Into The Light - Maybank Singapore
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Into The Light
MACRO ECONOMIC OUTLOOK AND INVESTMENT STRATEGY
On the fiscal front, Joe Biden’s victory with a potential More broadly, COVID-19 has accelerated the pace of
MACRO ECONOMIC OUTLOOK split in control of the Congress (i.e. Democrat House and structural shifts in consumer behaviour, technological
Republican Senate) may constrain the ability of the new advancement and societal norms. Over and above keeping
KEY HIGHLIGHTS U.S. administration to implement massive fiscal stimulus. on top of these changes, there are several other key risks to
Nevertheless, we believe both parties will eventually take note of this year:
agree on a stimulus deal, albeit on a more modest level. In
addition, we see a reduced likelihood of higher taxes and Firstly, if the pandemic were to deteriorate further with no
tighter regulations for selected sectors such as technology, viable vaccine available, the respective governments will be
especially given the immediate growth challenges. forced to impose stringent lockdowns for longer, leading
Global economic growth is Accommodative monetary Key risks include a worsening pandemic, to much weaker-than-expected economic activities. In
expected to rebound in 2021, policy, as well as fiscal escalation of U.S.-China tensions and an
Similar to the Fed, the European Central Bank (ECB) also particular, countries with a heavy reliance on international
but not without bumps along stimulus should lend upsurge in emerging market flashpoints
implemented a EUR 1.85 trillion Pandemic Emergency trade, commodity exports, tourism and external loans
the way. support to growth. stemming from pandemic-related catalysts.
Purchase Programme (PEPP) to fund asset purchases of will be disproportionately (negatively) affected by these
both private and public sector securities. The PEPP was developments.
scheduled to expire in March 2022 but could be further
The global economy is crawling out of the depths to which Not surprisingly, inflation fell again due to the impact of expanded and extended should there be significant Secondly, what started as a trade war between the U.S. and
it had plummeted during the nationwide lockdowns. Many COVID-19, although it is likely to tick higher in 2021 as setbacks to recovery. Meanwhile, the European Union (EU)’s China is morphing into a struggle for supremacy within the
economies are gradually recovering with the help of decisive economic activities gradually recover. Despite the upside disbursement of the EUR 750 billion recovery fund should high technology battlefield. It remains to be seen whether
actions taken by major central banks and governments. We pressures, the still soft job market, as well as wage growth, also provide additional fiscal support to the economy. there will be a softening in foreign policy when the new Biden
expect global economic growth to improve from a low base, will likely limit the rise in inflation. Consequently, global administration takes over. While U.S.-China tensions are
with global GDP growth forecast at 4.9% in 2021. central banks will likely be able to maintain an easy monetary In contrast, China’s response to the COVID-19 pandemic has unlikely to disappear, a more measured approach is expected
policy stance. been measured, with more reliance on fiscal measures than under a Biden administration, and would undoubtedly be
Still, the path to full recovery may not be smooth. Some
large-scale credit loosening. To date, the monetary policy positive for global trade. In contrast, a re-escalation of the
countries have recently slowed reopening and/or reinstated Specifically for the U.S., as part of unprecedented actions
partial lockdowns following a resurgence in COVID-19 cases. response has included liquidity injections, targeted cuts to ‘technology war’ would be a major setback to trade and
taken to stabilise the economy at the onset of the COVID-19
COVID-19 will remain a threat until an effective treatment crisis, the U.S. Federal Reserve (Fed) took the Fed Funds banks’ reserve requirement ratios, and modest reductions growth, with global and long-lasting ramifications.
or vaccine becomes widely available, which could be in the Rate back to all-time lows, where it is expected to remain in the policy rate. Notably, China has fared better than most
second half of 2021. for at least the next three years. In addition, a slew of in successfully reopening its economy, hence reducing the Lastly, as the economic fallout from COVID-19 mounts,
emergency measures such as unlimited asset purchases and need for policymakers to ease further. The broadening of the protests in emerging and frontier markets are set to swell
Among the major economies, China is expected to credit/loan facilities to buy certain corporate bonds, asset economic recovery to domestic consumption should also help. with millions of unemployed, underpaid and underfed
spearhead this growth at 7.5%. Meanwhile, U.S. economic backed securities and commercial paper were introduced citizens. Long-standing grievances over socioeconomic
growth is expected to recover to 3.1% in 2021, underpinned very quickly. In other parts of Asia, we have also witnessed policy rate inequalities, civil and political rights and government
by consumption as well as fiscal stimulus. In contrast, cuts and fiscal stimuli, but in varying degrees. Wealthier corruption could resurface, leading to domestic protests
we are less sanguine on Europe and Japan’s economic Some of these measures are set to continue into 2021 nations have had more monetary and fiscal flexibility, in and riots that could hamper the pace of growth recovery.
recovery and believe they may take even longer to return and keep short-term U.S. Treasury (UST) yields anchored some cases to even indulge in quantitative easing (QE),
to pre-COVID-19 levels. in the near term. Longer-term bond yields could however without too many adverse consequences. As a result,
grind higher given our expectation of a gradual economic budget deficits are rising, and we see limited room for more
Inflation has remained largely muted, particularly in recovery.
the developed world, since the global financial crisis. large-scale easing.
REAL GDP FORECAST (%) INFLATION FORECAST (%) U.S. REAL GDP GROWTH EXPECTED TO GLOBAL INFLATION IN ADVANCED
REBOUND IN 2021 FROM A LOW BASE ECONOMIES TO TICK HIGHER ON RECOVERY
2019 2020E 2021E 2019 2020E 2021E
WORLD 2.8 -4.1 4.9 WORLD 2.8 2.3 2.4 4.0% 3.0%
U.S. 2.2 -4.3 3.1 U.S. 1.8 1.2 1.8
2.0% 2.0%
EUROZONE 1.3 -7.6 4.8 EUROZONE 1.2 0.3 0.9
JAPAN 0.7 -5.5 2.7 JAPAN 0.5 0.1 0.2
0.0% 1.0%
CHINA 6.1 1.5 7.5 CHINA 2.9 2.8 2.0
ASEAN 4.2 -3.8 5.3 ASEAN 2.0 1.2 2.0 -2.0% 0.0%
RATES FORECAST (%) -4.0%
-1.0%
1Q21E 2Q21E 3Q21E 4Q21E
-6.0%
FED FUND TARGET (UPPER BAND) 0.25 0.25 0.25 0.25 -2.0%
FED FUND TARGET (LOWER BAND) 0.00 0.00 0.00 0.00 -8.0%
ECB DEPOSIT RATE -0.50 -0.50 -0.50 -0.50 -3.0%
Jan-17 Jul-17 Jan-18 Jul-18 Jan-19 Jul-19 Jan-20 Jul-20
BOE BANK RATE 0.10 0.10 0.10 0.10 -10.0%
3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20
BOJ TARGET RATE -0.10 -0.10 -0.10 -0.10 Consumer price inflation
Core consumer price inflation
Sources: Maybank Kim Eng, Bloomberg | November 2020 Source: Bloomberg | November 2020 Source: World Economic Outlook | October 2020
2 3
MACRO ECONOMIC OUTLOOK AND INVESTMENT STRATEGY
INVESTMENT STRATEGY
ASSET ALLOCATION
KEY HIGHLIGHTS
UNDERWEIGHT NEUTRAL OVERWEIGHT
OVERALL POSITION
Adopt a constructive view Overweight equities over cash; Focus on secular
Cash Fixed Income
on risk assets with the global Neutral on both fixed income growth trends and
economy on the mend. and alternatives. sustainable investing. Equities
USD Alternatives
With the global economy on the mend, we hold a trends such as digital consumption and cloud computing.
constructive view on the investment outlook given the post- No doubt, the widespread implementation of a COVID-19
pandemic recovery and accommodative stance by global vaccine would lead to a broader recovery and benefit
central banks. As such, we prefer to overweight equities selected cyclical stocks. However, it will unlikely lead to a Hong Kong
over cash while advocating a neutral stance on both fixed sustained rotation away from the technology plays in the
income and alternatives. post-pandemic era.
India
We are positive on overall equities but believe some markets We are neutral on fixed income but expect credits to
and sectors could do better than others given the still uneven outperform government bonds from a total return U.S.
Indonesia
recovery. In addition, we believe earnings growth will be perspective. While there are still concerns on rising
the key driver for equity returns this year. Notably, MSCI bankruptcies and credit defaults, the negatives are
EQUITIES
All-Country (AC) World earnings are projected to rebound largely priced-in. In fact, the improving economy should Europe Japan Asia ex-Japan
26% in 2021 (versus -8% in 2020). As such, it should more lead to tighter credit spreads and enhance price returns.
than offset any potential de-rating of the valuation multiple, In particular, we favour both Investment Grade (IG) and Thailand Malaysia China
which has expanded significantly in 2019 and 2020. High Yield (HY) credits in Asia given the relatively resilient
fundamentals and attractive carry. In contrast, sovereigns
Markets wise, we favour the U.S., China, and South Korea Philippines South Korea
bonds, in particular U.S. Treasuries, may struggle to deliver
as these markets are well-positioned to outperform global positive returns with the 10-year UST yield expected to
peers. In particular, they stand to benefit from their grind higher to 1.0% - 1.5%. Singapore
significant exposure to technology-related sectors that
will continue to do well with support from secular growth As for alternatives, we have a neutral stance on both gold
Taiwan
and oil. We continue to advocate holding gold as a portfolio
diversifier even though the extent of price appreciation may
be more moderated in 2021. Separately, the worst may have
DISSECTING DRIVERS OF GLOBAL EQUITY RETURNS passed for oil although we expect prices to remain subdued
given the still challenging demand-supply dynamics. Developed Market
40%
FIXED INCOME
Investment Grade
30%
Although our asset allocation suggests a pro-risk stance, Sovereigns Asia Investment Grade
it is imperative for investors to maintain a well-diversified Developed Market High Yield
20% portfolio in view of the many growth uncertainties.
Emerging Market Asia High Yield
Last but not least, the growing emphasis on sustainable High Yield Emerging Market
10% development, especially in a post-pandemic world, could Investment Grade
lead to increased opportunities in relevant investments
0% across asset classes including equities and fixed income.
By investing with a sustainable focus, it should also help to
-10%
enhance overall portfolio performance over time.
ALTERNATIVES
-20%
Gold
-30%
2013 2014 2015 2016 2017 2018 2019 YTD
2020 Oil
Multiple expansion/contraction EPS Growth
MSCI All-Country World Index total returns Dividends
Sources: Bloomberg, Maybank Group Wealth Management
Research | November 2020 Source: Maybank Group Wealth Management Research | December 2020
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