Bank of Singapore

In our latest episode of Bank of Singapore Unplugged, our specialists deep-dive into the outlook for sustainability and corporate governance in Asia.

Lately, governments across the region are introducing more incentives to get companies across various industries “sustainability-ready”. Investors are becoming increasingly focused on sustainability, not just for altruistic reasons, but also because of its importance to resilience of long-term portfolios. Good corporate governance has also been in the limelight more recently, which we believe can be important in helping certain companies close their valuation discount gap to peers.

What are the latest developments for ESG, and how should investors position themselves to best capture the opportunities out there?

Tune in to our latest episode featuring:

• Ada Lim, Equity Research Analyst
• Donavan Tan, Equity Research Analyst
• Moderated by Joseph Ng, Investment Strategist

In the ever-evolving landscape of global markets, UK equities often find themselves in the shadows of their counterparts. However recent signs show that the UK may at last be at a major turning point, after a dismal decade of political disorder, economic instability, and lengthy market underperformance. The bear case for UK assets is well known, but there are reasons to believe that the UK’s economic cycle is turning up now.

Tune in to our latest episode with Low Pei Han, Head of Equity Research at Bank of Singapore, to find out more about the outlook ahead.

The US Federal Reserve’s (Fed) FOMC meeting in March conveyed important dovish signals which will continue to set off powerful reflationary tailwinds for risk assets.

Despite risks of near-term volatility, we believe the broader tailwinds behind the market rally remain intact. Bank of Singapore remains overall overweight in equities, and we expect the maturing rally to broaden out from the “Magnificent Seven” into the rest of tech and other sectors, including healthcare, consumer staples and utilities. We also anticipate undervalued markets and mid-small caps to benefit from the inflection point in interest rates.

Tune in to our latest episode with our Chief Investment Strategist, Eli Lee, to find out more about the outlook ahead.

In our latest episode of Bank of Singapore Unplugged, our specialists deep-dive into the outlook for developed market banks.

The woes in commercial real estate, especially in the US are well documented, however, concerns are now spreading to lenders of some distressed assets, putting global financial companies in the spotlight.

More recently, one of the banks in the US reported a larger-than-expected allowance for loan losses arising primarily from its material commercial real estate exposure, and this has made investors somewhat nervous about banks again.

Is this likely to be a structural concern for global banks? Additionally, with the street now expecting interest rates to fall especially in the second half of the year, what does this mean for the outlook of the financial sector?
Tune in to our latest episode featuring:

• Aleen Lee, Fixed Income Research Analyst
• Andy Wong, Equity Research Analyst
• Moderated by Joseph Ng, Investment Strategist

Japan’s stock market is off to a roaring start this year, up almost 20% ytd, with the benchmark Nikkei 225 index just shy of the 40,000 level last week.

Japan has been breaching new 34-year highs over the past 12 months, thanks to a combination of positive macro and micro factors.

For investors who are “Big in Japan”, the question would be, what’s next for this buoyant market when Spring comes?

Tune in to our latest episode with Global CIO, Jean Chia, to find out more about the outlook ahead.

The world is in a global water crisis, where more regions are facing the reality of a parched future. Growing freshwater demand is expected to exceed supply by 40% by the end of this decade, which will have wide-ranging implications across economic growth, geopolitics, and human health.

A rising tide does not lift all boats, and water scarcity is a very real threat that could impact portfolio performance in the long run.

What are some opportunities for investors to quench the global thirst? What are some trade-offs that ESG-focused investors should be mindful of as they harness the power of water sustainability?

Tune in to our latest episode with Ada Lim, Equity Research Analyst at Bank of Singapore, to find out more.

In this episode, we hear from our Global Chief Investment Officer Jean Chia, Chief Economist, Mansoor Mohi-uddin and Chief Investment Strategist, Eli Lee, as they share our investment strategy for 2024, including the outlook for the global economies ahead, and what the future has in store as structural trends unfold.

2024 will be one of the most intense election years in modern history, with national elections to be held in more than 40 countries, representing just under half of the world’s GDP and population.

How will an uncertain US Presidential election affect global markets? Will we see a further continuation of deglobalisation and populism trends in 2024? What are the risks and opportunities for Asian and global investors given inevitable geopolitical uncertainties and shifting multipolar alignments of countries?

Our panelists, Jenny Lee, Managing Partner, GGV Capital, and Board Member, Temasek Holdings and SATS Ltd, Steven Okun, Founder and CEO of APAC Advisors, and Senior Advisor to McLarty Associates and Global Private Capital Association, along with Bank of Singapore’s Chief Investment Strategist,
Eli Lee, share their insights on the key implications of geopolitics for investors in the year ahead.

Will quantum computers really transform our world, cure cancer, and solve the climate crisis? Globally renowned theoretical physicist, New York Times bestselling author, futurist and populariser of science, Dr Michio Kaku thinks so. For our closing keynote segment, Dr Kaku gives us a glimpse into the future of technology-driven progress.

His latest book, Quantum Supremacy: How The Quantum Computer Revolution Will Change Everything, offers an exhilarating tour of humanity’s next great technological achievement — quantum computing — which may eventually illuminate the deepest mysteries of science and solve some of humanity’s biggest problems, like global warming, world hunger, and incurable disease.

Dr Kaku predicts that quantum computing will push the limits of human knowledge — new science, new engineering — all leading to processors that compute using the very same atomic forces that created the universe.

In our latest episode of Bank of Singapore Unplugged, our specialists deep-dive into the latest outlook for China, with the country crossing its 1-year anniversary since the scrapping of the zero-Covid policy.

Whilst there had been significant enthusiasm in China’s reopening, especially at the end of 2022 and start of 2023, this has all petered out quite quickly since. Woes in the property sector, low levels of consumer confidence and subdued financial markets are some of the challenges now confronting policymakers.

With all that’s going on, should investors cast their sights elsewhere? Or are there still opportunities that are worth positioning for?

Tune in to our latest episode featuring:

• Boh Hui Ling, Senior Research Analyst, Fixed Income Research Team
• Chu Peng, Analyst, Equity Research Team
• Moderated by Joseph Ng, Investment Strategist

Looking ahead into 2024, how should investors think about alternatives investments against a backdrop of still elevated financing costs, slowing growth and the ‘there are real alternatives’ aka TARA regime? Are private markets a compelling option at this point of the cycle and for those with a long-term investment horizon in mind?

In this episode of Conversations on Alternatives, join our investment strategist, Neo Bee Leng, as she speaks to Ian Loke, our private markets and alternatives product specialist, to discuss investment strategies for positioning allocations to alternatives.

The 2020s are proving to be a disorderly decade for investors. Frequent shocks are shortening fund managers’ horizons. Investors have spent the last few years dealing with the pandemic, Russia’s invasion of Ukraine, a violent attempt to overturn America’s elections, and now, war in the Middle East. But the crises are also giving rise to new longer-term trends, benefiting investors with longer-term horizons.

Tune in to our latest podcast with Bank of Singapore’s Chief Economist, Mansoor Mohi-uddin, as he shares his perspectives on the global outlook and opportunities for investors on the horizon.

Historically, most markets have often closed the final quarter of the year with good gains. This trend has been observed since the past two decades for the Straits Times Index, the Hang Seng Index and the S&P 500. Will this trend play out in the fourth quarter of 2023? Can investors expect a strong rally to end this challenging year on a positive note?

Tune in to our latest podcast with Bank of Singapore’s senior Singapore investment strategist, Carmen Lee, as she shares more about the market outlook and opportunities on the horizon.

In recent months, investors have been witnessing a surge in oil prices. Brent crude has crossed 97 dollars per barrel in late September, reaching a new year to date high, before easing closer to 90 dollars per barrel more recently.

Geopolitics, lower inventory levels and demand for petroleum distillates, such as diesel and jet fuel all seem to be creating a favouble backdrop for near term oil strength.

However, are elevated oil prices likely to last? How does this also impact some of the Middle Eastern sovereigns that we track quite closely?

In our latest episode of Bank of Singapore Unplugged, join our specialists as they unpack the reasons behind the surge in oil prices and the potential impact on the global outlook ahead.

Featuring:

• Sim Moh Siong, Currency & Commodities Strategist
• David Makoni, Senior Analyst, Fixed Income Research Team
• Moderated by Joseph Ng, Investment Strategist

Private credit is expected to grow and become a bigger part of the debt capital market, particularly in the US.

Post 2021, the attractive yields and its floating rates nature have attracted many investors to increase their allocation to private credit. Structurally, fund managers and investors are looking at this sector to continue to gain market share in the overall debt capital market.

Tune in to our latest podcast with investment strategist, Neo Bee Leng, as she reviews the fundamentals of this asset, focusing on the features of capital preservation strategies and the potential risks that investors might expect.

In this episode, Peggy Liu, Chairperson of the Joint US-China Collaboration on Clean Energy, shares her insights on green tech developments, as well as her outlook on future trends and potential impacts in achieving environmental sustainability.

[About the speaker]

Peggy Liu is an internationally recognised expert on China’s energy landscape and a Hillary Laureate. The organisation she chairs, JUCCCE, has been credited for China’s leap into clean energy and is well known for its effectiveness in implementing system changing programs and fostering collaboration with China. Peggy is one of the most impactful environmentalists globally. She catalysed China’s leaps into clean energy, smart grid, ecocities, efficient lighting, green bonds, and sustainable diets. Her efforts have helped a billion and a half people leapfrog towards personal and planetary health. For this, Peggy was awarded the Hillary Step, the "Nobel" for climate change solutionists; “Hero of the Environment” by Time magazine, and a World Economic Forum Young Global Leader; CEO Magazine named her a “Top 20 Sustainability Thought Leader 2023”; The Economist called "one of the most innovative thinkers in Asia"; and press dubbed her the "Green Goddess of China".

While public market equities rebounded swiftly this year, the overall sentiment and volume of transactions in private equity remain downbeat. Investors have also been hesitant to allocate into the private equity, given lower distributions and concerns of how the higher interest rate environment could impact the asset class.

As we approach peak interest rates and slower growth, what can investors expect?

Tune in to our latest podcast with investment strategist, Neo Bee Leng, as she explores why private equity remains a valued asset class even in the era of higher hurdle rate.

Oil prices have reversed higher since June and are now at their highest levels in 2023. In our latest podcast, Eli Lee, our Head of Investment Strategy, reviews the outlook for oil, and how this could impact investors.

Tune in to find out more.

• Crude oil prices have broken out to their highest levels in 2023, and could rise towards USD100/bbl in the near term before some consolidation in 2024.

• Energy credit and equity sectors to remain supported although we stay watchful of impact of growth risks ahead. We maintain a neutral stance on the energy equity sector.

• Rising energy prices in a subdued growth environment tend to exert stagflationary pressures; this complicates central banks’ inflation fight and, if overly extended, could pose uncertainties for markets.

Over the past few years, even the most ardent China bulls have had their conviction dented by the economic and market impact from China’s strict Covid-19 measures, geopolitical risks, domestic regulatory uncertainties that struck the real estate, internet platform, education and most recently healthcare sectors. The ailing real estate sector and credit defaults by high-profile Chinese developers eroded confidence in China credit.

Lately, investors now question if China’s post-pandemic recovery has lost momentum amid deflationary signs. The bond market has also been hit as renewed credit events linked to a large Chinese developer and a major trust company re-ignited fear of contagion from the property sector to financial markets.

Tune in to our latest podcast with Jean Chia, Chief Investment Officer at Bank of Singapore as she explores the key reasons for investing in China; what’s holding investors back and what could change in the coming months?

Hospitality players posted a stellar performance in the first half of the year, as the global travel recovery remained well underway. In the second quarter however, we see that the global travel growth momentum remains positive, even though the pace of recovery has started to moderate.

A bright spot to look forward to may be the more meaningful outbound travel recovery from China on the back of supportive policy measures, which may benefit Chinese online travel agencies, European luxury brands, and consumer names within the broader Asia Pacific region.

Additionally, new trends have emerged for hospitality, as hordes of travellers have hopped onto the bandwagon of using ChatGPT and other generative AI software to plan their holidays.

What are the key trends which investors should look for in the months ahead, and what are the interesting investment opportunities in the form of emerging disruptors or companies with a first mover advantage?

Tune in to our latest podcast with Ada Lim, Equity Research Analyst at Bank of Singapore as she shares more about the outlook and future possibilities of travel.

Bank of Singapore Unplugged, a forum where our specialists will be answering tomorrow’s investment questions today.

For many years now, global investors have been focusing on US, Europe and China for opportunities, and understandably so, given the depth of these markets and attractive growth prospects across various sectors in those regions.

However, there appears to be significant attention on Japan, and this is pretty apparent when we see the returns registered by the Topix or Nikkei.

What’s getting investors excited in Japan? And is this a start of a longer-term trend, or are the recent gains just a flash in the pan?

In our latest episode of Bank of Singapore Unplugged, join our specialists as they explore the outlook for Japan and the opportunities which lie ahead.

Featuring:

• Chan Wai Mei, Senior Research Analyst, Fixed Income Research Team
• Adrian Yang, Research Analyst, Equity Research Team
• Moderated by Joseph Ng, Investment Strategist

The recent market outlook and news flow have shown that bond yields continue to stay elevated on surprisingly resilient economic data, and as central banks remain hawkish. Meanwhile, investors are still digesting the impact of Fitch’s recent downgrade on US government’s rating.
Now that the signs of inflation are easing towards more normal levels, central banks are finding themselves with more room to pause on the rate hiking cycle. What does this mean for fixed income investors?
Tune in to our latest podcast with Aleen Lee, Fixed Income Research Analyst at Bank of Singapore, as she explores the opportunities which lie ahead for investors.

The 2H 2023 investment outlook by Bank of Singapore specialists, Jean Chia, Chief Investment Officer, Eli Lee, Head of Investment Strategy and Mansoor Mohi-uddin, Chief Economist.

In this episode, we hear from Ho Kwon Ping, global entrepreneur and opening keynote speaker at Bank of Singapore's 2023 Mid Year Outlook, on his perspectives on Asia, the game changer.

Featuring:

Ho Kwon Ping, Founder & Executive Chairman of Banyan Tree Holdings, Laguna Resorts & Hotels and Thai Wah Public Company

Moderated by Yvonne Chan, Former CNA Anchor & Media Trainer

Bank of Singapore presents "Challenging Convention" - an exclusive conversation with Marc Rowan, Chief Executive Officer and Co-Founder of Apollo Global Management, Inc., hosted by Jean Chia, Chief Investment Officer at Bank of Singapore. 

Hear from Marc as he shares about leading one of the world’s largest alternative asset managers, the fundamental changes that are reshaping markets and economies, his philosophy to investing and why everyone should “be curious, not defensive”.

About our guest speaker:

Marc Rowan

Co-Founder and CEO,
Apollo Global Management, Inc.

Marc Rowan currently serves on the boards of directors of Apollo Global Management, Inc., Athene Holding Ltd. and Athora Holding Ltd. He is also Chair of the Board of Advisors of The Wharton School and a member of the University of Pennsylvania’s Board of Trustees. In addition, he is involved in public policy and is an initial funder and contributor to the development of the Penn Wharton Budget Model, a nonpartisan research initiative which provides analysis of public policy’s fiscal impact.

An active philanthropist and civically engaged, Marc is a founding member and Chair of Youth Renewal Fund and Vice Chair of Darca, Israel’s top educational network operating 45 schools with over 25,000 students throughout its most diverse and under-served communities. He is an Executive Committee member of the Civil Society Fellowship, a partnership of ADL and the Aspen Institute, designed to empower the next generation of community leaders and problem solvers.

Marc graduated summa cum laude from the University of Pennsylvania’s Wharton School of Business with a BS and an MBA in Finance.

Bank of Singapore Unplugged, a forum where our specialists will be answering tomorrow’s investment questions today.

In our first episode, our specialists explore Asia – tune in to discover more about the key themes driving Asia’s resurgence, and about Asia’s role as an innovation hub for global enterprises, and how investors can position themselves to best capture the opportunities out there.

Featuring:

• Low Pei Han, Senior Research Analyst, Equity Research Team
• Boh Hui Ling, Senior Research Analyst, Fixed Income Research Team
• Moderated by Joseph Ng, Investment Strategist

Although real GDP growth for the region will decelerate this year, high average oil prices in 2023 should provide significant credit support to major oil producers in the Gulf Cooperation Council (GCC) countries – reinforcing our favourable view of IG-rated sovereigns from the region.

Tune into our latest podcast with David Makoni, senior fixed income analyst at Bank of Singapore, as he summarises our mid-year (2023) outlook for GCC sovereigns.

The road to a weaker US dollar will not be smooth. Our medium-term forecast remains USD bearish, as we expect the US recession to unfold by early next year, forcing the Fed to turn dovish.

Tune in to our latest podcast with our Bank of Singapore currency and commodities strategist, Sim Moh Siong, as he shares the latest outlook for the US dollar, and what investors can expect over the next few months .

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[ Transcript of podcast ]

The road to a weaker US dollar will not be smooth. Our medium-term forecasts remain USD bearish, as we expect US recession to unfold by early next year, forcing the Fed to turn dovish.

But for the time being, the USD has found temporary support on three fronts...

First, when there is an increasing probability of higher rates in US, the greenback tends to do well. Recent rise in US Treasury yields happened alongside recession calls getting push back amid resilient US data and incremental optimism on a debt ceiling deal. Markets are recognizing that the Fed may not have as much room to ease as was priced just earlier this month. A Fed pause in June remains our baseline. But what the US taught us is that pausing is hard when growth is still resilient and inflation still sticky.

Investors appear to be anticipating another 25bp hike by the July FOMC meeting. Reports suggesting that the debt ceiling drama is inching toward a compromise agreement are good news even as legislative passage is not assured. A debt ceiling resolution could benefit the greenback to the detriment of other safe havens like gold. The resolution could also bring a new form of tightening given Treasury’s need to replenish cash in the Treasury General Account via a surge in T-bill supply. The debt ceiling stand-off has left the Treasury's cash balance uncomfortably low.

Second, for the US dollar to go down, the Euro and Chinese Yuan will have to go up. It could be tough for the Euro and Chinese Yuan to go up for the time being as the soft April China data fueled concerns over China’s growth and the potential macro passthrough to European growth.

Credit issues have resurfaced in China. Stress in the property sector has returned and local governments are warning about their debt servicing burdens as fiscal revenues have dropped.

Overall, the slow-down in the US is slower than expected, while the data in both China and Europe has been disappointing. China data and US non-farm payrolls this week will send critical signals on some of the pillars for this trend. A softer PMI in China would weigh on the Chinese yuan and spill over to other currencies.

Third, artificial intelligence or AI may continue to remain a kicker.

Strong results for secular AI-linked trends could benefit the USD given that AI is mostly a US mega large cap equity theme. It is still early days but growing positive correlation between the greenback and AI proxies is worth tracking.

Big picture, we still like US dollar lower over the next 6 to 12 months. However, we stay neutral on the greenback and defensive overall in the near term.

While the property sector has seen robust performance in recent years given record high prices amid strong demand and supply constraints caused by the pandemic, we are now seeing headwinds from a higher interest rate environment.

The collapse of some banks in the US and Europe have also led to fears of contagion risks and tightening credit conditions.

Tune in to our special edition podcast with our Bank of Singapore real estate specialists, Yvonne Siew and Andy Wong, where they explore the latest outlook for US commercial real estate and what lies ahead for investors.

In our latest podcast, Eli Lee, Bank of Singapore’s Head of Investment Strategy, shares the latest outlook for the US economy and what lies ahead for investors:

• X-date when US Treasury runs out of cash could potentially be in June-July 2023; earlier than expected.

• Bank of Singapore’s base case is congressional brinksmanship and a last-minute agreement; risk of a US debt default is unlikely.

• We could expect to see an increase in equity market volatility as investors discount the risk of a default. It may be sensible for investors seeking to hedge out near-term volatility to buy downside protection.

• Gold is an important diversifier for portfolios, given its role as a safe haven and a beneficiary of a weaker US dollar.

Tune in to find out more…

Different risk assets are currently discounting different outlooks for the US economy, for the second half of 2023.

The rates market is expecting aggressive rate cuts, which point to a more dramatic slowdown in growth, while the US equity market and corporate earnings outlook seem to retain the expectations of an earnings rebound in the second half and a moderate slowdown for 2023 as a whole.

So, whose forecast is right?

Tune in to our latest podcast with Bank of Singapore’s investment strategist, Neo Bee Leng, as she shares more about the latest updates for the US economy and what’s next for investors.

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[ Podcast Transcript - Excerpt]

In the past two weeks, we received two pieces of hard data about the US economy that are important for the Federal Reserve, as they head into their deliberations for the May FOMC.

First, the US labour market added 236,000 jobs in March. This was a noticeable slowdown from the average pace of around 400,000 jobs in the first two months of 2023, but continued to represent a robust, above average level of job creation. Strong job creation in the healthcare and leisure sectors continue to offset the weakness in the information sector, as well as manufacturing and construction.

The momentum for wage growth remained positive as well, with average hourly earnings increasing by 0.3% month-on-month, compared to 0.2% in February.

The health of the labour market was also reflected in core inflation figures: the Fed’s preferred measure of “super-core” services inflation, which excludes housing and rental costs, continued to show steady MoM increases of 0.4%, similar to the past 6 months. Overall core inflation came in line with expectations at 5.6% YoY in March compared to 5.5% for February.

Other data we have seen over coming out recently, such as retail sales, industrial production and the Empire State manufacturing survey, showed upticks in the month-on-month trend for March. We have seen this up-down patten across many economic indicators since late 2022.

On balance, we believe that the Federal Reserve will proceed with one more 25 basis points rate hike in the May meeting and then pause. This is also based off indications that the acute banking stress in March is calming down, with a gradual steady decline in the amount of bank borrowing from the Fed.

The decision for the May FOMC itself arguably may be of a lesser concern to markets, as investors are rightly more concerned with the overall rate trajectory from this point on, after the events in March showed that the increase in rates to-date is having a very tangible impact on the US economy.

The minutes of the March FOMC meeting released last week revealed that the Fed took into account the banking stress in March and calibrated their decision accordingly. Also interesting was the fact that the staff at the Federal Reserve had updated the likelihood of a recession sometime this year as a quote “plausible alternative”.

The markets will be laser-focused on the narrative that the Fed will present post the May FOMC decision, which will continue to be highly data dependent.

Everything seems to be out of sync with historical norms. Uncertainties exist everywhere in global markets, and with the latest addition of higher oil prices, it looks like the congregation of multiple market variables all at once - high interest rates, elevated inflation, higher oil prices, banking crisis, corporate earnings cuts…

Could this be the perfect storm, and how should investors tread ahead?

While short-term volatility remains, it is imperative to look beyond some of the near-term issues and identify longer-term investment opportunities.

Singapore’s high dividend yield stocks provide consistent and at times, progressively higher annual income streams, and should form part of a longer-term diversified equity portfolio. 

Tune in to our latest podcast with Bank of Singapore’s senior Singapore investment strategist, Carmen Lee, as she shares more about the opportunities on the horizon.

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[ Podcast Transcript - Excerpt]

"Everything, everywhere, all at once..." This March 2022 released absurdist-comedy-drama movie was produced at a comparatively modest budget by Hollywood’s standards, but went on to surprise the market and grossed more than USD135m worldwide.

In market terms, this is a rare gem with attractive profit margin. It truly surprised on the upside and similarly, in this very uncertain market environment, it will be tough looking for gems that will surprise on the upside consistently.

However, what is more conceivable and logical is to look for stocks with good valuation that will consistently provide a good dividend stream through the market ups and downs.

Recent Singapore corporate report cards showed that there were still glimmers of hope despite the global economic gloom as several Singapore listed companies beat the market’s reduced earnings expectations and rewarded shareholders with better dividends or one-off special dividends.

In an environment that is challenging, especially in view of rising costs, higher oil prices and the heightened possibility of slower revenues and profits, this unexpected sweetener, especially from some of the bigger capitalization companies, is a welcome move for long-term investors.

While dividend distribution is highly unpredictable and dependent on economic outlook and specific company’s performance, big-cap companies tend to be more stable and at times on an upwards sloping trajectory.

Singapore high dividend stocks offer a steady stream of annual dividends or clearly articulated annual dividend pay-out policies.

While corporate earnings growth globally could come under some pressure due to the softer outlook in 2023, this situation is slightly different in Singapore.

Earnings Per Share (EPS) is projected to grow from 248.34 in FY2022 to 303.42 in FY2023, up 21.9%, based on the latest consensus estimates from Bloomberg. This is largely explained by the composition of the Singapore market, which has a larger component of listed companies with a stable earnings stream.

Other factors include the reopening of the Chinese economy which will benefit Singapore, especially in the 2H23. Also, most Singapore companies are not highly geared, especially after the experiences from the Asian Financial Crisis and the Global Financial Crisis. We believe that the bigger capitalised or more mature companies are in a much stronger position than small-cap companies in FY2023.

While high interest rates and elevated inflation will remain in focus in 2023, investors should adopt a longer-term investment horizon and look at other growth factors beyond 2023. Weak market sentiment is an opportune time to accumulate quality names with consistent good dividend yield, especially on price weaknesses.

Over recent months, investors would have seen various news headlines about the US Treasury reaching its debt limit, and the attendant concerns for the economy and markets. As this debt limit has been reached in January, the US Treasury has now begun the usage of extraordinary measures, which most expect to only last till sometime in the second half of this year before a default occurs.

This is certainly a development that warrants much attention.

Bank of Singapore’s investment strategist, Joseph Ng, shares more about the follow-on impact to investors, should a default by the US Treasury occur.

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[Transcript - excerpt]

Many of our listeners out there would have seen various news headlines about the US Treasury reaching its debt limit, and the attendant concerns for the economy and markets. This is certainly a development that warrants much attention.

The debt limit is the total amount of money that the United States government is authorized to borrow to meet its existing legal obligations, including Social Security and Medicare benefits, military salaries, interest on the national debt, tax refunds, and other payments.

As this debt limit has been reached in January, the US Treasury has now begun the usage of extraordinary measures, which most expect to only last till sometime in the second half of this year before a default occurs.

Should a default by the US Treasury occur, investors should then expect downgrades by rating agencies. The follow-on impact could be as such:

First, borrowing costs for the Treasury (and by extension the taxpayer) will increase.

Second, the perceived creditworthiness of large financial institutions could be impacted, as some of these are viewed by investors to be implicitly backstopped by the federal government.

Third, foreign investors could also look to trim holdings of Treasuries. Taken to the extreme, this could also pressure the dollar, leading to inflationary pressures.

Our base case is that Congress will reach a last-minute agreement with some form of concessions made to the House Republicans in order to raise the debt ceiling. A last-minute deal will likely be the most politically expedient option for both parties. However, the obvious risk is that negotiations turn out to be more protracted than expected and go past the deadline, thereby risking a debt default. This would then leave the economy and markets in unchartered territory.

There are other theoretical alternatives that the Treasury can take, but these are all fraught with legal and practical challenges. In short, there are unlikely to be any feasible solutions, except for Congress to arrive at a compromise to raise the debt ceiling.

Over the last 5 notable debt limit episodes historically, we note that there has been some amount of variability in terms of market behaviour, with much depending on the intensity of debt limit disagreement and the overall macroeconomic backdrop. The impact of debt limit episodes on equities and volatility is generally muted outside of 2011. Across all 5 episodes, the S&P 500’s median peak-to-trough drawdown was at 4%, while VIX increased by only 7 points. While 2011 was an outlier in terms of downdraft and volatility in equities, we do not rule out the possibility that markets today could be in a similar situation as it was then.

In Fixed Income, Treasury bills maturing around the debt limit deadline typically tend to underperform. In our view, this could reflect investors’ concerns around timely redemption of such securities that are soon to mature. We also observe that the US Sovereign CDS spreads also tend to widen as debt deadlines loom.

As we approach the debt limit deadline, we believe that companies that derive a significant portion of revenue from the US government could see significant volatility. These include defense contractors, selected healthcare companies, and companies that render professional services to the US government.

This week, all eyes will be on America’s payrolls report for February due on Friday. January’s jobs report was also very strong, as data showed the US unemployment rate fell to a 53-year low of 3.4%. America’s labour market thus remains very tight, fuelling wage growth and keeping inflation much higher than the Federal Reserve’s 2% target. This makes February’s payrolls data on Friday crucial.

If February’s payrolls are strong like January’s, then the employment data would signal inflation is likely to remain too high for the Fed still. If the Fed was forced to re-accelerate its pace of interest rate increases, it would have a major adverse effect on all financial markets globally.

Tune in to our latest podcast with Mansoor Mohi-uddin, Chief Economist at Bank of Singapore, to find out more.

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[Transcript]

This week, all eyes will be on America’s payrolls report for February due on Friday.

In January, the monthly employment data showed the US economy had added 517,000 new jobs. This was far above forecasts for payrolls to rise by 188,000 and December’s gains of 260,000. January’s jobs report was also very strong as the data showed the US unemployment rate fell to a 53-year low of 3.4%.The labour force participation rate ticked up to 62.4% and the average work week rose significantly by 0.3 hours to 34.7 hours. America’s labour market thus remains very tight, fuelling wage growth and keeping inflation much higher than the Federal Reserve’s 2% target.

Other US data releases for January also showed America’s economy remains too strong for inflation to return to the Fed’s 2% goal.
Consumer price index CPI inflation only dipped from 6.5% to 6.4%. Producer price inflation was also stronger than expected. And retail sales jumped by 3% alone in January.

In short, January’s US data showed the Fed’s aggressive interest rate hikes last year still have not curbed inflationary pressures decisively.
We therefore, last month, revised our forecast for the central bank’s outlook. We now expect the Fed to make three further 25bps rate hikes in March, May and June. We thus anticipate the fed funds interest rate reaching a peak now of 5.25-5.50% compared to its current range of 4.50-4.75%.

Financial markets have woken up to the risks of the Fed staying hawkish in the first half of 2023. The S&P 500 has trimmed its strong start to year and is now up 5% year to date, having gained as much as 10% earlier this year. Similarly, 10Y Treasury yields have jumped from 3.30% to around 4.00% now over the last few weeks.

This makes February’s payrolls data on Friday key now.

We think last month’s jobs gains will slow to 200,000, letting the Fed stick to 25bps rate hikes to reduce inflation to its 2% target. This will help Treasury yields stop rising and, with the US set for recession later this year, we keep our forecast for 10Y yields to end 2023 lower at 3.50%.

But if February’s payrolls are strong like January’s, then the employment data would signal inflationary is likely to remain too high for the Fed still.
In that case, pressure would grow for the central bank to hike by 50bps at its next meeting on March 21-22, rather than by the 25bps rise that we anticipate. If the Fed was forced to re-accelerate its pace of interest rate increases, it would have a major adverse effect on all financial markets globally. Equities, Treasuries, corporate bonds, commodities and emerging markets would all likely suffer. That’s why all eyes this week will be on Friday’s payrolls report.

Excerpt:
China’s re-opening after three years of strict Covid-19 lockdowns and isolation from the rest of the world will be one of the most important developments for investors in 2023.

For a start, China will be the only major economy with faster year-on-year (YoY) growth this year. We upgraded our 2023 GDP forecast for China to 5.2%, a rebound from last year’s 3% growth. In contrast, global growth will be 2.4%, dragged by flat US growth and negative GDP growth in the UK and Eurozone.

Inflation, the bug bear of most major economies, remains tame in China. Hence, China’s policy makers can focus on economic growth vs. last year’s focus on leadership transition and regulatory issues. In the upcoming “Two Sessions” in March, we expect pro-growth signals with supportive fiscal and industrial policies to boost growth.

Over the Chinese New Year period, activity and mobility data in China rebounded strongly with domestic tourism recovering to over 70% of pre-pandemic levels. This pent-up consumer demand - plus high savings rates - present tailwinds for a consumer and services-led recovery in China, across retail/consumer discretionary plays, tourism enablers and platform economies.

Wait, but isn’t this view already consensus and don’t stock markets already reflect this optimism? After the sharp rally of the past few months, we do expect intermittent bouts of consolidation and profit taking. Hence, for the cyclical reopening theme and 1st order beneficiaries, we would time entry for travel and hospitality plays with strong earnings recovery on market pull backs.

Overall, we believe HK/China valuations are still undemanding and positive fundamentals are a constructive set-up in 2023 as global investors seek opportunities. In particular, we favour sectors such as consumer, technology, renewables, green infrastructure and electric vehicles from a longer-term perspective. For China Tech platforms, the unbridled growth in the internet sector will continue to be met with regulatory scrutiny. Hence, we focus only on those with strong business moats, execution track records and structural business growth drivers.

The Chinese currency has clearly benefitted from the faster-than-expected reopening, but further CNY strength is likely to be moderate. The dynamics of stronger China growth resulting in higher imports, will narrow China’s trade surplus given the backdrop of soft global goods demand. Faster border reopening and the swift recovery of outbound travel is also to the detriment of the CNY.

Beyond its shores, China’s reopening is causing strong positive ripple effects across Asia and the global economy. What’s interesting for investors are the second order impact of China’s economic reopening across currencies, commodities, equities and fixed income investments across the wider EM complex.

In Asia-Pacific, Japan, South Korea, the ASEAN economies, Australia and New Zealand will all gain from stronger Chinese demand for their exports, as well as the resumption of China tourism. Major exporters to China, including Europe and Latin America will also be supported by stronger commodities demand. This will boost commodities producers from Brazil, Africa, the Middle East, Indonesia and Australia.

As China awakens, the horizon is not all rosy. Geopolitical risks continue to loom above, while global recessionary growth may dampen China’s re-opening benefits. That said, the risk aversion around investing in China is beginning to ebb with the country’s renewed focus on economic growth. Investors should seek potential opportunities to gain exposure to these trends, that have local impact and global implications within the context of their diversified portfolios.

Tune in to find out more...

Last month, the United Nations Biodiversity Conference (COP15) ended in Montreal with a landmark agreement to guide global action on nature through to 2030. Chaired by China and hosted by Canada, COP15 resulted in the adoption of the Kunming-Montreal Global Biodiversity Framework.

One of the key targets of the agreement is the “30 by 30 deal”, which seeks to ensure the effective conservation and management of at least 30% of terrestrial, inland water, and coastal and marine areas by 2030. It also targets the restoration of at least 30% of degraded ecosystems. This marks the largest land and ocean conservation commitment in history, and will have major positive impacts for wildlife, for addressing climate change, and for securing the services that nature provides to people like clean water and pollination for crop.

In this episode, we hear from Low Pei Han, senior investment strategist at Bank of Singapore,  as she shares the key highlights of the agreement, and the resulting implications for investors. Tune in to find out more.

Professor Kishore Mahbubani shares his perspectives for the global and Asian economies going into 2023, discussing key issues and dominant macro trends which could impact investors in the year ahead.

Speaker:

Professor Kishore Mahbubani
Distinguished Fellow at the Asia Research Institute, National University of Singapore

Geopolitical risk was a major driver of financial markets in 2022. Soaring inflation driven by conflict in Ukraine prompted major central banks including the Federal Reserve to embark on a historic string of rate hikes - at their fastest pace since the 1980s. How will geopolitics play out in 2023 and what surprises will it bring?

In this dialogue session, Professor Kishore Mahbubani and Professor David Daokui Li discuss the complexities and challenges for our world, covering key questions on US-China tensions, possible outcomes for the war in Ukraine and key risks in the year ahead.

Speakers:

• Professor Kishore Mahbubani
  Distinguished Fellow at the Asia Research Institute, National University of Singapore
  
• Professor David Daokui Li
  Director, Academic Center for Chinese Economic Practice and Thinking, Tsinghua University
  
• Moderated by Mansoor Mohi-uddin
  Chief Economist, Bank of Singapore

2023 will be a year of two halves. In the first phase, risk assets are likely to experience a volatile bottoming process, followed by a broad recovery in the second phase as the world moves past peak Federal Reserve hawkishness.

We also keep a watchful eye on the interest rate environment, the US dollar and China, an outlier whose growth outlook has turned incrementally positive.

As the interplay of inflation and central bank intervention continue to shape the story of economic growth for 2023, how will geopolitics, climate risk and monetary policy converge, and more importantly, how should investors position themselves for the challenges ahead?

Speakers:

• Jean Chia
  Chief Investment Officer (CIO) & Head, Portfolio Management & Research Office (PMRO), Bank of Singapore
  
• Eli Lee
  Head of Investment Strategy, Bank of Singapore
  
• Mansoor Mohi-uddin
  Chief Economist, Bank of Singapore

As volatility and uncertainty persist into 2023, the ability to diversify through access to alternatives investments will become increasing valuable for portfolios.

In this discussion, our expert panel of alternatives-focused, multi-asset strategists explore the art of building diversified portfolios and deploying capital into this key segment in order to generate alpha amidst these challenging investment conditions.

Speakers:

• Chad Hutchinson
  Partner, Arctos Sports Partners, Former Pro Athlete
  
• Tai Hui
  Chief Market Strategist, Asia Pacific, J.P. Morgan Asset Management
  
• Pak-Seng Lai
  Head of Private Wealth Distribution APAC, Blue Owl Capital
  
• Moderated by Robert Reid
  Global Head of Alternative Investments and Managed Solutions, Bank of Singapore

In this episode, we hear from former professional athlete turned investor, Chad Hutchinson.

Chad played professionally in both American football and baseball, first as a Major League Baseball pitcher for the St. Louis Cardinals, before becoming a National Football League quarterback and playing for the Dallas Cowboys and Chicago Bears. Private equity is now his third sport.

This rare two-sport standout shares his perspectives on how his professional sports experience has influenced his philosophies as an investor and helped build an incredible career in finance.

Speaker:
Chad Hutchinson
Partner, Arctos Sports Partners
Former Pro Athlete

This week bore witness to the biggest daily gain of the Yen against the US dollar in the 21st century.

The Bank of Japan (BoJ) has widened the Yield Curve Control’s (YCC) 10yr trading band from +/-25bp to +/-50bp while keeping its target at 0% and increasing Japanese Government Bond (JGB) purchases. This came as a shock for investors and market consensus, as many expected changes to the YCC only after BoJ Governor Kuroda leaves in April 2023.

The BoJ has largely downplayed their surprise move as a "technical" adjustment, but speculation over more BoJ policy shifts, implies potential volatility for Japanese equity and bond markets.

Bank of Singapore’s caution against using JPY as a funder is paying off, and we continue to see scope for greater downside in USDJPY to 125 by end-2023. On equities, we have advised adding Japanese financials over the course of 2022 which have delivered solid gains. We expect continued investor interest in the sector given it is positioned to benefit from potential future policy normalisation.

A small step for the BoJ, but a giant leap for the Japanese Yen!

Tune in to our latest podcast with Sim Moh Siong, Currency & Commodities strategist, and Camilia Goh, Senior Equity Research Analyst to find out more.

In this episode, Animoca Brands Co-founder and Executive Chairman, Yat Siu joins us in The Hot Seat to talk about the future of innovation, technology, Web3.0 and metaverse.

The widespread adoption of digital technology started by the pandemic continues at speed today, where another phenomenon – the metaverse – is fast rewriting the rules of engagement with consumers. For entrepreneurs and technopreneurs, it is clear that succeeding in the post-pandemic era requires bold transformation.

As the world moves towards Web3.0 and the technologies that support it mature and become scalable, what does this mean for the development of blockchain systems and digital assets geared towards decentralised finance? How will this impact data ownership and the tech juggernauts that rule our online world today? How can we use this opportunity for innovation and experimentation, and what lessons can we learn as the world transitions to an increasingly digital and climate-conscious future?

Speakers:

• Yat Siu is a veteran technology entrepreneur, and the co-founder and executive chairman of Animoca Brands, a global leader in blockchain and gaming with the goal to provide property rights for virtual assets.
  
• Jamie Yeo hosts this episode.