Top-10 investment strategies for 2019: #2

#2 Looking for USDSGD to hit 1.40.
Philip Wee10 Jan 2019
Photo credit: AFP Photo

In the FX space, we see an economic rationale for a trade-weighted depreciation in the Singapore dollar i.e. for the SGD nominal effective exchange rate to retreat from the ceiling towards the centre of its policy band. Unlike 2018, full-year growth this year is likely to come in near the mid-point rather than the strongest quartile of its (start of the year) official 1.5-3.5% forecast.

The Singapore economy faces more downside than upside risks this year. Real GDP growth has already decelerated from 4.3% YoY in 1H18 to 2.2% in 2H18, as optimism for an electronics-led export recovery gave way to US-China trade war worries. Growth has disappointed for the world’s major economies – Eurozone, Japan and China. It was also troubling that upside risks to the outlook have been considered as easing of downside risks, namely those pertaining to a hawkish Fed outlook and US-China trade tensions. This coupled with Apple’s earnings warning have lowered the odds for a repeat of the 2017 tech-led cyclical upturn.

Our forecast for USD/SGD to trade above 1.40 this year is based on our expectation for more currency depreciation in Singapore’s trading partners. We see the euro weaker below 1.10 on a rise in anti-establishment political sentiment adding to worries that inflation is now following growth lower in the Eurozone. Any easing in US-China trade tensions, while welcome, will not be a panacea to China’s slowdown challenges. Our forecast for the Chinese yuan to depreciate past 7 is based on more policy easing measures to cushion China’s economy. Believing that US recession fears are overblown, we see two more US rate hikes lifting the Fed Funds Rate to 3% by end-3Q19. Hence, interest rate differentials, both in nominal and real terms, will continue to widen in the favour of the US dollar.   

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#1 Bet on more rate hikes by the Fed
#2 Looking for USDSGD to hit 1.40
#3 Long Indonesian equities
#4 Support for high grade credit, especially BBB
#5 Bullish 10Y China govvies
#6 Short AUD
#7 We like short-dated Chinese BBs for carry
#8 India govvies curve to steepen
#9 Short CNY
#10 Long S-REITS as a defensive play

Philip Wee

FX Strategist - G3 & Asia

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