- Equities: Inflation concerns a drag on global equities; EM equities underperformed DM
- Credit: Environment of unabating uncertainty calls for high-quality, short-dated credit
- FX: GBP relief rally amid partial rolling back of unfunded tax cut plans
- Rates: Fiscal and monetary coordination needed to handle market volatility
- Thematics: Positive on EV sector for strong growth and attractive valuation
Inflation concerns continue to weigh on global equities. Global equities endured another week of volatility as concerns surrounding the inflationary outlook continue to dominate sentiments. The MSCI All Country World Index (ACWI) was down 1.9% with both Developed and Emerging Markets equities ending the week (week ended 14 October) down 1.7% and 3.8% respectively.
In the US, selling pressure on the S&P 500 and NASDAQ persisted as both indices fell 1.6% and 3.1% respectively on the back of hotter-than-expected inflation data for September which pushed the US Treasury 10Y yield above 4%. Over in Europe, the Stoxx 600 managed to buck the downtrend by closing 0.6% higher on Friday on news that the Truss administration is scrapping its tax-cutting plans in light of debt sustainability concerns.
Asia equities were not spared from the selling pressure, however, as sentiments were suppressed by rising bond yields. The MSCI Asia ex-Japan index closed 4.2% lower with China and Hong Kong leading the decline.Topic in focus: Neutral gold equities; favour select gold miners on potential M&A catalyst. The relentless rate hikes by the Fed have sent gold down almost 10% year to date (YTD), and 20% from the high in March. Gold exchange-traded funds have driven much of the decline as holdings dropped to year’s low.
However, as risk-off selling by gold investors stabilises, a weak macro outlook should increase the desire for holding gold as a safe haven asset. Case in point, it has been reported that Londoners have been buying gold as insurance for the UK’s political and fiscal troubles.
Although their buying has not been significant enough to move the needle on gold’s demand in a global context, questions about public debt sustainability and rising recession risks are likely to dominate headlines globally and form potential catalysts for the yellow metal.
Although down on a YTD basis, gold prices have been more resilient than other asset classes, especially in non-US currencies. Potential peaking of the dollar and bond yields early next year should also find gold investors some further relief.
From a gold mining equities stand point, we remain neutral on the sector given margin compression (from increased labour cost and energy bills), but favour select senior miners given potential M&A driven growth.
Figure 1: Retail holdings fell to below pre-Russia/Ukraine crisis and near pre-pandemic levels
Source: Bloomberg, DBS
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