The Best of Both Funds: Public and Private Markets Outlook | Global Investors' Symposium Hong Kong

Macroeconomic Outlook & Risk Sentiment

• US GDP growth forecasts have been revised downward significantly; a recent survey indicates 90% of US-based investors cut their forecasts by at least 0.4% since inauguration, with the firm lowering its own projection from 2.4% to 1.7%.
• The probability of a US recession is estimated at approximately 20%, slightly elevated from the historical average of 15% but deemed a low-odds scenario.
• Market volatility, measured by the VIX, has rebounded to levels seen immediately following the Russian invasion of Ukraine.
• Investors are shifting focus from monetary policy to fiscal activism, as governments are now driving economic policy rather than central banks.
• Interest rates are expected to remain structurally higher and more volatile, with no return to ultra-low rates, necessitating a re-evaluation of discount rates and forward-looking return assumptions.

Trade Policy & Geopolitics

• Tariff rhetoric has shifted from universal proposals to country-specific and sector-specific measures; China faces an additional 20% tariff, while steel and aluminum face 25%.
• Reciprocal "fair trade" tariffs are scheduled for April 2nd (Liberty Day), targeting top trade imbalances including China ($285B), Vietnam ($123B), Taiwan ($84B), Japan ($74B), South Korea (~$68B), and India.
• Geopolitical alliances such as AUKUS, the Quad, and the Indo-Pacific Economic Framework are facing renewed scrutiny, contributing to regional instability.
• Domestic challenges in China remain a critical factor for Asian economies, specifically revolving around debt restructuring, demographic shifts, and decoupling pressures.

Equity Markets & Valuation Trends

• Global equity markets are at historic concentration levels, with the US disproportionately represented within the MSCI All-Country World Index.
• Single-stock exposure to US tech giants (Apple, NVIDIA, Microsoft) accounts for 4% of the global benchmark, representing a higher risk concentration than China's ~3% weight.
• US equities have underperformed non-US markets year-to-date, accompanied by a weakening dollar despite prior tariff-related expectations.
• The Magnificent Seven valuation narrative is shifting; while some compare current levels to the ChatGPT moment, caution is advised against extrapolating short-term momentum.
• Japan is identified as an increasingly attractive market with growing client interest.
• India and Taiwan are flagged as potentially overvalued due to growth expectations that may have outpaced fundamentals.

Strategic Allocation & Sector Preferences

• Recommended portfolio positioning includes a modest underweight to US equities and an overweight to non-US markets, specifically targeting value sectors and small-cap opportunities in Europe.
• Fixed income and private credit are prioritized as defensive assets; US high-yield bonds offer 7-8% yields which, even accounting for potential defaults, provide attractive risk-adjusted returns.
• Private credit is deemed a structural asset class due to bank retrenchment, though concerns exist regarding crowding, tight spreads, and the misconception of "no risk."
• Hedge funds, particularly low-beta and low-volatility strategies, are gaining favor as a means to neutralize directional market risk.
• European diversification opportunities exist in defense spending, financials, utilities, and telcos as fiscal policies shift domestically.
• Asian investors are uniquely positioned to fill gaps left by US investors withdrawing from private markets, offering access to US assets previously constrained by capital flows.

Artificial Intelligence & Innovation

• The "Deep Seek" event in China is viewed as a catalyst for the democratization of AI, potentially leveling the playing field against US dominance through open-source models.
• The AI investment narrative is transitioning from the hardware era to the software and application era, suggesting future value creation may migrate away from current hardware leaders.
• While AI is a long-term paradigm shift, investors are cautioned that current market leaders may not be the long-term beneficiaries, mirroring the trajectory of past tech bubbles.
• Key focus areas for AI ROI include cloud infrastructure, application developers, and the monetization of commercial use cases.

Final Actionable Directives

• Investors are advised to stay invested but remain modestly defensive, anticipating potential drawdowns without panicking on volatility spikes.
• Portfolio construction must actively neutralize unintended risks associated with concentration in passive US indices and benchmarks.
• Active management is deemed superior to passive strategies in the current high-volatility, high-uncertainty environment.
• The private sector in China requires consistent policy signals and evidence of reviving "animal spirits" before global investors can confidently increase exposure to A-shares.