursday.
It will be at least two years before the global economic expansion comes to an end, he added, noting that out of a checklist of seven indicators that might predict a recession, none are flashing any warning signals.
One of the most reliable signals of a coming recession is what is known as an inverted yield curve, which refers to the slope formed by short-term to long-term government bond yields.
Ahead of a recession, the slope tends to flatten and invert, resulting in long-term bond yields being lower than short-term ones.
The phenomenon happens because investors rush to lock in long-term yields, keeping long-term bond prices high and yields low.
They prefer not to invest in short-term bonds due to the risk of having to reinvest the money at lower interest rates in the future. Central banks tend to lower short-term rates in a recession to stimulate the economy.
Indeed, the United States yield curve has been flattening in the past year, but there is still about two years before it is completely flat, Mr Raza argued.
There is also no sign of high loan growth, junk bond sell-offs or bank liquidity problems, which might indicate a looming recession, he adds.
"I'd lean to something like 2020 as being the timeframe where we should be more concerned."
Mr Raza was speaking to around 300 stakeholders and fund distributors at UOBAM's 2018 investment outlook seminar.
A poll of attendees found that 40 per cent expect the global economic expansion to end next year. Another 30 per cent said it will end in 2020.
Among clients, a common question is whether historically high valuations will persist.
Mr Raza is sanguine, noting that markets have shown that they can stay at above-average valuations for many years.
"Also, when you adjust for interest rates being lower than they have been, these valuations aren't abnormally high."
The seminar also tackled topics like how to plan for retirement as Asia ages, what large institutional investors expect for markets this year, the potential for non-traditional investments like hedge funds and private equity, and the potential of South-east Asia.
Mr Aje Saigal, a Government of Singapore Investment Corporation (GIC) veteran who founded investment firm Nuvest Capital, also spoke of his experience as the chair of the investment committee of the Singapore Indian Development Association (Sinda).
Sinda allocates 65 per cent of its portfolio to bonds and 35 per cent to global equities.
Investing in global equities is important, as having a home bias can result in a sub-optimal outcome, he said. Technology allows smaller investors to access instruments like exchange-traded funds (ETFs) to get access to global markets today.
"Even for a small fund like Sinda, we have a globally diversified portfolio through these instruments," Mr Saigal added.
At the event, UOBAM chief executive Thio Boon Kiat said the firm is focusing on increasing its scale, capabilities and use of technology.
"Last year, we invested in digital solutions, from the back office right to the front, in areas such as data optimisation to identify investment opportunities," he added.
UOBAM launched its digital advisory solution UOBAM Invest last Wednesday. The online platform will distribute ETFs and UOBAM funds, initially to medium-sized UOB commercial banking clients.
"We look forward to introducing the service to more corporates and retail investors across our regional network," Mr Thio said.