[2020 Financial Weather Forecast] What Are the Investment Strategies for the Year of the Rat According to Asset Management Experts?

Maintain 50-70% Allocation in 'Core Assets' to Avoid Losses
Stocks Expected to Peak in First Half and Show Increased Volatility
Quick Offense-Defense Shift with 'Hit and Away' Strategy Effective

Respond to New Normal Era with Diverse Alternative Investments
Bond, REITs, and Infrastructure Returns Underperform Last Year
Tax-Free Product Enrollment Essential for Year-End Tax Settlement

[Asia Economy Reporter Oh Hyung-gil] Like the first sun rising vigorously to drive away the darkness at the beginning of the new year, hopeful news is coming to the global economy at the start of the year. Dramatic progress has been made in trade negotiations between the United States and China, with a phase one agreement expected soon. The International Monetary Fund (IMF) predicts that the global economic growth rate will rise to 3.4% this year, up from 3.0% last year.

Although there was no clear economic crisis last year, there is growing optimism that the global economic slowdown, which caused most countries to experience a decline in growth rates, will reverse. The abundant liquidity resulting from major countries' monetary and fiscal policies last year led the global financial markets. Stock markets rose by as much as 24% (U.S.) and as low as 5-6% (Korea), while safe assets such as gold increased by 15%, developed market bonds by 7-8%, and domestic bonds by 4-5%, showing generally favorable returns.

However, risks still lurk in many places. It cannot be guaranteed that U.S.-China trade negotiations will proceed smoothly after the phase one agreement. The U.S. presidential election will be held in November. The IMF also described the 2020 global economy as a "precarious recovery" and left room for downward revisions.

Amid economic forecasts filled with both hope and anxiety, experts advise that financial strategies should be refined more precisely in the new year. They also urge adherence to the principle of diversification.

◆Political events have a big impact... Invest in installments (Cho Hyun-soo, Team Leader of PB Team, Yangjae Nam Financial Center, Woori Bank)= It is necessary to establish a thorough portfolio strategy to avoid financial losses regardless of the situation.

Depending on individual preferences, assets that will not incur losses should be classified as core assets, maintaining a weight of 50-70%. The remaining assets should include various satellite assets to employ tactics that can generate high returns even if some risks occur. Political events may have more influence than economic factors. The stock market is expected to peak in the first half of the year, and volatility may increase in the second half, so it is necessary to realize profits from a short-term perspective rather than a long-term approach. A cash reserve strategy for investment after adjustments depending on the situation is also effective.

The USD-KRW exchange rate is expected to stabilize compared to last year, so a strategy of buying in installments at low points is needed from a long-term asset allocation perspective rather than short-term currency arbitrage investment. Buy in installments whenever it falls below the 1,150 KRW level, and sell in installments when it breaks above the 1,170 KRW level. It is recommended to hold more than 10% of financial assets in U.S. dollars, and depending on individual preferences, foreign currency time deposits, foreign currency ELS (Equity-Linked Securities), foreign currency bond funds, and foreign currency insurance can be utilized.

◆Investment opportunities in safe assets will come after the second quarter (Jung Moon-seok, Team Leader of Investment Asset Strategy Department, Shinhan Bank)= The keyword for the 2020 financial market is "Hit and Away," meaning "attack swiftly and then quickly take a defensive stance."

It is necessary to invest aggressively in risky assets in the first half of this year. The "power of money" based on liquidity is expected to have a positive effect on the prices of risky assets such as stocks.

Global interest rates may rise slightly in the short term. Considering the difficulty of expecting a trend recovery in the global economy, uncertainties related to the U.S. presidential election, and the possibility of intermittent frictions between the U.S. and China, investment opportunities in safe assets such as bonds and gold will return more strongly after the second quarter.

Given the solid consumer economy and overwhelming corporate competitiveness, U.S. leadership is likely to continue next year. The U.S. stock market is one of the few investment destinations with very high resilience even if the situation worsens, allowing for comfortable long-term investment. The Chinese stock market is a promising investment destination due to expectations of easing U.S.-China conflicts and inflows of external funds following market opening, and Vietnam is a promising region among emerging countries for stable high growth. Although the outlook for risky assets in the first half is positive, a ratio of about 60% risky assets and 40% safe assets is recommended. Operating with this ratio at the beginning of the year and gradually increasing the proportion of safe assets when stock prices rise sufficiently or when the global economy is expected to slow down again is an appropriate strategy.

◆Do not expect high returns from bond products and REITs this year (Kim Hyun-seop, Team Leader of WM Star Advisory Group, Dogok Star PB Center, KB Kookmin Bank)= This is a new normal era where the future cannot be predicted based on past experience. Instead of concentrating investments only on seemingly good assets, it is essential to use various alternative investments to diversify across multiple assets and manage investment timing and maturities differently. I recommend an asset management method that recovers investment funds when the target return is reached at each point through diversification.

Due to consecutive interest rate declines, the scope for further declines does not seem large, so it is difficult to expect high returns from bond products, REITs, and infrastructure investments that were good investments this year to continue next year. Bond product investments are recommended for interest income from an asset allocation perspective.

There is a prevailing forecast that the USD-KRW exchange rate will decline in the second half of the year. However, since exchange rate prediction is always difficult, increasing foreign currency assets within my assets denominated in Korean won is meaningful from a portfolio management perspective. Continuous interest in global hedge funds and income-type products is necessary. Considering risk versus expected returns, overseas diversification is an essential element in asset management.

◆Draw the blueprint for tax benefits at the beginning of the year (Shim Hye-jin, PB, Legal Town Gold Club, Hana Bank)= The key to year-end tax settlement is to distinguish between income deductions for expenditures and tax credits for subscribing to financial products and to select appropriate products according to one's salary. Pension accounts (pension savings, IRP) can be subscribed to regardless of age or income (provided there is verifiable income). Up to 18 million KRW can be paid annually, and if received as a pension for more than 10 years after age 55, it can be received tax-free during operation and then at a low tax rate. An annual tax credit of 7 million KRW is a bonus.

Workers with total annual income of 70 million KRW or less who are heads of households without a home can receive income deductions of up to 40% of their housing subscription savings contributions (up to 2.4 million KRW annually), with a maximum of 960,000 KRW.

Household members under 34 years old without a home, and workers with annual income of 30 million KRW or less who are not heads of households, can subscribe to the Youth Preferential Housing Subscription Savings. The interest rate can reach up to 3.3% annually for 10 years, and interest income is tax-exempt. Even if subscribed to the general housing subscription savings, if there is no history of winning a subscription and the subscription conditions are met, conversion to the Youth Preferential type is possible.

Only wage earners can receive a 12% tax credit on annual payments up to 1 million KRW for guaranteed insurance, and business income earners can receive income deductions up to 5 million KRW annually based on Yellow Umbrella Deduction contributions.