Thu, Jan 09, 2020 – 4:20 PM
THE US market is expected to continue to perform, driven by FOMO (fear of missing out) on a continued bull market, DBS Bank’s chief investment officer Hou Wey Fook told the media on Thursday at its Q1 2020 market outlook.
As global savings need to find a home somewhere, equities are to remain as a preferred asset class given that there is no better alternative in the current low rate and low yield environment, according to Mr Hou. Monetary and financial conditions are also conducive for equities considering the abundance of quantitative easing liquidity.
Against such a backdrop, DBS has, for the first quarter, weighted US equities as “overweight” as it expects growth momentum in the US to stay strong.
The resilience of the S&P 500 Index amid volatile market conditions on the back of escalating US-China trade tensions and rising concerns over recession is remarkable, according to DBS’s report.
More upside for US equities is expected in the year ahead driven by earnings growth and valuation multiple expansion. This comes as DBS has continued to be “overweight” on US equities since 2018.
“The strategy has paid off handsomely as the market has registered total returns of 20.5 per cent since January 2018, 947 basis points higher than those of global equities,” according to the report.
Apart from the US, Asia ex-Japan equities are also “overweight” on the back of momentum from North Asian technology companies as the demand for chip set grows. This is fuelled by 5G, artificial intelligence and cloud computing industries. Another key driver of the Asia ex-Japan market is the robust domestic consumption in China.
Meanwhile, the bank is “underweight” on Japan and Europe equities due to challenging geopolitical conditions.
Mr Hou advised clients to continue to adopt the barbell strategy in building their portfolios. This involves investments that are heavily weighted in two areas of focus, with growth assets on one end and stable income generating assets on the other.
On income assets, Singapore Reits (real estate investment trusts), China banks, Europe oil majors and Europe bank AT1s (Additional tier-1) are favoured. On growth assets, the bank is recommending companies that capitalise on trends such as ageing, digitalisation and growth in China’s middle class.
Mr Hou also identified several of the bank’s key investment themes for 2020. This included the millennial wave that sees a growing interest in e-sports, healthcare, technology and semiconductors driven by rising Internet of Things penetration rates.