DBS CIO Insights 3Q24: 'risk assets in play' key investment takeaways | Bahasa
Indonesia.24 Jun 2024.0 min read
Indonesia, 24 Jun 2024 - 3Q24 Investment Summary
Our call to be fully invested since the start of the year has paid off, as reflected in the continued run in equities and compression of credit spreads. In 2Q24, while the Fed acknowledged modest progress on inflation in its June FOMC meeting, it reiterated the need for a cooler economy before rate cuts can begin. While investors contemplate the effects of higher-for-longer interest rates, the S&P 500 continues to notch record highs, after a knee-jerk pullback in April this year. Recent economic data point to a US soft landing, with tapering growth and price pressures that will lead to the Fed gradually cutting rates. It appears that the “eventuality” of a rate cutting cycle – no matter how shallow – is sufficient to sustain the rally.
We maintain our view that policy easing is on the cards, with Fed Funds futures pricing in the first cut in November to December. With the easing of supply chain pressures globally, the current high inflation/high bond yield environment is predominantly demand-driven as the macro picture remains robust. Even after a strong rally in the first half of 2024, we believe that equity markets will stay resilient in the second half of the year, driven by profit margin resilience, positive corporate earnings outlook, undemanding valuations, and liquidity support from a growing US monetary base, which is closely correlated to the S&P 500.
While we remain structurally bullish on technology stocks, we expect further broadening of the market rally. As household demand continues to drive consumption, the following segments are poised to benefit in a higher-for-longer interest rates environment:
Key highlights of our tactical calls for the coming quarter are:
At this stage of the credit cycle, we advocate a “barbell” approach for credit investing by focusing on:
Even with the lack of clarity surrounding rate cuts, there remains an overall bullish skew for gold given its nature as a haven asset amid geopolitical risks and de-dollarisation concerns. Strong bar and coin demand from private investors further adds to the long-term fundamental demand for bullion.
About DBS
DBS is a leading financial services group in Asia with a presence in 19 markets. Headquartered and listed in Singapore, DBS is in the three key Asian axes of growth: Greater China, Southeast Asia and South Asia. The bank’s “AA-” and “Aa1” credit ratings are among the highest in the world.
Recognised for its global leadership, DBS has been named “World’s Best Bank” by Global Finance, “World’s Best Bank” by Euromoney and “Global Bank of the Year” by The Banker. The bank is at the forefront of leveraging digital technology to shape the future of banking, having been named “World’s Best Digital Bank” by Euromoney and the world’s “Most Innovative in Digital Banking” by The Banker. In addition, DBS has been accorded the “Safest Bank in Asia“ award by Global Finance for 15 consecutive years from 2009 to 2023. DBS Indonesia is ranked second in the top as World’s Best Bank in Indonesia for three consecutive years from 2020 to 2022.
Established in 1989 as part of the Singapore-based DBS Group, PT Bank DBS Indonesia (Bank DBS Indonesia) is one of the banks with the longest history in Asia. Currently operating 1 Head Office, 13 Branch Offices, 16 Assistant Offices and 4 Functional Offices and 3,011 active employees in 15 Major Cities in Indonesia, Bank DBS Indonesia provides comprehensive banking services in the corporate, SME and consumer banking segments that focuses on the customer experience to 'Live more, Bank less'. We also see a purpose beyond banking and are committed to supporting our customers, employees and the community towards a sustainable future.
PT Bank DBS Indonesia is licensed and supervised by The Indonesian Financial Services Authority (OJK), and an insured member of Indonesia Deposit Insurance Corporation (LPS).
DBS is committed to building lasting relationships with customers, as it banks the Asian way. Through the DBS Foundation, the bank creates impact beyond banking by supporting businesses for impact: enterprises with a double bottom-line of profit and social and/or environmental impact. DBS Foundation also gives back to society in various ways, including equipping underserved communities with future-ready skills and helping them to build food resilience.
With its extensive network of operations in Asia and emphasis on engaging and empowering its staff, DBS presents exciting career opportunities. For more information, please visit www.dbs.com.
- Macro Policy
- Economic Outlook
- Equities
- Credit
- Rates
- Currencies
- Alternatives
- Commodities
- Thematic focus: Global Big Tech
Our call to be fully invested since the start of the year has paid off, as reflected in the continued run in equities and compression of credit spreads. In 2Q24, while the Fed acknowledged modest progress on inflation in its June FOMC meeting, it reiterated the need for a cooler economy before rate cuts can begin. While investors contemplate the effects of higher-for-longer interest rates, the S&P 500 continues to notch record highs, after a knee-jerk pullback in April this year. Recent economic data point to a US soft landing, with tapering growth and price pressures that will lead to the Fed gradually cutting rates. It appears that the “eventuality” of a rate cutting cycle – no matter how shallow – is sufficient to sustain the rally.
We maintain our view that policy easing is on the cards, with Fed Funds futures pricing in the first cut in November to December. With the easing of supply chain pressures globally, the current high inflation/high bond yield environment is predominantly demand-driven as the macro picture remains robust. Even after a strong rally in the first half of 2024, we believe that equity markets will stay resilient in the second half of the year, driven by profit margin resilience, positive corporate earnings outlook, undemanding valuations, and liquidity support from a growing US monetary base, which is closely correlated to the S&P 500.
While we remain structurally bullish on technology stocks, we expect further broadening of the market rally. As household demand continues to drive consumption, the following segments are poised to benefit in a higher-for-longer interest rates environment:
- Big Tech with huge cash holdings: Big Tech companies operating with the latest innovations and technologies are poised to register strong earnings growth in the years ahead (consensus forecast estimates earnings growth at 44% in 2024 and 19% in 2025).
- Upstream energy companies with low gearing: End demand tends to remain stable even in a high interest rate environment given its inelastic demand and geopolitical uncertainty.
- Large-cap financials with low exposure to commercial real estate: Elevated rates are positive for the net interest margin outlook of banks as interest income tends to reprice faster than the interest expense for loans. Remain cautious on banks with outsized exposure to commercial real estate.
Key highlights of our tactical calls for the coming quarter are:
- Cross Assets – Maintain preference for bonds over equities
- Equities – Stay Overweight on Asia-ex Japan
- Bonds – Adopt “barbell” approach by going short duration in 1-3Y segment and long duration in 7-10Y segment
At this stage of the credit cycle, we advocate a “barbell” approach for credit investing by focusing on:
- Short duration IG credit in the 1-3Y segment: This provides investors with the highest beta to rate cuts.
- Long duration IG credit in the 7-10Y segment: This provides investors with wider spreads and sensitivity to rates.
- Alternatives – Embrace hedge fund strategies for diversification benefits; stay overweight on gold
Even with the lack of clarity surrounding rate cuts, there remains an overall bullish skew for gold given its nature as a haven asset amid geopolitical risks and de-dollarisation concerns. Strong bar and coin demand from private investors further adds to the long-term fundamental demand for bullion.
About DBS
DBS is a leading financial services group in Asia with a presence in 19 markets. Headquartered and listed in Singapore, DBS is in the three key Asian axes of growth: Greater China, Southeast Asia and South Asia. The bank’s “AA-” and “Aa1” credit ratings are among the highest in the world.
Recognised for its global leadership, DBS has been named “World’s Best Bank” by Global Finance, “World’s Best Bank” by Euromoney and “Global Bank of the Year” by The Banker. The bank is at the forefront of leveraging digital technology to shape the future of banking, having been named “World’s Best Digital Bank” by Euromoney and the world’s “Most Innovative in Digital Banking” by The Banker. In addition, DBS has been accorded the “Safest Bank in Asia“ award by Global Finance for 15 consecutive years from 2009 to 2023. DBS Indonesia is ranked second in the top as World’s Best Bank in Indonesia for three consecutive years from 2020 to 2022.
Established in 1989 as part of the Singapore-based DBS Group, PT Bank DBS Indonesia (Bank DBS Indonesia) is one of the banks with the longest history in Asia. Currently operating 1 Head Office, 13 Branch Offices, 16 Assistant Offices and 4 Functional Offices and 3,011 active employees in 15 Major Cities in Indonesia, Bank DBS Indonesia provides comprehensive banking services in the corporate, SME and consumer banking segments that focuses on the customer experience to 'Live more, Bank less'. We also see a purpose beyond banking and are committed to supporting our customers, employees and the community towards a sustainable future.
PT Bank DBS Indonesia is licensed and supervised by The Indonesian Financial Services Authority (OJK), and an insured member of Indonesia Deposit Insurance Corporation (LPS).
DBS is committed to building lasting relationships with customers, as it banks the Asian way. Through the DBS Foundation, the bank creates impact beyond banking by supporting businesses for impact: enterprises with a double bottom-line of profit and social and/or environmental impact. DBS Foundation also gives back to society in various ways, including equipping underserved communities with future-ready skills and helping them to build food resilience.
With its extensive network of operations in Asia and emphasis on engaging and empowering its staff, DBS presents exciting career opportunities. For more information, please visit www.dbs.com.