4Q18: Window of Opportunity


DBS Chief Investment Officer Hou Wey Fook addresses questions on the US bull run, whether US equities are an "overcrowded" trade, and the sold-down China market in 4Q18
Chief Investment Office26 Sep 2018
Photo credit: AFP Photo


In our last CIO Insights titled “Steer Through Rough Seas”, we recommended that investors stay engaged in risk assets, despite expectation of elevated volatility in 3Q18. In fixed income, we preferred credit over government bonds. In equities, we ranked the US above Europe, Japan, and Asia.

Indeed, 3Q18 proved to be a quarter of heightened volatility, as increasing trade tensions and the turmoil in Turkey and Argentina spooked global markets. Our call to be Overweight on US equities and Technology panned out well, as both continued to outperform other regions and sectors. In Asia, our focus on real estate investment trusts (REITs) and dividend-yielding stocks worked out favourably, and on fixed income, BBB-/BB-rated bonds held steady.

In this publication titled “Window of Opportunity”, we address the following questions:

  • Given the US bull run is now the longest ever, will it soon die of old age?
  • Are US equities an “overcrowded” trade?
  • Is the sold-down China market an opportunity to buy?

While we are certainly cognisant of the extended US cycle, we do not see the typical late-cycle signs of overheating. Wage growth, commodity prices, and inflation remain modest. Federal Reserve Chair Powell’s policy of gradual rate increases remains constructive of risk assets. Barring a full-blown trade war (which is not our base case), we continue to engage equities and credit.

In this issue, we analyse fund-flow trends to ascertain if US equities are over-owned and therefore susceptible to a meltdown. Our observation is that US stocks are not an overcrowded trade, as is generally perceived. Coupled with strong earnings momentum, we stick to our Overweight US call.

For this quarter, we upgrade Asia – and particularly China equities – to Overweight. China has been sold down in sympathy with the weaker Emerging Markets of Turkey and Argentina. We believe that value has now emerged. As we see further stimulus initiatives by the government, we want to re-engage China’s large banks and insurers. We also favour technology stocks that will ride the secular trend of e-Commerce, thanks to the gargantuan number of smartphone users in China.


Hou Wey Fook, CFA
Chief Investment Officer

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