Winter is coming - to coin a phrase - and some of the economic and business conditions will be tough in the next few months. But the Singapore-based private bank is looking through this period to argue for holding equities, and buying on dips if they happen.
Bank of Singapore is remaining “constructive” towards equity markets and intends to buy into any major dip, while noting how there are near-term macro-economic headwinds during the winter months.
The bank noted how outgoing US Treasury Secretary Steven Mnuchin surprised financial markets last week by declining to extend most of the US Federal Reserve’s credit facilities beyond the end of 2020.
Such a move came at “exactly the wrong time” as investors are “facing a rapidly darkening winter with rising COVID-19 waves,” some signs of economic weakness, and “disappointing” lack of fiscal support in the US.
Such wealth management organisations know that markets have held up remarkably during 2020, propelled by heavy amounts of central bank money printing as well as hopes – now hardening – that vaccines will be in play in a matter of weeks.
Even so, BoS said it was seeing through near-term difficulties towards brighter times in 2021.
“We will maintain a constructive stance through the near-term challenges discussed above and will be buyers in the event of a major dip. In equities, we prefer Asia ex Japan, which will benefit from further US dollar weakness ahead and a resurgent Chinese economy which is leading global growth,” the bank said.
“In fixed income, we are underweight developed market investment grade bonds as we expect the yield curve to moderately steepen ahead. We are overweight emerging market high-yield bonds, particularly Asian high yield. Despite default rates rising from a low base as the Chinese government is selectively allowing weak companies to default to reduce moral hazard issues, we have a favourable long-term view on this asset class which provides attractive carry. It is also a beneficiary of a weaker US dollar, the strong Chinese economic recovery, and the global search for yield as rates are expected to stay ultra-low for a prolonged period,” it added.