Get a second helping of dim sum bonds

'Sell in May and go away" is a debatable trading adage but one which has stayed with investors through the years. The long-term unreliability of the maxim notwithstanding, there is growing uncertainty as we approach the midway mark for 2014.

Some of the macro forces that have determined the course of global markets since the 2008 financial crisis are starting to morph. The US Federal Reserve is halfway through unwinding its quantitative easing (QE), or asset-purchase, program, bringing us closer to the day when it will start raising interest rates. China's economy is gradually slowing as policymakers continue to deflate a credit bubble at a controlled pace, even as they embark on wide-ranging structural reforms. And new geopolitical risks are emerging from hitherto unexpected quarters (such as Ukraine).

ICBC issues dim sum bonds

Yuan exchange rate's floating range widened

How should an investor safeguard his/her portfolio, and generate healthy, inflation-adjusted returns in the face of such uncertainties? We (Standard Chartered) have been recommending a diversified portfolio with overweight on developed market equities, balanced with some multi-income assets which include high dividend-paying stocks and high-yielding bonds.

We have also remained underweight on emerging market equities and bonds, although we have recently upgraded Asia ex-Japan equities to neutral. Our strategy has worked well over the past couple of years.

While we're comfortable with this broader allocation, there is still an opportunity for investors to diversify their income portfolio by adding some renminbi denominated bonds issued by the Chinese government and some high-quality, top-rated companies from China. These fixed income securities offer investors higher yields relative to comparably rated US dollar denominated bonds, while not facing the downside risks that other emerging market assets face from increasing US yields.

Last year, we got a whiff of the possible downside risks when former Fed chairman Ben Bernanke first hinted at "tapering" its asset purchase program. Not many asset classes were spared during that time of short-lived turbulence. Global equities sold off, as did US-dollar bonds. Emerging markets' currencies and other assets were hit hard as investors factored in higher US benchmark yields down the line.

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