“The combination of our view that global monetary policy environment will become tighter and the overall growth prospects which seemed to have peaked underpin our cautious stance on equity markets.”
– Teh Chi-cheun, CEO and Executive Director, Pacific Mutual Fund Bhd; Member of OCBC Wealth Panel
- Given our view that global monetary policy environment will become tighter, we remain cautious on equities. Also extended valuations provide limited support – even though valuations are not necessarily on its own a short-term negative catalyst.
- In view of our cautious stance, we tactically continue to prefer the U.S., for its relatively defensive traits. We are also neutral on Europe and continue to underweight Japan and Asia ex-Japan.
- U.S. equities had a more positive month in July as Janet Yellen raised the possibility that the Fed would consider slowing the pace of interest rate hikes if inflation remains persistently below its target. The recently started 2Q earnings season also provided a lift.
- Fundamentally, tighter labour market and potentially higher interest rates suggest that corporate profit margins are unlikely to be sustained going forward. Nevertheless, given our overall cautious view on global equities, U.S. equities remain more defensive.
- While Mario Draghi’s latest comments that ECB policy makers agreed to put off a formal debate on tapering provided some relief for the markets, near-term financial market movements would continue to be dictated by clues on the ECB’s move to phase out its quantitative easing. We see a less dovish ECB as the economic recovery continue to gain pace. Overall, we remain neutral on European equities.
- On Japan, we maintain our view that there is limited progress in reform and sustained economic growth and, hence, re-rating of the market would require more meaningful structural transformations. To this end, PM Abe’s fading popularity is not encouraging. As such, we see macro factors and movements of the yen to remain key drivers for the market.
- Asia Ex-Japan Ex-Japan could bear the brunt again as the investors’ focus on the Fed and ECB’s balance sheet exit plans gain momentum. Also, we would not completely rule out trade war risk for the region as Trump’s stance on global trade remains unclear.
- Despite the recent outperformance, we continue to stay positive on Financials among Developed market sectors. Notwithstanding the near-term uncertainties, we continue to expect higher interest rates as central banks become increasingly more hawkish. This would, in turn, benefit the banks.
- The other developed market sector in the limelight is the Technology sector. It remains one of the most expensive sectors. In general, we believe that valuations across the sector are reflecting rosy scenarios in new and emerging technologies. As such, we believe that investors should be cautious.
Any opinions or views expressed in this material are those of the author and third parties identified, and not those of OCBC Bank (Malaysia) Berhad (“OCBC Bank”, which expression shall include OCBC Bank’s related companies or affiliates).
The information provided herein is intended for general circulation and/or discussion purposes only and does not contain a complete analysis of every material fact. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. Without prejudice to the generality of the foregoing, please seek advice from a financial adviser regarding the suitability of any investment product taking into account your specific investment objectives, financial situation or particular needs before you make a commitment to purchase the investment product.
In the event that you choose not to seek advice from a financial adviser, you should consider whether the product in question is suitable for you. This does not constitute an offer or solicitation to buy or sell or subscribe for any security or financial instrument or to enter into a transaction or to participate in any particular trading or investment strategy.
OCBC Bank, its related companies, their respective directors and/or employees (collectively ‘Related Persons’) may have positions in, and may effect transaction in the products mentioned herein. OCBC Bank may have alliances with the product providers, for which OCBC Bank may receive a fee. Product providers may also be Related Persons, who may be receiving fees from investors. OCBC Bank and the Related Person may also perform or seek to perform broking and other financial services for the product providers.
All information presented is subject to change without notice. OCBC Bank shall not be responsible or liable for any loss or damage whatsoever arising directly or indirectly howsoever in connection with or as a result of any person acting on any information provided herein. The information provided herein may contain projections or other forward-looking statements regarding future events or future performance of countries, assets, markets or companies. Actual events or results may differ materially. Past performance figures are not necessarily indicative of future or likely performance. Any reference to any specific company, financial product or asset class in whatever way is used for illustrative purposes only and does not constitute a recommendation on the same.
The contents hereof may not be reproduced or disseminated in whole or in part without OCBC Bank’s written consent.