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Roundtable

What lies ahead in H2

Rhetoric around US-China trade has turned, yet again. What does it mean for the global economy?

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John Woods, Credit Suisse, Chief Investment Officer Asia Pacific, Develops discretionary and advisory investment strategies

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Bhaskar Laxminarayan, Julius Baer, Chief Investment Officer Asia, Develops discretionary solutions, anchors house view on investments

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Kelvin Tay, UBS Global Wealth Management Regional, Chief Investment Officer, Provides strategic research and inputs for investments and asset allocation

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Rajeev De Mello, Bank of Singapore, Chief Investment Officer, Investing in Asia since 2005

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Leon Goldfeld, JP Morgan Asset Management, Managing Director, Portfolio Manager in the multi-asset solutions team

US/China trade tensions dampen projections of global growth. But the expected interest rate cuts by central banks have lifted market sentiment. Our panel of experts share their views with Genevieve Cua on what may pan out in the second half.

John Woods
Credit Suisse
Chief Investment Officer Asia Pacific
Develops discretionary and advisory investment strategies

The escalation in US-China trade tensions could weigh on survey indicators, but we still see a trade deal to come through as the most likely scenario. Even If there is no trade resolution, we can expect stimulus by the Chinese authorities and PBOC. In terms of policy, it appears that the progress and effectiveness of SME-targeted support have been modest while additional tax cuts beyond what has already been announced might be limited this year to support domestic demand. Hence, we expect additional support to come via the real estate and infrastructure channels. We also expect a Fed "insurance" cut in July.

Equity: We remain positive on China H-shares. We recommend selective exposure and prefer China and Indonesia equity markets.

Credit: We favour short duration Asian credits and remain positive on Asia high yield.

Currency: Globally, central banks have turned dovish and thus we expect Asian currencies to be stable.

In terms of global equity sectors we are positive on IT. We expect Singapore equities to deliver mid-single digit return in H2 as global trade concerns and a subdued growth environment continue to cap upside for the market despite their attractive valuation.

The Singapore market is expected to deliver 7 per cent earnings growth over the next 12 months which should provide support on the downside and a high dividend yield of 4.5 per cent will attract investors. However, weak global trade environment and geopolitical risks remain key obstacles for a re-rating of the market.


Bhaskar Laxminarayan
Julius Baer
Chief Investment Officer Asia
Develops discretionary solutions, anchors house view on investments

Recent external political shocks have pushed up risk premiums. Trade tensions will inevitably affect economic conditions, prompting governments and their respective central banks to stimulate growth. The prudence of corporate management with regard to new investment spending will slow growth in the short term, but prevent the formation of harmful imbalances in the medium term.

These factors combined will prolong the market cycle. Staying invested is the primary recommendation. Our asset allocation remains unchanged. We continue to believe in the next-generation theme and would focus on healthcare, tourism, and insurance amongst others.

We also continue to stress the importance of value in portfolio construction and have a mix of higher yielding equities and capital preservation strategies in the mix.

Reits is an area that we favour in Asia. On non-traditional allocation we prefer direct real estate investment as an alternative to some fi xed income exposure. With rates lower-for-longer, the yield chase is still on and emerging market debt markets offer favourable risk reward.


Kelvin Tay
UBS Global Wealth Management
Regional Chief Investment Officer
Provides strategic research and inputs for investments and asset allocation

Global growth should stabilise in the second half of the year. However, the rhetoric around US-China trade has deteriorated, increasing downside risk for the global economy and financial markets. Our base case is we expect a US-China trade deal or truce over the next six months. As at press time, we keep our overweight in global equities, while partially protecting the downside risk with a put option.

Certain stock characteristics have been shown to deliver long-term investment outperformance relative to a market capitalisation-weighted index. Combining these characteristics, known in the industry as smart beta, makes the investment less cyclical and creates a "passive-plus" solution. Smart beta's compelling value proposition has resulted in considerable growth in assets. Smart beta ETF assets have risen to over US$700 billion and are growing by more than 30 per cent a year.

In the late stage of the business cycle, when growth slows down, monetary policy is usually less accommodative, volatility rises, and quality matters.

The quality factor aims to reflect the performance of companies with durable business models and sustainable competitive advantages. It therefore targets companies with a high return on equity, stable earnings, and low financial leverage. As trade uncertainties remain, a global sector-neutral quality strategy can also offer added downside protection in a relative context.

With the trade conflict casting a pall over growth, markets are now pricing in a very high probability that the Fed will cut rates at their next meeting on July 31, with a good chance that it will be a 50 basis point cut rather than a 25 basis point cut.

Given current market pricing, the Fed is likely to cut rates in July unless there is a big move in markets before the meeting. We have changed our base case to call for a 50 basis point cut. However, this is a close call, and we still see a significant chance that the Fed will stay on hold.


Rajeev De Mello
Bank of Singapore
Chief Investment Officer
Investing in Asia since 2005

In an environment of supportive global central banks and an improving tone in the trade and technology between the US and China, we are positive on equities and corporate bonds.

Emerging markets should even outperform global markets in such an environment. We heard from the US Federal Reserve and the ECB that they are ready to cut rates to support the economy. Inflation rates are persistently below all major central bank objectives, which leave policymakers plenty of room to keep monetary policy very supportive.

China will also support its economy with a number of available measures. We can expect to see further easing of monetary policy, more spending on infrastructure and even measures to support the property market if needed.

We favour regions and sectors which are linked to global growth. Emerging markets, stocks and bonds with international exposure should be beneficiaries in H2. This environment is also favourable for local currency bonds in Asia. Closest to home, Singapore dollar bonds look attractive when compared to bonds of other developed nations.

After the big decline in government bond yields in the US and China, we are more cautious about shorter maturity high quality bonds as they are expensive.


Leon Goldfeld
JP Morgan Asset Management
Managing Director
Portfolio Manager in the multi-asset solutions team

Our base case remains that global growth will be positive but unspectacular and that a recession is unlikely over the next 12 months. However, our hopes of a decent second-half rebound in activity - particularly in trade and capex - are fading, and global growth is on track to come in a little below trend for the year as a whole.

Recession risks are certainly higher than they were at the start of the year, as a cursory glance at the inverted US yield curve will suggest. But with labor markets robust and household balance sheets strong - on the basis of economic data, at least - risk of contraction over the near term is relatively contained. Further out, however, risks may be more negatively skewed.

Over the next few months, it is likely that the pendulum swings between hopes of growth rebounding and rates falling, and fears of intensifi ed trade tension. As this unfolds, opportunities will present themselves, but with geopolitics driving the macro agenda, allocation may be as much about timing as it is about fundamentals.

We retain our mild underweight to stocks and prefer to take risk in carry assets like credit, while remaining conscious of the liquidity risks. Easier policy may support equity valuations at the margin, but the environment remains late-cycle and we don't see a strong upside to earnings. Refl ecting the drop in bond yields, within fi xed income we downgrade duration from overweight to neutral.

We maintain our preference for US stocks over European ones but have dialled down our preference for emerging market stocks, where we see a weak earnings outlook, with downside risks stemming from the trade concerns. US Treasuries remain our favorite bond market, and we upgrade UK Gilts, noting that the risk of a hard Brexit is rising.

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