2Q20 Outlook: Build to last

Chief Investment Office / Mar 25, 2020

DBS CIO Hou Wey Fook shares how to position your portfolio in these uncertain times

Photo credit: Unsplash Photo

Financial markets have undergone extreme volatility in 1Q20, bringing back memories of 2000’s dot-com bust and 2008’s Global Financial Crisis.

Confronted with two ‘black swan’ events, namely the COVID-19 pandemic and the oil price collapse, global stock markets fell some 30% peak to trough, while Treasury bond yields hit historic lows during the quarter. Clearly, this re-pricing of markets is factoring in a heightened risk of a global recession.

We saw global central banks swiftly loosen monetary policies, led by the US Fed with a hefty 150 bps cut to a near-zero Fed Funds target rate. Governments across the world also introduced massive fiscal stimulus plans to mitigate the economic damage from the pandemic.

Where are the markets heading, and how should you position your portfolio?

A lot, of course, hinges on the degree of the spread and persistence of the pandemic. If we see a slowing of infection cases in US and Europe over the next few months through summer, we would expect markets to stabilise and recover. The improved situation in China, which has led to the re-opening of factories, is indeed an encouraging sign, as it means a gradual normalisation of global supply chains.

We continue to advocate a ‘barbell’ portfolio. Such a portfolio would hold globally diversified securities in two areas of focus. In one area of focus, corporate bonds and dividend-yielding equities act as ‘income generators’ while secular growth equities act as ‘return enhancers’ in the other. We also add gold as ‘risk diversifier’ to the portfolio.

On growth equities, our ongoing conviction calls on Technology, Health Care, and China equities remain, even as they have done well vs underlying market indices. We are convinced such a portfolio construct will last through today’s storms, and ride the road to recovery ahead.

I wish you resoluteness in your investing during these times of uncertainty.


Hou Wey Fook

Chief Investment Officer


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