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Expect highly volatile markets in 2019, says DBS' new institutional bank chief

➤ Anxiety over U.S.-China trade tension is already influencing personal investment decisions.

➤ Alternative asset classes and ESG investing are gaining traction among investors amid volatile markets.

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Tan Su Shan, group head of wealth management and consumer banking, DBS Bank

Source: DBS Group Holdings Ltd.

Tan Su Shan, who leads DBS Bank Ltd.'s wealth management and consumer banking divisions, will become head of the lender's institutional banking from Feb. 1, 2019.

Since joining DBS in 2010, Tan has overseen he acquisition of Société Générale SA's private banking business in Singapore and Hong Kong and Australia & New Zealand Banking Group Ltd.'s retail and wealth assets in Singapore, China, Hong Kong, Taiwan and Indonesia.

DBS Bank's parent, DBS Group Holdings Ltd., is one of the major trade finance banks in Asia, as well as the largest lender in Southeast Asia by assets.

As of end-September, DBS Group's wealth management income rose 29% year over year to S$2.03 billion, while retail income rose 15% to S$2.18 billion over the same period.

As 2018 drew to a close, she offered her views in an email interview on the ongoing trade friction between China and the U.S., the market outlook in 2019, as well as her preparation to lead the institutional banking division. Below are edited questions and her responses.

S&P Global Market Intelligence: How has the trade war between China and the U.S. affected your clients in wealth management and retail banking in Asia?

Tan Su Shan: The U.S.-China trade war has been a key concern among our clients. But, in our view, its ultimate impact on the global economy may not be as material as what many estimate or worry about in the short run. Relocating supply chains is difficult, and it takes time. New marginal investment may shift from China over the long term, but a significant part of that shift is likely to stay within the region.

What we find more challenging is the indirect impact that trade tensions can have on market sentiment. Anxiety is already influencing personal investment decisions, with some clients choosing to take a wait-and-see approach. What also continues to be a concern is China's deleveraging, which could lead to continued idiosyncratic risk in bond defaults into next year and impact China's growth.

How do you see the tensions panning out?

Tan: Ongoing U.S.-China trade tensions are clearly headwinds and have adversely impacted global financial markets, and will continue to be a headwind in 2019. That said, a full-blown trade war is not our base case we think rationality will prevail at the end of the day.

What does your crystal ball tell you about the market in 2019?

Tan: Whilst there should be slower economic growth globally, we do not expect a recession. The tug of war between the bulls and the bears will likely result in a high-volatility, nontrending market.

In this environment, we advise investors to use a barbell strategy to maximize risk-return. This means to construct investment portfolios that are heavily weighted at both ends of the risk spectrum with secular growth themes such as ageing populations and millennials at one end, and stable income-generating assets at the other. Investors seeking growth should look to the U.S. and those seeking value should look to Asia.

Are there products out there that you deem promising?

Tan: We see stronger interest in discretionary portfolio management when markets get tougher, as clients seek more than just products. They are also seeking expert advice and investment solutions, and consistency in portfolio management.

Alternatives have been gaining traction as well, as they provide valuable diversification from traditional asset classes. For example, hedge funds, long-short and relative value strategies may perform well in volatile times. Also worth considering are private debt, private equity and real estate, which require longer-term horizons and are less subject to perceived short-term volatility.

We are also optimistic about ESG investments, which have been gaining interest from our next-generation wealth clients. These millennial investors, a demographic well-positioned to drive change in the investment landscape as family wealth changes hands in the coming 10 to 20 years, place greater emphasis on investments that generate both financial returns and positive social impact.

On the flip side, any pitfalls to watch out for in 2019?

Tan: Potential black swans include a full-blown trade war and further economic and political turmoil in Europe. Other general risks to be mindful of in the coming year include the dialing back of monetary accommodation by major central banks as output gaps close.

You were in institutional equity sales at Ing Barings Securities Ltd. and you will be heading back to that realm. How different are the skill sets required for investment banking compared to retail and consumer banking?

Tan: In my impending role as group head of institutional banking, I will be leading the bank's institutional and corporate business. This will include serving multinational and large corporations and SMEs across a broad spectrum of financial services including commercial banking, investment banking, global transaction services, structured solutions, strategic advisory and digital solutions.

I think there are many similarities between this and my current role. The fundamental principles around banking such as taking deposits and giving loans, and providing a holistic end-to-end solution still hold, in both corporate and personal banking. The combination of offline and online solutions, and the advisory services around hedging, investments and strategic advice are also similar, whether you are dealing with ultrahigh-net-worth families or business owners.

However, the differences are the skills and understanding needed for complex credit solutions, transaction services around trade and corporate finance. Different countries, sectors and regulations will also require sector and country specialists. There is a lot more cross-country and cross-team collaboration. I am now busy relearning and learning everything.

As of Dec. 28, US$1 was equivalent to S$1.37.