3Q18: Steer Through Rough Seas

In sharp contrast to the smooth ride of 2017, inflation and trade war fears sent financial markets on a roller-coaster ride in the first half of 2018. In our 1Q18 CIO Insights entitled “The Bull Ain’t Done”, we were optimistic the bull trend – albeit nine years old – would continue. As the quarter unfolded, this view was indeed challenged. We held on to our bullish view and recommended clients “Mind The Bends” in our 2Q18 CIO Insights.

Looking back, I’m glad to report our calls have been largely on target. On asset class, equities outperformed bonds. On regional allocation, our preference for US over Europe paid off.Asian equities performed in line with the world index. On investment themes, our high-conviction call on US Technology was a stand-out winner. Global Financials, however, lagged.

So where do we now stand, at the midpoint of 2018?

Despite the see-saw in markets, we stay engaged with risk assets within a diversified global portfolio. The world economy continues to be on sound footing, with inflation under control. Credit spreads remain resilient and equity valuations have normalised on the back of strong earnings growth and the pause in the bull trend.

We are, however, cognisant that there are mounting risks. These include continued trade war fears, and uncertainties from the Italian political fiasco which may trigger a broader European Union (EU) crisis. Hence, we have titled this publication “Steer Through Rough Seas”. For the coming quarter, we move equities from Overweight to Neutral and raise cash to Overweight.

On equities, we adopt a thematic investing approach – looking for companies that are clear beneficiaries of secular trends. For example, we see the long-term growth trajectory of Asian Tourism, Ageing Population, and Structural Winners (who are champions of the new data world we now live in). We continue our Overweight stance in US stocks, Technology, Financials, and Asian Dividends.

This quarter, we also include two Special Features - “Disparity in Volatility” and “New Realities”.

Do enjoy the read.

 

Hou Wey Fook, CFA

Chief Investment Officer

 


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