MONTHLY OUTLOOK ALL SET FOR A YEAR-END EQUITIES RALLY? - INVESTORS READY TO TAKE ON MORE RISK - VitalBriefing
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MONTHLY
NOVEMBER 2013
OUTLOOK
OCBC PREMIER BANKING
ALL SET FOR A YEAR-END
EQUITIES RALLY?
INVESTORS READY TO TAKE ON MORE RISK
THIS MONTH
ALL SET FOR A YEAR-END EQUITIES RALLY?
INVESTORS READY TO TAKE ON MORE RISK
“forcing
The actions of central banks, like the Fed’s decision to delay tapering, are
investors to go up the risk ladder. While investors may still be wary
of risks, we remain positive on the medium-term outlook and see bouts of
“
weakness as an opportunity to buy into riskier assets such as equities and
high-yield bonds.
- Lim Wyson, Head of Global Wealth Management, OCBC Bank
IN THIS ISSUE WATCH OUR VIDEOS
ONLINE
GLOBAL OUTLOOK EQUITIES
You can also watch the Wealth
Panel discuss these topics online
at:
www.ocbc.com/premiervideos
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please contact your Relationship
Manager or call our Premier
Hotline at 1800 PREMIER
BRIGHTER GLOBAL GROWTH OUTLOOK U.S., JAPAN POISED FOR GAINS (773 6437).
Monetary policy is helping Europe and Equities outshine other asset
Japan, as the U.S. looks forward to a classes as dips offer investors buying
calmer 2014. opportunities.
Learn more - P. 3 Learn more - P. 4
BONDS FOREIGN EXCHANGE & COMMODITIES
ABOUT THE OCBC WEALTH PANEL
With over 100 years of collective
investment experience, the OCBC
Wealth Panel is well recognised
in the industry and sought after
POSITIVE OUTLOOK FOR HIGH-YIELD DON’T GIVE UP ON THE GREENBACK
by the media for its invaluable
High-yield bonds significantly Gains by commodity and other insights. Now their insights are
outperform cash and offer a hedge emerging currencies against the available to you to guide your
against rising T-bill yields. dollar may be only temporary. investment decisions.
Learn more - P. 5 Learn more - P. 6
1 / MONTHLY OUTLOOK
TOP INVESTMENT IDEAS
Volatility may offer fresh buying opportunities
Equities remain our most favoured asset class, and any pullback should be viewed as an opportunity
to accumulate. Following last month’s U.S. government shutdown, the Fed is likely to delay tapering
its stimulus programme until next year, which would be a positive development for equities at least
in the short term.
Signs of economic improvement are apparent in other developed regions such as Europe and Japan.
China’s data has been improving too, although the road to reform will probably be long and tricky.
From a strategic perspective, Japan and the U.S. remain our preferred regions. In fixed income, we
favour high-yield over investment-grade bonds, but still recommend that investors opt for shorter
durations.
RECOMMENDATIONS:
• Equity funds: We are most positive on Japanese equities, as ‘Abenomics’ and the weak yen should boost
corporate earnings. Japanese households hold significantly less equity assets than counterparts in other
developed markets, but the introduction in January of the tax-free New Nippon Individual Savings Account
could spur individuals to invest in local stocks. Investors can get involved through the LionGlobal Japan
Growth Fund or the Aberdeen Japan Fund.
The Franklin U.S. Opportunities Fund, which invests in leading growth companies, offers participation in the
country’s ongoing recovery, while the BGF Global Equity Income Fund invests more broadly in developed
market equities. The Blackrock Fund, whose monthly pay-outs total around 3 per cent per annum, targets
both yield and capital growth by investing in quality companies with strong growth potential and that
deliver a steady dividend stream.
• Equity-Linked Convertible Investments: Cyclical sectors are more linked to economic performance, and
strong markets in the oil and gas sector should boost Ezion’s appeal to investors. Consumer discretionary
and IT are two other such sectors that should benefit from U.S. economic growth as improving consumer
sentiment spurs greater spending, helping companies like General Motors and eBay.
• Bonds: Shorter-dated high yield bonds can reduce risk should interest rates spike in the future. Investors
may consider the 4.25 per cent bond maturing in 2016 from the Singapore-listed Lippo Malls REIT, whose
portfolio in Indonesia consists of 16 malls and seven retail complexes.
• Bond Funds: High-yield bonds may be more resilient than investment-grade debt in a rising interest rate
environment. The Allianz U.S. High Yield Fund provides access to U.S. high-yield credits that could gain from
the improving U.S. economy and distributes S$0.80 per annum, paid monthly.
• Currencies: We are still encouraged by the U.S. dollar in the longer term despite the Fed’s delay in reining in
its asset purchase programme. Clients may consider trimming their Australian dollar holdings closer to the
U.S.$0.97 level as the country’s central bank expresses concern over the currency’s strength. The greenback
fell below the S$1.2500 level but has remained above S$1.2350, which might offer a good entry point for
Singapore clients keen on owning U.S. dollars.
The contents in this page are a summary of the investment ideas and recommendations set out in Bank of Singapore, OCBC Investment
Research Private Limited and OCBC Bank’s research reports. Please refer to the respective report for the interest that the entity might have
in the securities and/ or issuers of the securities.
MONTHLY OUTLOOK / 2
GLOBAL OUTLOOK
Brighter global growth outlook
“improving
The outlook for the world economy is benign, with growth already
“
in Europe and Japan, while the U.S. should benefit from a
reduction in fiscal headwinds in 2014.
- Richard Jerram, Chief Economist, Bank of Singapore
KEY POINTS:
• The government shutdown and debt ceiling stand-off in Washington caused little market volatility,
although it has affected the processing of economic data.
• Any doubt about the progress of the recovery could prompt the U.S. Federal Reserve to delay the tapering of
its asset purchase programme as late as March next year.
• Improvement of the economic outlook in Europe and Japan, and progress across developed markets in
reining in excessive debt, should help to lift global growth from 3.0 per cent this year to 3.7 per cent in 2014.
• The BRIC countries face significant challenges, as do emerging markets with substantial trade and budget
deficits such as India, but China’s economy appears to be stabilising.
• The upturn in the global economic cycle should bring higher growth to most South-East Asian countries.
3 / MONTHLY OUTLOOK
EQUITIES
U.S., Japan poised for gains
“andInthetheprospect
short term, with the U.S. fiscal negotiations postponed
of Fed tapering delayed, there are good prospects
“
for a short year-end rally for risk assets such as equities.
- Hou Wey Fook, Chief Investment Officer, Bank of Singapore
KEY POINTS:
• Equities are benefiting from the Fed’s decision to delay tapering its asset purchase programme for now, and
in the medium term they should be lifted by global economic recovery.
• The so-called ‘great rotation’ out of equities and into bonds could start happening in earnest when the
global rebound in growth prompts interest rates to rise.
• Equity valuations remain attractive by historic standards, while monetary policy should provide a benign
environment for corporate growth into the medium term.
• For now markets are reflecting relief that the political stand-off in Washington has been defused, but the
deadlock could be revived in the first quarter of 2014.
• Developed market equities, especially in the Japan and the U.S., appear particularly well positioned, but
markets elsewhere in Asia face headwinds.
MONTHLY OUTLOOK / 4
BONDS
Positive outlook for high-yield
“interest
Fed tapering may only begin next March, and it seems that
“
rates may remain low for a long time – the first rate hike
looks unlikely before the second half of 2015.
– Marc Van de Walle, Head, Group Wealth Products, OCBC Bank
KEY POINTS:
• High-yield corporate bonds continue to look attractive compared with cash and offer a hedge against rising
U.S. Treasury bills yields.
• They provide a higher coupon stream than investment-grade debt combined with lower risk than equities.
• The Fed’s decision not to rein in its asset purchases, perhaps until March next year, improves the near-term
environment for corporate bonds, including emerging market debt.
• With interest rates likely to rise in the longer term, investors should seize the opportunity to reduce the
average duration of the bond portfolios.
5 / MONTHLY OUTLOOK
FOREIGN EXCHANGE & COMMODITIES
Don’t give up on the greenback
“ Although the U.S. dollar is unlikely to rally without Fed tapering
expectations rising again, it could regain its vigour if upcoming data
“
highlights limited damage to growth from the government shutdown.
- Michael Tan, Senior Investment Counsellor, Wealth Management Singapore, OCBC Bank
KEY POINTS:
• Although the U.S. dollar’s long-standing strength has been affected by the Fed’s change of tack on tapering
and the political uncertainty in Washington, its medium term fundamentals remain strong.
• The continuation of the central bank’s stimulus programme has helped commodity and emerging market
currencies, but that could change if tighter liquidity in China reflects a policy shift.
• The Australian dollar remains a useful portfolio diversifier, but investors may consider reducing significant
long exposure to the Aussie.
• The euro has fundamental support as the European Central Bank shrinks its balance sheet and economic
growth is at last taking root across the continent.
• The current higher gold price should be seen as a rally within a long-term downward trend, and investors
can use the current price levels as an opportunity to reduce their positions.
MONTHLY OUTLOOK / 6
IMPORTANT INFORMATION
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