As the Chinese new year celebration approaches, Capital Services Group (Capserv), an independent asset management specialist based in Asia, warns investors to be strategic in their business decisions, as it dubs 2016 as the year of the fat-tailed monkey.
In a research note, Capserv describes a fat-tailed distribution as one that exhibits extreme skewness, or deviates from the norm.
In relation to business, when a distribution is fattened, it entails undesired risks and more chances of investment failures.
“As we enter the Year of the Monkey, extreme volatility, low growth, and record debt levels dominate the global economy, and with it, the distribution tail is fattening alarmingly,” Caperv said.
It cited Bloomberg, which described the distressed dent investment experience of 2015 as “painful.”
It said investors in energy companies were the first to experience the pain, which spread quickly to other industries, such as chemicals, metals, mining, utilities, retail and healthcare.
Capserv said this was caused by the lack of economic growth and the failure of markets to recover and rebound after they had crashed.
“In 2016, we are waiting to see whether this is a short-term over-reaction, or part of a fundamental shift in market behavior,” it noted.
Capserv said investors must now “appreciate a fundamental market shift,” warning that fiscal stimulus is now the foundation policy for all the world’s major economies and that low interest rates and limited or no-growth would prevail.
“For real estate investors, absent property crashes, and other than in specific sectors or pockets, there will be little or no capital appreciation,” Capserv said. “Ownership alone will no longer be enough in order to make returns. Owners will need to develop value creation strategies and clear exit plans.”
It said businesses “must be sure on whether their investment exit will be, for example, a property management play, redesign, remodeling and repositioning, refurbishment, reducing cost of money strategy, financially engineered yield contraction, or an asset management play.”
“If the ownership strategy is only cross border FX hedging, maybe, it would be better just to hold foreign cash,” it added.
The asset management group also said that investors would be able to profit from the new niche markets, such as the swelling Asian cross-border health and retirements markets.
It also pointed out the South Asian tourism market, which is transitioning from being premium western visitor-oriented, to a more Asian mass-market travelers niche.
“However, much of the infrastructure in travel, hotels, retail, restaurants, and leisure facilities is constructed for the premium market,” it noted further. “It needs to be re-engineered or rebuilt to be competitive, creating a window of opportunity for those who react to change best and quickest,”