3Q18: Steer Through Rough Seas

DBS Chief Investment Officer Hou Wey Fook shares how to navigate markets in 3Q18
Chief Investment Office20 Jun 2018
  • Expect elevated volatility.
  • Move equities to Neutral; cash to Overweight.
  • Engage bonds for superior income.
  • Invest in beneficiaries of structural trends.
Photo credit: AFP Photo

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”.

Hou Wey Fook, CFA

Chief Investment Officer


Click here for the latest CIO Insights publication.

The information published by DBS Bank Ltd. (company registration no.: 196800306E) (“DBS”) is for information only. It is based on information or opinions obtained from sources believed to be reliable (but which have not been independently verified by DBS, its related companies and affiliates (“DBS Group”)) and to the maximum extent permitted by law, DBS Group does not make any representation or warranty (express or implied) as to its accuracy, completeness, timeliness or correctness for any particular purpose. Opinions and estimates are subject to change without notice. The publication and distribution of the information does not constitute nor does it imply any form of endorsement by DBS Group of any person, entity, services or products described or appearing in the information. Any past performance, projection, forecast or simulation of results is not necessarily indicative of the future or likely performance of any investment or securities. Foreign exchange transactions involve risks. You should note that fluctuations in foreign exchange rates may result in losses. You may wish to seek your own independent financial, tax, or legal advice or make such independent investigations as you consider necessary or appropriate.

The information published is not and does not constitute or form part of any offer, recommendation, invitation or solicitation to subscribe to or to enter into any transaction; nor is it calculated to invite, nor does it permit the making of offers to the public to subscribe to or enter into any transaction in any jurisdiction or country in which such offer, recommendation, invitation or solicitation is not authorised or to any person to whom it is unlawful to make such offer, recommendation, invitation or solicitation or where such offer, recommendation, invitation or solicitation would be contrary to law or regulation or which would subject DBS Group to any registration requirement within such jurisdiction or country, and should not be viewed as such. Without prejudice to the generality of the foregoing, the information, services or products described or appearing in the information are not specifically intended for or specifically targeted at the public in any specific jurisdiction.

The information is the property of DBS and is protected by applicable intellectual property laws. No reproduction, transmission, sale, distribution, publication, broadcast, circulation, modification, dissemination, or commercial exploitation such information in any manner (including electronic, print or other media now known or hereafter developed) is permitted.

DBS Group and its respective directors, officers and/or employees may have positions or other interests in, and may effect transactions in securities mentioned and may also perform or seek to perform broking, investment banking and other banking or financial services to any persons or entities mentioned.

To the maximum extent permitted by law, DBS Group accepts no liability for any losses or damages (including direct, special, indirect, consequential, incidental or loss of profits) of any kind arising from or in connection with any reliance and/or use of the information (including any error, omission or misstatement, negligent or otherwise) or further communication, even if DBS Group has been advised of the possibility thereof.

The information is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation. The information is distributed (a) in Singapore, by DBS Bank Ltd.; (b) in China, by DBS Bank (China) Ltd; (c) in Hong Kong, by DBS Bank (Hong Kong) Limited; (d) in Taiwan, by DBS Bank (Taiwan) Ltd; (e) in Indonesia, by PT DBS Indonesia; and (f) in India, by DBS Bank Ltd, Mumbai Branch.