Market Insights & Seminars

Monthly Outlook

Stay updated with Monthly Outlook articles which consolidate key market indices and information each month. We hope you will find these insights and recommendations useful when deciding how best to manage your investment portfolio.

Top Investment Ideas

Rebalance in Times of Uncertainty

The strong growth backdrop remains intact in the U.S., and has been reaffirmed through the latest economic data. We prefer not to chase the equity market rally in the event there is a market pullback should President Donald Trump intensify his anti-trade rhetoric or if he does not deliver the fiscal reforms, given the surge in market confidence since November. There is also a possibility the robust data that we have seen so far may moderate over the months, as has been the case in the past few years.

We are poised for greater volatility, as European political risks arise to complement President Trump's antics.

Our cautious stance doesn't mean that we are bearish and taking risk down further; rather, we prefer to rebalance between sectors: Rebalance out of sectors that are over-valued and with low growth prospects, and into sectors with undemanding valuation and strong growth outlook.

Given the uncertainties and volatility ahead, asset allocation is key to navigating the markets. Our moderately defensive asset allocation stance states a preference for credit over equity, holding on to a bit more cash for opportunities down the road.

RECOMMENDATIONS:

Equity funds

Fidelity Global Dividend Fund

This fund's focus on high quality, dividend yielding stocks enables it to be resilient and to weather volatility and downside risks better than other equity funds. At the same time, should risk assets rebound, the fund's equity orientation and strong focus on companies that are backed by earnings potential should help it capture more market upside relative to defensive funds. Investors can achieve income, stability and growth in one fund. They may also reap attractive potential payouts of approximately 3 per cent per annum, paid monthly.

Equity-Linked Convertible Investments or Stock Ideas

For U.S. stocks, we are investing in sectors that will do well in both bull and bear markets, maintaining a barbell approach between Cyclical (with a preference for Consumer Cyclical and Technology) and Defensive (with a preference for Healthcare and Telecom) sectors. The technology and healthcare sectors had led the rally in February.

In Technology, we prefer names with a consumer exposure, particularly in the U.S., where sustained improvements in labour markets have buoyed consumer confidence to a 9-year high. Valuations for the sector have also re-rated significantly given the sharp rally post-elections.

We recommend Visa (V US) and Salesforce.com (CRM US). Visa is well-positioned to benefit from growing consumer spending and a rapid cash-to-electronic transition globally. Enormous network effects and strong brand are key barriers to entry for the company. Salesforce.com has successfully expanded into a number of fast-growing verticals to prop up long-term revenue growth.

In Consumer Discretionary, sustained improvement in the labour market has buoyed consumer confidence. Here, our key picks are L Brands (LB US) and Walt Disney (DIS US).

While Trump and the Republicans have been clear on the desire to repeal the Affordable Care Act, there is less clarity on their Healthcare policies. Fundamentally, the sector continues to benefit from improving pipeline productivity with an increasing number of new therapeutic drugs approved by FDA. Also, valuations remain undemanding while M&A activities provide potential catalysts. We remain positive on the sector and include Bristol-Myers Squibb (BMY US) and Express Scripts (ESRX US) among our key picks.

For Singapore stocks, with valuations close to historical average long term multiples, our preference remains for quality stocks with resilient business models and relative earnings visibility as external events approach. Singapore Telecommunications (ST SP), City Development (CIT SP), Thai Beverage (THBEV SP) and Sheng Siong Group (SSG SP) are among those we believe suitable to withstand the challenging environment ahead.

Bonds

Overseas Education Limited 5.2% 17 April 2019 (SGD)

Overseas Education Limited (OEL) is a private foreign school system in Singapore offering the K-12 IB curriculum. The company provides a globalised multi-cultural environment to children aged between 3 and 18 years.

OEL's liquidity profile has remained adequate with cash position at ~S$48.7 million, as matched against total current liabilities of S$29.7 million in 1H2016. Free cash flow is expected to be largely positive over the long run, which should help improve leverage (net debt/EBITDA ~2.2x).

Last September, OEL had repurchased S$7 million of the existing SGD bonds, with management indicating that they may opportunistically repurchase the bonds in order to pare down debt obligations. While the OELSP bonds are currently trading inside Raffles Education 5.9% due 2018 (88.6/14.4%) and G8 Education 5.5% due 2019 (98.25/6.24%), unlike both of its peers, OEL does not actively seek acquisitions. Hence, it has little need for future major capex over the next few years.

Bond Funds

LionGlobal Short Duration Bond Fund allows investors to invest in investment grade bonds and receive a potential payout of 2.5 per cent per annum (paid quarterly). This may be an ideal investment in an environment where interest rates are on the rise.

The Fullerton USD Income Fund invests in a diversified portfolio of U.S. dollar-denominated bonds, focused on quality companies with robust fundamentals. At least 70 per cent will be invested in investment-grade bonds to provide a combination of capital gains and stable dividend payouts.

Mixed-Asset Funds:

The following funds have shown resilience in the face of recent volatility and possibly will continue to do so going forward. A portfolio consisting of these funds would give investor a fairly well-diversified approach to their holdings:

The Fidelity Global Multi-Asset Income Fund's dynamic asset allocation lets investors exploit opportunities in both traditional and non-traditional asset classes to achieve income, stability and growth. This fund offers an attractive potential monthly pay-out of about 4.5 per cent per annum (paid monthly).

For investors who wish to capture Asia's growth through a multi-asset strategy, the Lion-Bank of Singapore Asia Income Fund aims to provide potentially regular income and capital growth through dynamic and flexible asset allocation. The fund invests in a diversified portfolio of Asian equities and fixed income instruments with the objective to deliver capital growth and sustainable income via three sources, that is, dividend yield, bond coupons and premium from covered call option writing. The covered call strategy helps to reduce the impact of negative returns in a down market and potentially extract more yield. It also has the flexibility to hold higher levels of cash, which can help to protect against downside risks.

We also recommend the JPMorgan Global Macro Opportunities Fund to leverage on global macro themes to generate performance. It aims to deliver absolute performance in various market environments. The fund also has low correlation with many asset classes and provides good diversification to an investor's portfolio. The fund manager can employ traditional and/or sophisticated investment instruments.

Currencies:

Our medium-term outlook favouring weaker trade-exposed EM Asian currencies has not changed. Any U.S. Dollar correction offers an opportunity to reinstate fresh shorts in trade-exposed Asian currencies.

Top Investment Ideas

Asset Allocation Key amid Expect Greater Uncertainty

We expect greater volatility ahead with President Trump's increasingly anti-trade rather than the highly-anticipated reflationary posture.

Given the uncertainties and volatility ahead, asset allocation should be the key consideration in managing and building a core portfolio.

We are moderately defensive in our asset allocation and continue to prefer credit over equity.

On equities, we are negative on Europe, Japan and Asia ex-Japan but with a preference for the U.S., given its defensive traits.

Among bond markets, we are positive on Emerging Market and Developed Market high yield bonds.

RECOMMENDATIONS:

Equity funds

Fidelity Global Dividend Fund

This fund's focus on high quality, dividend yielding stocks enables it to be more resilient and to better weather volatility and downside than other equity funds. At the same time, should risk assets rebound, the fund's equity orientation and strong focus on companies that are backed by earnings potential should help it capture more market upside relative to defensive funds. The benefit to investors is they can achieve income, stability and growth in one fund. They may also reap attractive potential payouts of approximately 3 per cent per annum, paid monthly.

Equity-Linked Convertible Investments or stock ideas

For U.S. stocks, cyclical sectors, led by Materials, Technology and Consumer Discretionary, outperformed in January. Looking ahead, our preferred global sectors remain Consumer Discretionary, Healthcare, Technology and Telecoms.

Fundamentally, we continue to prefer Technology names with consumer exposure – particularly in the U.S. -where sustained improvements in labour markets buoyed consumer confidence to a 9-year high. However, Trump's victory has brought about greater uncertainty for the sector. On one hand, the Republican sweep has raised expectations of a successful tax reform and this would boost profitability for the sector. Also, many global companies here have large offshore cash balances and could benefit directly if the new administration decides to go ahead with a cash repatriation tax holiday. On the other hand, many USU.S. Technology players have substantial exposure to China and Asia and could bear the brunt of retaliatory actions in the event that trade wars between the U.S. and Asia escalates.

Besides generating revenues from the region, many have major manufacturing facilities residing here as well. Preferred names include Visa Inc (V US) and Salesforce.com (CRM US). Similarly, we remain positive on Consumer Discretionary as sustained improvements in labour markets buoyed consumer confidence. Key picks are L Brands (LB US) and Starbucks (SBUX US).

For Singapore stocks: With value added exports making up more than half of its GDP, Singapore's open economy is exposed to a potential sharp slowdown in global trade should Trump-initiated trade conflicts arise. We favour quality stocks with more resilient business models and relative earnings visibility to withstand a challenging environment. Our preferred picks include Singapore Telecommunications (ST SP), City Developments (CIT SP), CapitaLand (CAPL SP), Raffles Medical (RFMD SP) and Ascendas REIT (AREIT SP).

Buoyed by expectations of a higher-rate environment as the Fed accelerates policy normalization, our banking top pick, DBS Group Holdings (DBS SP), has rallied more than 20 per cent since early November. Similarly our stock feature Global Logistic Properties (GLP SP) has also outperformed strongly, gaining more than 40 per cent over the past three months. Investors who followed these ideas should lock in some profits.

Bonds

Lippo Malls Indonesia Retail Trust 4.5% 23 November 2023 (SGD)

Lippo Malls Indonesia Retail Trust (LMRT) is a retail REIT with a portfolio of 20 retail malls and 7 retail spaces in Indonesia.

LMRT has portfolio occupancy of above 90 per cent since its IPO in 2007. Apparently, 3Q2016's portfolio occupancy of 94.8 per cent outperformed the 84.3 per cent occupancy rate of the retail market in Jakarta. Rental reversions have been healthy since 1Q2011, though the rate of increase has been declining. 3Q2016 results were stable, with revenue and NPI inching up 0.4 per cent to S$47.0m and S$43.3mn respectively, contributed by small gains in the IDR and rental reversion. LMRT benefits from retail growth in Indonesia, with retailers expecting sales to increase by 5.2 per cent y/y in October 2016.

We view the Indonesian consumer sector in a positive light despite the slowing government spending.

Bond Funds

In a rising rate environment, Asian high yield bonds have a lower duration than most fixed income sectors. In addition, this asset class exhibits lower volatility than equities and it has a more attractive risk return profile than major fixed income and equity markets.

With one of the largest fund size and longest track record, the Fidelity Asian High Yield Fund has delivered consistent performance and a lower drawdown during challenging market conditions.

Trump's expansionary fiscal policy plans would be conducive for high yield bonds, coupled with improving fundamentals and lower default rates. Allianz US High Yield Fund aims to capture potential capital appreciation through its disciplined focus on security selection and robust investment process.

Mixed-Asset Funds

Three funds have shown resilience in the face of the recent volatility and possibly will continue to do so for other related events going forward. A portfolio of these three funds gives investors a fairly well-diversified approach to their holdings:

The Fidelity Global Multi-Asset Income Fund's dynamic asset allocation lets investors exploit opportunities in both traditional and non-traditional asset classes to achieve income, stability and growth. This fund offers an attractive potential pay-out of about 4.5 per cent per annum (paid monthly).

Investors may also consider the Schroder Asian Income Fund, which offers an attractive potential pay out of about 5 per cent per annum (paid monthly). The fund aims to capture the growth potential of Asia through both equities and bonds. Investors gain from an active asset allocation strategy which aims to maximise yield and total return in different market environments.

We also recommend the JPMorgan Global Macro Opportunities Fund. This fund leverages on global macro themes to generate performance. It aims to deliver absolute performance in various market environments. The fund also has low correlation with many asset classes and provides good diversification for an investor's portfolio. The fund manager can employ traditional and/or sophisticated investment instruments.

Currencies

Given that the medium-term trend of a weaker RMB is still intact, along with the non-negligible risk of U.S. -trade protectionist policies targeting China, we maintain our bearish view on trade-exposed Asian currencies, including SGD. The recent U.S. Dollar correction offers opportunities to reinstate fresh shorts in trade-exposed Asian currencies.

Global Outlook - Faster Growth but Rising Risks

"Economic growth has picked up, but the early days of the Trump presidency have highlighted the risks to a liberal world order led by the United States."

– Richard Jerram, Chief Economist, Bank of Singapore

Key Points:

  • The rebound in business confidence began ahead of the U.S. election and has been a global occurrence, so it does not appear to be driven by Trump's victory. However, in the U.S., hopes of fewer regulations and lower taxes might be behind a post-election spike in confidence, especially for small firms.
  • Deregulation, tax reform and infrastructure investment in the U.S. all have the potential to raise the U.S. growth rate, but passing the legislation will take time, and the economic impact will be gradual. A more immediate concern is that cutting taxes when the economy is already running hot is likely to boost inflation and widen the trade deficit.
  • Protectionism is our greatest concern. Tariffs would threaten to reverse the globalisation that has been at the heart of the success story of many emerging markets – especially Asia – in recent decades. The U.S. would also suffer from distortions to resource allocation and higher prices to consumers, even before we consider the risk of retaliation by major trading partners.
  • In Europe, elections in Netherlands, France and Germany, imply continued uncertainty in 2017, especially in the wake of the political surprises of 2016. Unavoidably the focus is on downside risks, including the survival of the Euro. However, there is also the possibility of positive outcomes, such as the election of a reformist right-of-centre president in France.
  • The U.K. is treading a perilous path towards Brexit and there is a danger that it leaves the European Union without securing any form of preferential access for trade relations. Large budget and external deficits limit the room for manoeuvre and leave the U.K. exposed to damage from Brexit.
  • In Japan, exports and output were already benefitting from the bounce in world trade seen in late 2016, and the drop in Yen should sustain that momentum. This will compound the tightness in labour markets, which are already the best in 25 years.
  • Unfortunately (from the Bank of Japan's point of view) deflationary expectations appear to be so entrenched that wages have shown very little response to labour shortages. Similarly, prices are stable and although inflation will be boosted by the weak exchange rate, the BOJ's 2 per cent target is still far in the distance.
  • China could be the target for U.S. protectionist policies. Trump's appointment of related officials supports this view. Japan and Mexico have also found themselves under scrutiny, but the deficit with China is five times as large as either of them.
  • Any Chinese response to U.S. tariffs is likely to target specific U.S. firms. The hope is that this leads to more moderate behaviour from the U.S. side, but the risk is that it is viewed as provocation that leads to an escalating trade war. The unpredictability and inexperience of the U.S. administration makes this a realistic concern.
  • All emerging markets – not just China – are at risk from U.S. protectionism. Even if China is the primary focus, many of Asia's regional production networks depend on assembly in China for eventual export to the United States. Moreover, if the (probably unachievable) objective is to create millions of new manufacturing jobs in the U.S., penalising China only to see the trade deficit shift to other countries is likely to provoke similar measures on other exporters.

Equities - From Reflation to Anti-trade?

“We expect greater volatility ahead with President Trump increasingly pushing an anti-trade, rather than the highly-anticipated reflationary, posture”

– Sean Quek, Head Equity Research, Bank of Singapore

Key Points:

  • Equity markets have defied expectations and done well despite Trump's victory. The reason for the run up is because investors chose to focus on the reflation theme and are hopeful that Trump could boost the U.S. economy through expansionary fiscal policy.
  • Meanwhile, Trump's increasingly brazen protectionist push could derail global growth. Furthermore, the pace of Fed interest-rate normalisation is likely to pick up. Also, given the busy political agenda, European political risks lurk. Coupled with extended valuations, risk-reward remains unattractive. We maintain our Underweight stance on equities. Regionally, we are neutral the U.S., for its relatively defensive traits, and underweight Europe, Japan and Asia ex-Japan.
  • Without a clearer roadmap, the Trump reflation trade could run out of steam. The increasingly protectionist approach to trade by Trump could also impact U.S. corporate earnings growth and profitability, as a result of higher costs or/and lower revenues. Despite our cautious view on equities, U.S. equities remain more defensive on a relative basis.
  • In Europe, Theresa May's decision not to pursue partial EU membership will force the U.K. to leave the single market and this has raised more questions than answers. Even as earnings are expected to recover from the sharp decline last year, consensus 2017 earnings growth of 13.7 per cent remains optimistic, in our view. Meanwhile, the risk of political contagion remains, given the busy political calendar. Hence we remain cautious on European equities.
  • We maintain our view that sustained re-rating of Japanese equities would require more meaningful structural reforms that would boost Japan's growth potential. The weakened Yen would provide a boost to corporate earnings but the rebound in share prices would have largely discounted the consensus 2017 earnings growth of 10.9 per cent. After China, Japan accounts for a substantial share of U.S. trade deficit and is vulnerable to potential trade pressure.
  • Asia Ex-Japan equities rebounded in January, after bearing the brunt of the post U.S. election market response. The “America First” rhetoric during Trump's inauguration speech does not augur well for the region. China accounts for more than one-third of the overall U.S. trade deficit and will be the focus of any U.S. anti-trade policies. But given the highly connected intra-Asia as well as U.S.-Asia trade links, it is unlikely that any of the Asian markets would go unscathed if the situation turns ugly.

Bonds - Positive on High Yield Bonds

"In the face of potentially improving fundamentals and a lower default rate, the downside for high yield bonds looks limited - even as the Fed raises interest rates."

– Vasu Menon, Senior Investment Strategist, Wealth Management Singapore, OCBC Bank

Key Points:

  • The deflation risk of recent years that has had central banks in developed economies pursuing ever-more radical policies is fading. Firmer growth and a rebound in commodity prices are pushing inflation higher, so attention is turning to when stimulus will be withdrawn. This will become an issue for Europe and Japan as the year progresses, but the United States is leading the shift.
  • We continue to expect the Fed to raise interest rates three times this year and another four in 2018. The economy is at full employment and inflation is only marginally below the 2 per cent target, so the Fed should be uncomfortable with interest rates around 2.5 per cent below neutral levels.
  • Of course the Fed does not operate in a policy vacuum and must be sensitive to any changes from the new Trump administration. The most obvious risk is that fiscal stimulus boosts growth and raises inflationary pressure, which would demand a more aggressive response from the Fed.
  • The bond market has already started to respond to this new outlook for policy, and we can expect yields to push higher as the Fed gradually tightens. We see 10-year U.S. Treasury yields around 3 per cent by end-2017. Investment grade bond returns will be dull in this environment and we have cut our stance to neutral, preferring to take some credit risk in high yield bonds
  • Despite higher interest rates, we continue to see opportunities in bond markets but returns will not be as high as in 2016. High yield bonds should remain in vogue as the search for yield continues. Ageing demographics and surplus savings should support the continued search for yield.
  • Valuations on neither High Yield nor Investment Grade look particularly compelling currently. However in a reflationary environment with higher rates, we believe that coupon/carry will become an increasingly important component of total return. With its higher corporate spread component, High Yield bonds should be somewhat better insulated from the adverse impact of higher rates. Furthermore, High Yield is better positioned to benefit from a decline in overall default rates in 2017 versus 2016.
  • There are three things to bear in mind when investing in bond markets to reduce risk. Firstly, given the potential for higher U.S. interest rates, investors should focus on bonds with a shorter tenor as such bonds are less affected by higher interest rates compared with longer dated bonds. Secondly, consider investing in a portfolio of bonds through a unit trust rather than buying individual bonds as many individual bonds require a significant investment outlay and can expose investors to concentration risk. Finally, it is absolutely imperative to buy only into bonds with decent credit fundamentals to reduce default risk.

Foreign Exchange & Commodities - U.S. Dollar Rally Stalling?

"The greenback is at a new cycle high. It is already rich relative to fair value and has priced in a lot of fiscal optimism but not enough trade protectionism risk in our view."

– Michael Tan, Senior Investment Counsellor, OCBC Bank

Key Points:

  • The greenback's rally has been hampered as President Trump takes office. The U.S. dollar has corrected amid concerns of a possible delay on the delivery of growth-positive fiscal measures. Growing signs that reflation is a global, not just an American-only, phenomenon also challenges the idea that U.S. dollar should be exceptionally stronger.
  • Recent comments by Trump that the U.S. dollar is “too strong”, has also undermined the currency. Expectations that Trump will tone down the trade protectionist rhetoric that got him elected appears false. Global risk sentiment, which is approaching “complacency” territory, could sour if trade tension escalates as the U.S. threatens import tariffs. Emerging market currencies are vulnerable to higher risk aversion and are likely to underperform reserve assets such as the Gold, the Euro and Japanese Yen.
  • Given that the medium-term trend of a weaker Renminbi is still intact and the non-negligible risk of U.S. trade protectionist policies targeting China, we maintain our bearish view on trade-exposed Asian currencies. The clear risk to our view of weaker Asian currencies is the Chinese central bank attempting to hold the Renminbi stable for longer than we forecast to reduce risk of trade friction with the United States.
  • The Pound rebounded after U.K. Prime Minister Theresa May confirmed intentions to leave the EU single market. However, we remain worried that the heavy political calendar in Europe this year will lead the EU towards a tough negotiating position and the market could start pricing “hard Brexit” again.
  • We continue to see Gold as a valid asset to hold as a diversifier and hedge against concerns that a potential escalation of trade tension between the U.S. and China could threaten the global recovery. Safe haven buying has been a feature of the Gold market since the start of 2017, and we expect this to continue as Trump moves quickly to initiate his campaign policies. An expected decline in U.S. real interest rates and the possibility of a weaker U.S. dollar could add to Gold's appeal over the next few months.
  • OPEC seems to be having success in reducing output, which is allowing prices to push above the US$50 per barrel level. The main impact of the OPEC deal is to limit downside risk, as it reduces the threat of extreme over-supply. Upside remains limited by alternative (higher cost) supply becoming more viable as prices rise. This is already evident in the U.S., where the rig count is up 70 per cent from the lows of May 2016.

Important information

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Top Investment Ideas

Stay Defensive and Diversify

Donald Trump's election victory should be viewed as a new global shock, mixing positive demand and negative supply elements. There is considerable uncertainty about the actual mix of policies to be enacted. Given the uncertainties and volatility ahead, asset allocation should be the key consideration in managing and building a core portfolio.

We are moderately defensive in our asset allocation and continue to prefer credit over equity.

On equities, we are cautious on Europe, Japan and Asia ex-Japan but have upgraded U.S. to a neutral stance given its defensive traits.

Among bond markets we are positive on Emerging Market high yields and have turned less cautious on Developed Market high yields.

Recommendations

Equity funds

Fidelity Global Dividend Fund

This fund's focus on high quality, dividend yielding stocks enables it to be more resilient and to better weather volatility and downside than other equity funds. At the same time, should risk assets rebound, the fund's equity orientation and strong focus on companies that are backed by earnings potential should help it capture more market upside relative to defensive funds. The benefit to investors is they can achieve income, stability and growth in one fund. They may also reap attractive potential payouts of approximately 3 per cent per annum, paid monthly.

Equity-Linked Convertible Investments or stock ideas

For U.S. stocks, our preferred sectors are Consumer Discretionary, Healthcare, Technology and Telecoms.

Healthcare lagged in November 2016 although the sector is seen as a key beneficiary of Trump's victory given Hillary Clinton's aggressive rhetoric on regulating drug pricing. While Trump and the Republicans have been clear on the desire to repeal the Affordable Care Act (ACA), there is less clarity on their healthcare policies, except for the focus on reducing regulations.

Repealing the ACA is largely a net neutral for the U.S. healthcare sector, with the drug, biotech, and insurance industries benefiting slightly while hospitals and drug supply chain firms may be impacted negatively; and the remaining industries could be less affected. Fundamentally, the sector continues to benefit from improving pipeline productivity with an increasing number of new therapeutic drugs approved by the Food and Drug Administration (FDA). Also, valuations remain undemanding while M&A activities provide potential catalysts. Key picks in this sector include Amgen Inc. and Express Scripts Holding Company.

Steady improvements in labour markets remain supportive for U.S. consumption growth, hence our positive stance on Consumer Discretionary stocks. Key picks in this sector are Lowe's Companies, Inc. and The Walt Disney Company.

We continue to be overweight the Technology sector, and prefer names with consumer exposure, such as Visa Inc. and Salesforce.com.

For Singapore stocks, we are on the lookout for signs of an earnings trough to emerge over the course of 2017. We favour quality stocks with more resilient business models and relative earnings visibility to withstand a challenging environment. Within a diversified portfolio, we retain a selective approach to dividend yielding stocks which are not overly geared and where spreads still offer attractive long term value for equity income investors. Our preferred picks include Singapore Telecommunications Ltd, City Developments Ltd, Global Logistic Properties Ltd, Ascendas REIT and Frasers Centrepoint Trust.

Bonds

GuocoLand Ltd 4.1% 13 May 2020 (SGD)

GuocoLand Ltd. operates as an investment holding company, which engages in the property development and investment, hotel operations and provision of management, property management, marketing and maintenance services. It had reported weaker 1QFY2017 results, mainly due to an absence of contribution from property sales and divestment gains from a year ago. Otherwise, revenue had only inched down 5.5 per cent on a quarter-on-quarter basis.

The gearing ratio currently towers over peers but we believe GuocoLand's credit metrics remains manageable with a larger recurrent income base. We see a potential supply risk in the short-term debt sector and hence favour the tenor recommended over others.

Bond Funds

LionGlobal Short Duration Bond Fund allows investors to invest in investment grade bonds and receive a potential payout of 2.5 per cent per annum (paid quarterly). This may be an ideal investment in an environment where interest rates are on the rise.

The Fullerton USD Income Fund invests in a diversified portfolio of U.S. dollar-denominated bonds, focused on quality companies with robust fundamentals. At least 70 per cent will be invested in investment-grade bonds to provide a combination of capital gains and stable dividend payouts.

In a low growth environment, Asian credits remain well-supported by monetary policy and the continued hunt for yield. This fund may provide an attractive income with lower volatility versus other asset classes. Its concentration risk is managed by careful credit selection and diversification and the interest rate risk is managed by ensuring that portfolio duration does not exceed five years

Mixed-Asset Funds

Three funds have shown resilience in the face of the recent volatility and possibly will continue to do so for other related events going forward. A portfolio of these three funds gives investor a fairly well-diversified approach to their holdings.

The Fidelity Global Multi-Asset Income Fund's dynamic asset allocation lets investors exploit opportunities in both traditional and non-traditional asset classes to achieve income, stability and growth. This fund offers an attractive potential monthly pay-out of about 5 per cent per annum (paid monthly).

Investors may also consider the Schroder Asian Income Fund, which offers an attractive potential monthly pay out of about 5 per cent per annum (paid monthly). The fund aims to capture the growth potential of Asia through both equities and bonds. Investors gain from an active asset allocation strategy which aims to maximise yield and total return in different market environments.

We also recommend the JPMorgan Global Macro Opportunities Fund. This fund leverages on global macro themes to generate performance. It aims to deliver absolute performance in various market environments. The fund also has low correlation with many asset classes and provides good diversification for an investor's portfolio. The fund manager can employ traditional and/or sophisticated investment instruments.

Currencies:

We are positive on the prospects for the U.S. Dollar but the direction of the greenback will depend on Trump's economic policies and on this front, there is still a lack of clarity at the time this was published. Trade-exposed Asian currencies stand to lose most from an escalation of trade tension between China and the U.S.

Global Outlook - Unusual Uncertainty in 2017

“Political turbulence means that there is more uncertainty over the global economic outlook than there has been this decade. The risk of recession – perhaps due to “boom-bust” – has risen.”

– Richard Jerram, Chief Economist, Bank of Singapore

Key Points:

  • Previously there was no prospect of a U.S. recession within a realistic time frame. Mildly-loose policy was allowing a gradual absorption of excess capacity. This no longer seems to be an appropriate framework.
  • The two factors that usually cause a downturn are an exogenous shock or domestic overheating, that leads to monetary tightening which hurts growth. Both are possible now. The former could stem from tariffs that damage global trade, the latter from fiscal stimulus into an economy already near to full capacity. There is now a realistic risk of a recession in Trump's first term in office, perhaps by 2019.
  • More positive outcomes are also possible. Judicious deregulation and targeted fiscal spending could raise the potential growth rate, especially if accompanied by restraint on trade policy. This could produce a “stronger for longer” expansion. This outlook will need to be revised as the policy direction of the new Trump administration becomes clearer.
  • The Eurozone is at risk of the disruption seen in the U.K. and U.S. in 2016, with several important political elections and events in the coming year. Rising anti-EU sentiment in the founding members of the EU is a particular concern. Even if the survival of the EU is not seriously threatened, it is becoming harder to implement reforms that would improve the stability of the region.
  • More positively, the anti-EU sentiment seems to have contributed to acceptance of a slight loosening of fiscal policy, which will help to support growth in 2017 and 2018. Unlike the U.S. and Japan, the Eurozone still has significant excess capacity.
  • Japan's economy is around full employment even though growth has averaged just 0.7 per cent over the past five years. Economic activity is only slightly greater than pre-crisis levels in 2008 which is a useful indication of the drag that demographics is having on productive capacity. Growth is set to be a little more rapid in 2017 due to fiscal stimulus and the weaker exchange rate, but this will just be a short-term lift.
  • In Asia, China remains a significant medium-term risk. Rapid lending, high investment rates and slowing economic growth is a combination that suggests an inefficient allocation of credit and an eventual bad debt crisis. In China the process is largely internal – so no Lehman shock – and dominated by the state, which implies the consequence is that the growth rate grinds lower, rather than the system explodes.
  • After Mexico, Asia is most exposed to U.S. tariffs. Restrictions on U.S. imports from China would affect the entire region through the impact on the extended supply chains. Moreover, the U.S. has large trade deficits with many other Asian economies, even before we consider their exports that go to the U.S. via China.

Equities - Remain Cautious on Equities

“In 2017, we expect volatility to remain elevated as markets continue to discover what a Trump presidency really represents. We remain cautious on equities and have upgraded U.S. equities from underweight to neutral for its defensive traits.”

– Sean Quek, Head Equity Research, Bank of Singapore

Key Points:

  • Markets dived onto a reflationary trade even as the Republican's sweep has widened the range of possible global growth and geopolitical outcomes. At the same time, the pace of Fed rate hikes is likely to accelerate. Further, ahead of the busy political agenda, European political risks lurk. Coupled with extended valuations, risk-reward remains unattractive. Hence, we remain cautious on equities. Regionally, we are neutral on the U.S. and cautious on Europe, Japan and Asia ex-Japan.
  • The post-U.S. election rally to record levels - notwithstanding the rise in yields - suggests that the market sees growth acceleration outweighing the impact from higher rates. Clearly, there is not enough information at this stage to arrive at such a conclusion with conviction. Further, with the recent rise, valuations have become extended. Without more concrete details, the Trump reflation trade could run out of steam. Nevertheless, U.S. equities remain more defensive on a relative basis.
  • Going into 2017, the risk of political contagion remains a potential overhang in Europe given the busy political calendar. In the meantime, negotiations between the U.K. and the EU are expected to kick-off. Also, consensus earnings growth for 2017 seems to be optimistic again. Combined with the region's above-average price-to-earnings ratio, we remain cautious in European equities.
  • In Japan, we maintain the view that investors would see beyond short-term stimulus, whether from monetary or fiscal policy and more sustained re-rating of Japanese equities would require more meaningful structural reforms that would boost Japan's growth potential. Meanwhile, near-term, the market would continue to be driven mainly by movements of the Yen. Although valuations are not demanding, we remain cautious on Japanese equities.
  • Asia ex-Japan equities bore the brunt of Trump's victory. Besides fears of Trump-triggered trade war, growing expectations of faster Fed tightening also weighed on regional currencies. If Trump pursues his anti-trade policies, it is highly negative for Asia's growth. Also, an accelerated Fed tightening phase would weigh on the region. Hence, although Asia Ex-Japan markets continue to trade at a discount to their Developed Market peers, risk-reward for the region has deteriorated.

Bonds - Shift in Outlook for U.S. Rates

“A Trump Presidency could mean a faster pace of rate hikes in the next two years. Previously we had expected five 25 basis point rate hikes in 2017-2018 but now we provisionally raise this to seven rate hikes.”

– Vasu Menon, Senior Investment Strategist, Wealth Management Singapore, OCBC Bank

Key Points:

  • Trump will inherit an economy in its eighth year of expansion (admittedly a slow-paced one) and near to full capacity. Inflation is increasingly evident, in both consumer prices and wages. In this situation, the planned fiscal stimulus and a more restrictive approach to immigration will heighten inflationary pressures, as would tariffs on imports.
  • This implies a faster pace of Fed tightening over the next couple of years, although much depends on the policy choices of the Trump administration. However, as financial markets anticipate this change, through a firmer U.S. dollar and higher bond yields, these act as a drag on activity and reduce the need for the Fed to be too aggressive.
  • The Fed seems happy to allow the economy to “run hot” in order to pull away from deflation risk and perhaps repair some of the damage to the labour market. However, core inflation is already at 1.7 per cent, so there is not much room before it breaches the Fed's 2 per cent target.
  • Also remember that at some point the Fed is likely to let the size of its balance sheet shrink. It has been stable for the past two years as the proceeds of maturing bonds are being re-invested. We doubt that the Fed would run down its balance sheet before interest rates are over 1 per cent which probably rules out 2017. However, it could announce its future policy intentions at any point and there is a risk that this has an impact akin to former Fed Chair Bernanke's infamous “tapering” remark in May 2013.
  • The bond market has already started to respond to the new outlook for U.S. policy. After the initial jump, yields could stabilise until the Trump's policy priorities become clearer, hopefully in 1Q2017. After that we can see Fed tightening pushing up the curve, with 10-year US Treasury yields approaching 3 per cent by end-2017. Investment grade returns will be dull in this environment – barely better than cash.
  • We are moderately defensive in our asset allocation and continue to prefer credit over equity. On credit, we do not foresee credit spreads widening significantly, as any fiscal stimulus would delay recession risk. As a result, we are turning less bearish on developed market high yield bonds. However, we are careful not to take on too much bond duration risk because higher inflation expectations will push long-dated bond yields higher.
  • We recently lowered our positive stance on Emerging Market high yield bonds given expected headwinds emanating from anticipated changes under a Trump administration, which moderates our expected 2017 return for the aggregate asset class. However, given our expectation of modest spread tightening going forward, the higher coupon of High Yield should help buffer and insulate returns to at least some extent from rising U.S. Treasury yields and place it in a position to outperform Emerging Market investment grade bonds.
  • Given the potential risks posed by Trump's policies, there will be greater differentiation among Emerging Market bonds with those operating in countries and sectors which are less affected by global trade and with relatively strong external balances, showing more resilience. On the other hand, Emerging Market bonds with a bigger exposure to external trade and poorer economic fundamentals would probably be more vulnerable.

Foreign Exchange & Commodities - Making the U.S. Dollar Great Again?

“Trade-exposed Asian currencies which have been the greatest beneficiaries of globalisation stand to lose most from an escalation of trade tension between China and the United States.“

– Michael Tan, Senior Investment Counsellor, OCBC Bank

Key Points:

  • The possibility of stronger economic growth and higher interest rates in the United States should augur well for the U.S. Dollar, and there are good reasons to be positive about the currency. However there is insufficient information so far on the Trump's administration's priorities and the magnitude of its intended policies and until we get more clarity it's hard to say with a great deal of conviction that the U.S. Dollar could surge significantly against other major currencies like the Yen and the Euro.
  • Two other considerations complicate the path of the U.S. Dollar against reserve currencies. First is the lurking fear that if trade disruption becomes a first-order issue, this would help the Euro and Yen while undermining Asian currencies. Second, if the drag on U.S. growth from the stronger greenback and higher yields manifests before the boost from fiscal policy, then we may see additional market volatility as positioning and investor expectations get revised. The U.S. Dollar could then struggle as the markets reassess “Trumponomics”.
  • Trade-exposed Asian currencies stand to lose most from an escalation of trade tension between China and the United States. So far China has not reacted to the U.S. election. The Chinese currency has been weakening against the U.S. Dollar but the currency has actually been stable-to-slightly stronger against a basket. Whether the Chinese currency will continue to remain stable against its basket is a risk that we will have to remain vigilant over, as an acceleration of its weakness would have an adverse spillover effect on other Asian currencies.
  • Low oil prices in 2016 had put a strain on a range of oil producing countries. This lends some credibility to the OPEC deal to cut output, even though enforcement will be a problem, as usual. OPEC still accounts for over one-third of global production. Unfortunately for OPEC, shale has changed the dynamics of oil production as supply can quickly respond to a rise in prices. The U.S. rig count is already up nearly 50 per cent from the lows of May 2016 as producers respond to the prospect of higher profitability. This will limit the upside to prices.
  • We are not long-term gold bulls but there are enough uncertainties ahead – from politics to potential policy impact on growth/inflation – to support gold prices going into early 2017. However, the Trump victory in the U.S. elections has repriced the U.S. Dollar and interest rate expectations higher, both of which are headwinds for gold prices. Consequently, we have lowered our gold price forecasts. However, gold should still offer protection to portfolios in risk-averse periods, especially after its recent sharp fall; gold prices should rise fast when risky assets run into trouble.

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Top Investment Ideas

Stay Defensive

We are defensive in our asset allocation and continue to prefer credit over equity. The current environment of still low bond yields and range bound equities continues to make the case for the hunt for yield from both equity and fixed income markets for the rest of 2016.

In terms of fixed income, we remain positive on Emerging Market bonds, both high yield and investment grade paper, as they look well-positioned to deliver relatively strong performance over the coming months. We are also positive on Developed Market investment grades.

On equities, we are maintaining our cautious view on the back of extended valuations and event risks ahead. On equity regions, we would express our negative view evenly in the developed market – U.S., Europe, and Japan - while keeping to our neutral call on Asia.

With a great deal of uncertainty ahead, asset allocation should be a key consideration in managing and building your core portfolio.

Recommendations

Equity funds

Investors may seek to capture the strong growth potential of Asia through dividend yielding equities. The Schroder Asia Equity Yield Fund provides potential capital growth and income through investment in equity and equity related securities of Asian companies which offer attractive yields and sustainable dividend payments. You may reap attractive potential payouts of between 3 to 4 per cent per annum, paid out monthly.

Equity-Linked Convertible Investments or stock ideas

Earnings revisions trend for the Singapore equity market remain weak over the past month as the 3Q earnings season kicked off on a muted tone. With recent economic data continuing to point to slower growth for the Singapore economy, the earnings outlook for Singapore banks is subdued with low single digit loans growth and asset quality concerns lingering over the domestic banks' exposure to oil & gas, commodity, property, Chinese and European loans. The positive is that valuations appear to have factored in much of the concerns. Within the sector, following a stronger pullback to date in DBS Group (DBS SP) towards 1x book value, we see long term value emerging in the stock.

Within a diversified portfolio, while we maintain our preference for some dividend yielding exposure given supportive spreads despite some near term weakness as the market prices in higher expectations of the next Fed hike, we advise investors to actively review their portfolios to reduce positions in stocks which offer less attractive growth outlook. Examples include Singapore Press Holdings (SPH SP) where we have highlighted a cautious stance following its lowered dividends and muted results release. We see limited growth surprises for SPH ahead given the continued structural headwinds for its traditional print media business amidst challenging economic conditions. Other ideas where we expect lacklustre fundamental outlook and are hence cautious include Sembcorp Marine (SMM SP) and Suntec REIT (SUN SP). Switch Buy rated ideas include City Development (CIT SP) and Capitaland Mall Trust (CT SP).

In the U.S., cyclicals outperformed in October despite the pullback in investor risk appetite as markets weigh the risks of a December Fed rate hike. Financials, which have been beaten down following the slew of negative news, led the pack. We continue to look for sectors with a combination of consumer exposure as well as relatively attractive valuations. Our preferred sectors are Consumer Discretionary, Healthcare, Technology and Telecoms.

Financials, the worst performing sector over the past 12-months, recovered to lead all sectors. The latest update by the IMF to its Global Financial Stability Report, which stated that “short-term risks have abated since April 2016, but medium term risks continue to build”, aptly reflect current sentiments for the sector. Recent efforts by central banks, such as the BOJ's move to introduce yield curve management, suggest that they are recognizing the ineffectiveness of negative interest rates. This augurs well for the banks. While the low growth and low interest rates environment, coupled with gruelling regulatory backdrop, continue to weigh on the sector's performance, we believe that a lot of the bad news has been discounted. As such, we are raising the sector from negative to Neutral. Our preferred name here is Bank of New York Mellon (BK US).

Energy stocks extended their gains but met greater volatility as questions over OPEC's planned cuts emerged. With Bank of Singapore Economics Team's crude oil price forecast of $48-50/bbl over the next 6-12 months, we see limited upside from here. On the other hand, valuations appear stretched following the sector's best-performing re-rating year-to-date. Hence, we are cutting the sector to Negative from neutral.

We remain positive on Consumer Discretionary. Steady improvements in labour markets remain supportive for U.S. consumption growth. Key picks include Starbucks (SBUX US) and BMW (BMW GY).

Despite the outperformance, we continue to be overweight the Technology sector, especially names with consumer exposure. Preferred names include Visa (V US) and Salesforce.com (CRM US).

Healthcare underperformed again in October, in-line with other defensive sectors. Fundamentally, the sector continues to benefit from improving pipeline productivity with an increasing number of new therapeutic drugs approved by FDA. Also, valuations remain undemanding versus global peers while M&A activities provide potential catalysts. Our positive stance remains intact here. Buy-rated names include Wide-Moat rated Allergan (AGN US) and Sanofi (SAN FP).

Bonds

CapitaLand Limited US Dollar 4.076%, 20 September 2022

CapitaLand Limited is a real estate company focused on investment holding. The company and its subsidiaries are principally engaged in investment holding, real estate development, investment in real estate financial products and real estate assets, investment advisory and management services, as well as the management of serviced residences.

CapitaLand Ltd (CAPL) is one of Singapore's leading real estate developers with a focus in key Asian and/or European cities, with a 39.5 per cent stake held by Temasek Holdings. CAPL delivered decent financial results for FY2015, mainly driven by the group's China development projects and higher rental revenue from its serviced residence business. Debt levels have remained largely unchanged, while its net debt/equity has improved from 0.57 times in FY2014 to 0.48 times in FY2015 due to an accumulation of its cash position. In addition, the Group's debt maturity profile is well-managed, having not more than S$3 billion of debt to be refinanced each year. We also expect liquidity to remain healthy given the group's wide range of financing channels; currently, it has approximately S$3.8 billion of undrawn facilities from both the parent and its treasury vehicles. Free cash flow came in strong at S$1.4 billion in FY2015 as a result of higher sales collection from its China projects, as compared to –S$377 million over a year earlier. Credit profile remains strong, underpinned by its quality assets and close links to the Singapore government via Temasek Holdings. The weak residential market in Singapore -- primarily a result of property cooling measures -- may be a notable risk to note. However, its substantial operating presence in China property markets should provide some buffer should earnings from Singapore be affected adversely.

Bond Funds

Interested investors may consider the LionGlobal Short Duration Bond Fund. It gives investors exposure to investment grade bonds. Investors can receive potential payout of 2.5 per cent per annum, paid quarterly. The fund has a relatively lower duration which may be less risky when or if interest rates rise.

Investors may also consider the Fullerton USD Income Fund. This fund invests in a diversified portfolio of U.S. Dollar-denominated bonds, focused on quality companies with robust fundamentals. At least 70 per cent will be invested in investment-grade bonds to provide a combination of potential capital gains and stable dividend payouts.

In a low growth environment, Asian credits remain well-supported by monetary policy and the continued hunt for yield. This fund potentially provides an attractive income with lower volatility versus other asset classes. Its concentration risk is managed by careful credit selection and diversification and interest rate risk is managed by ensuring that portfolio duration does not exceed five years.

Mixed-Asset Funds

Three funds have shown resilience in the face of the volatility caused by the UK's referendum to exit the EU and possibly other events going forward. A portfolio of these 3 funds gives you a fair diversification of your investment.

The BlackRock Global Multi-Asset Income Fund's dynamic asset allocation lets investors exploit opportunities in both traditional and non-traditional asset classes.

Investors may also consider the Schroder Asia Income Fund which offers an attractive potential monthly pay out of about 5 per cent per annum paid monthly. The fund aims to capture the growth potential of Asia through both equities and bonds. Investors may gain from an active asset allocation strategy which aims to maximize yield and total return in different market environments.

We also recommend the JPMorgan Global Macro Opportunities Fund. This fund leverages on global macro themes to generate performance through traditional and/or sophisticated investment instruments. It aims to deliver absolute performance in various market environments. The fund also has a low correlation with many asset classes and provides good diversification for your portfolio

Currencies: As expected, the U.S. dollar staged a strong recovery last month and should continue to be well supported. However, we do not see a strong appreciation trend from here as the expected rate hikes in December and in 2017 has already been factored in.

Global Outlook - From Deflation Risk to Inflation Overshoot

“The fear of global deflation of the past couple of years is fading. Solid growth and higher oil prices mean that a much smaller part of the world is at risk of falling into deflation.”

– Richard Jerram, Chief Economist, Bank of Singapore

Key Points:

  • Solid growth and higher oil prices mean that a much smaller part of the world is at risk of falling into deflation. In 2015 nearly 60 per cent of the world economy has inflation below 1 per cent. That proportion will fall to 30 per cent this year and by 2017 will be close to 10 per cent, which is more normal.
  • Central bankers are also more comfortable with the risk of excess inflation rather than deflation. Bank of Japan has committed to expanding liquidity until inflation overshoots its 2 per cent target. More recently, Fed Chair Janet Yellen had suggested allowing the economy to “run hot” in order to repair some of the structural damage caused by the Great Recession. This pro-inflation bias means that interest rates are not raised until well into the recovery.
  • Yet, a slow pace of normalisation does not necessarily mean zero rate hikes. We continue to expect the Fed to push interest rates 0.25 per cent higher at its mid-December meeting, with two more increases in 2017, a comfortably gradual pace of rate increases.
  • In the U.S we are starting to see some evidence of capacity constraints pushing up wages and consumer prices. However, the pace of the pick-up is still quite moderate, which means that the need for Fed tightening is not as urgent, allowing them to move at a fairly gradual pace.
  • Increased government spending is the common theme for both Mr Trump's and Mrs Clinton's campaigns. This may imply a faster pace of rate hikes by the Fed as the economy does not have much spare capacity to absorb any material fiscal stimulus. Hence, it would need to be balanced by tighter monetary policy. Such a combination would probably be positive for USD.
  • In Europe, talk of tapering by the European Central Bank (ECB) does not look justified as long as inflation is not making material progress towards the ECB's target. The ECB is likely to extend its quantitative easing programme at its meeting in December.
  • Growth in the Eurozone seems solid, with composite Purchasing Manager Indices (PMIs) staying over 50, implying expansion, for the past three years, even in the face of a range of geo-political shocks. That resilience will be tested again going into 2017 with a crowded political calendar. Brexit negotiations, the Italian referendum on a new constitution in early December and national elections in France, the Netherlands and Germany in 2017 are inescapable risks in the coming year.
  • For the U.K., the focus on limiting immigration points to a “hard” Brexit and means that trade and investment flows are likely to take a hit. The U.K.'s large current account deficit means that GBP will remain vulnerable.
  • We remain concerned over China's ballooning credit-to-GDP ratio despite efforts aimed at deleveraging. Rapid lending, high investment rates and slowing growth are a combination that suggests an inefficient allocation of credit and an eventual bad debt crisis. In China the process is largely internal – so no Lehman shock – and dominated by the state. Consequently, this implies that China's growth rate should grind much lower should the credit bubble pop.
  • In Japan, the relentless grind of demographics means that growth has likely settled around its potential at 0-1 per cent, with fluctuations driven by fiscal policy or swings in the exchange rate. The emphasis needs to be on structural reform to raise the potential growth rate. Unfortunately, it is hard to find much evidence of progress, despite the government's dominance of both houses of parliament.
  • Adjustments in Emerging Markets (EM) in the last few years in reaction to slower Chinese demand, lower commodity prices and the taper tantrum have improved growth prospects especially in countries like Argentina, Brazil, Indonesia, Mexico and Russia. This should help resilience if the U.S. implements two or three rate hikes in 2017, as we expect.
  • Asia still looks solid in the face of sluggish growth in the developed world and troubles in China. Low inflation and (mostly) solid government finances give policy flexibility if needed

Equities - Mind the Potholes Ahead

“Near-term, sentiments are likely to stay cautious as investors continue to weigh the likelihood of a Fed hike this year. Accordingly, we maintain our cautious stance on equities.”

– Sean Quek, Head Equity Research, Bank of Singapore

Key Points:

  • Near-term, sentiments are likely to stay cautious as investors continue to weigh the likelihood of a Fed hike this year. Much like the rate hike cycle of 2014, we can expect some market fear and perhaps correction post the December hike. Contingent on a compelling correction, we may see an opportunity to add equity risk.
  • Event risks such as the U.S. Presidential election and a crowded political calendar in Europe spell higher volatility ahead. Coupled with the extended valuations, risk-reward remains unfavourable for investors. Accordingly, we maintain our cautious stance on equities.
  • We think the necessary conditions are already in place and continue to expect a rate hike at the December meeting. Volatility is expected to spike in the lead up to the U.S. Presidential election and the Fed's move in December. Coupled with the extended valuations of 18.4x forward price-to-earnings (PE), we remain cautious on U.S. equities.
  • Political risks loom large for European equities given the busy political calendar. These include the negotiations between the U.K. and the EU over the future of their relationship, Italy's constitutional referendum scheduled in December and Germany and France's elections in 2017. With forward PE of 16.3x above long-term average of 13x, we remain cautious on European equities given the prospect of higher political uncertainty.
  • There is little by way of market catalysts for the Japanese stock market. It has also become increasingly clear that any additional short-term monetary or fiscal stimulus is unlikely to have a meaningful impact. Ultimately, the sustained re-rating of Japanese equities would require more meaningful structural reforms that would boost Japan's growth potential. While valuations are not demanding at current levels, we would rather remain cautious in this space and look for companies with high earning visibility.
  • Asia Ex-Japan equities held up relatively well in October as growth outlook for the region improved. Although Asia Ex-Japan stocks continue to trade at a significant discount to its developed market peers, valuations for the region are no longer cheap versus its own long-term historical range. Nevertheless, an uptick in earnings growth as well as the relatively solid outlook, especially in comparison to the developed world, leads us to take a neutral stance on the region's equities relative to our negative stance on the other Developed Markets (U.S., Europe, Japan).

Bonds - EM High Yield Bonds Still Have Some Way to Go

“Given less compelling valuations and the prospect of headwinds from higher interest rates, carry (income) will be a more critical component of total returns. This should augur well for High Yield bonds.”

– Vasu Menon, Senior Investment Strategist, Wealth Management Singapore, OCBC Bank

Key Points:

  • There has seen some fears that the impending Fed rate hike would cause a sharp bond market sell-off. This fear is misplaced when we look back at history. Examining the last hike cycle in 2004, the Fed raised rates aggressively – at almost a hike each month - from 1 per cent to 5.25 per cent. Remarkably, the U.S. 10-year Treasury bond yields were stable during the entire 2004 hiking cycle, trading between 4 to 5.25 per cent.
  • Compared to the 2004 rates cycle, the current Fed is extremely dovish. Therefore, the Fed should be able to increase rates in December without causing a big sell-off in the bond market.
  • Also, the resultant flows into the U.S. in the hunt for yield due to negative yielding assets in Japan and Europe are likely to restrain the rise in long term U.S. Treasury yields even if the Fed continues with policy tightening.
  • While this should limit the increase in U.S. bond yields, it should not prevent it altogether. Accordingly, we see 10-year Treasury yields at around 1.75 per cent by year end, with further modest increases in 2017. This should mean that investment grade bonds offer slightly better returns than cash for the remainder of the year.
  • Emerging Market (EM) bonds have had a resounding year and look set to surpass the second best ever annual return of 12.5 per cent achieved in 2010. Yet, the final leg of the race is likely to be a crawl rather than a sprint upwards as there are a few remaining obstacles such as the U.S. Presidential election in November and potential Fed rate hike in December. There are also few obvious catalysts within Emerging Markets.
  • And so, we expect modest returns here on in which should be delivered largely from carry or income rather than capital appreciation. It's worth noting that income looks to be an increasingly critical component of total returns given less compelling valuations, prospects of actual headwinds arising from higher interest rates and the absence of strong catalysts to drive Emerging Market economies going into 2017.
  • Here, High Yield bonds -- where there is more of a buffer from the credit spread component -- are better-positioned to outperform Investment Grade paper given the latter's higher correlation with U.S. Treasuries and lower credit component of total return.
  • We would continue to focus on specific country, sector and individual credit bets as the primary driver of outperformance in a return environment likely to be dominated by carry.
  • While we remain constructive on the EM High Yield in general, investors should be both circumspect and selective as this risk-on environment tends to result in increasingly lower quality issuers. As such, we would maintain our preference for higher quality names despite less compelling valuations.

Foreign Exchange & Commodities - Don't Chase the U.S. Dollar Rally

“A Fed rate hike and QE extension by the ECB in December should keep the greenback well supported, but we still see the currency as more range-bound versus G10 currencies than in a strong appreciation trend.“

– Michael Tan, Senior Investment Counsellor, OCBC Bank

Key Points:

  • We do not expect the U.S. Dollar to set new highs moving forward for a few reasons. First, U.S. core inflation data is still not strong enough to merit a rapid Fed tightening. Also, other major central banks may not have the scope to ease monetary policy significantly beyond current levels. Second, while China has come back as a potential worry, we are less concerned of the CNY weakness triggering a sustained global risk sell-off that would fuel safe-haven demand for the USD.
  • In relation to the Yuan, the higher USDCNY fixings recently are more a reflection of USD strength as opposed to an outright sharp devaluation. Thus, we dismiss fears of ‘accelerated CNY depreciation'. Our view of orderly and gradual Yuan depreciation trend remains unchanged.
  • In terms of the Sterling, we believe Brexit developments rather than economic data will continue to drive movements in the currency. Uncertainty surrounding Brexit negotiations could nudge the sterling below 1.20 against the U.S. Dollar over the next 3-6 months.
  • The European Central Bank (ECB) could extend their Quantitative Easing (QE) programme in December at the current pace, but we believe this is now broadly priced in at current levels.
  • Diminishing downside risk for oil prices on the back of speculations that an OPEC deal is forthcoming continue to support Emerging Market FX high-yielders such as IDR, INR, RUB and BRL. However, given the number of approaching event risks such as the U.S. elections, Fed December hikes and Brexit negotiations, it is prudent to take only measured exposure to these risky trades and hedge against any potential short-term risks.
  • We are not long-term gold bulls, but gold remains a useful portfolio diversifier on a 3-6 month timeframe. There are enough potholes to navigate, including the U.S. elections, Italian referendum and Brexit considerations to name but a few, to still warrant a buy-on-dip bias on gold over the next few months. We would thus view a gold sell-off below US$1,240 as a strategic buying opportunity.
  • Moderate slippage in oil inventories over the past few months suggests that supply and demand forces are roughly in balance. As it stands, prices seem to be normalising around the US$50 level. We believe the longer-term equilibrium oil price should hover within the US$50-60 range. This implies prices should be stable around current levels.

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Any opinions or views of third parties expressed in this material are those of the third parties identified, and not those of OCBC Bank. The information provided herein is intended for general circulation and/or discussion purposes only. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. Before you make any investment decision, please seek advice from your OCBC Relationship Manager regarding the suitability off any investment product taking into account your specific investment objectives, financial situation or particular needs. In the event that you choose not to seek advice from youfr OCBC Relationship Manager, you should carefully consider whether the product 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 any transaction or to participate in any particular trading or investment strategy.

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Top Investment Ideas

Hunt for yield reigns as politics come to the fore

Politics will force itself into spotlight soon as we head on to the final stretch of the year. We have learnt from Brexit not to ignore political risks. Hilary Clinton’s first debate with Donald Trump heralds the start of the run-in to the election in November. Italy, meanwhile, has firmed up the date for its constitutional referendum as December 4.

Markets may enter into a phase of higher uncertainty. Risks remain elevated as one of the concerns about market levels has been that much of the gains have been fuelled by liquidity, not underlying growth. There is a realization that monetary policy is coming to the end of its usefulness as a stimulant for growth, and that something more is needed.

The environment of still low bond yields and range bound equities argues for income from both equity and fixed income markets for the rest of 2016.

We continue to prefer credit over equity. We are negative in our outlook on equity evenly in the developed market - US, Europe, and Japan - while keeping our neutral call on Asia.

Asset allocation should be the key consideration in managing and building your core portfolio.

Recommendations

Equity funds

You may capture the strong growth potential of Asia through dividend yielding equities. The Schroder Asia Equity Yield Fund provides capital growth and income through investment in equity and equity related securities of Asian companies which offer attractive yields and sustainable dividend payments. You may reap attractive potential payouts of between 3 – 4 per cent p.a., paid monthly.

Equity-Linked Convertible Investments or stock ideas

Looking ahead, while we continue to see long term value for the equity market, near term catalysts are limited. Hence we maintain our preference for quality dividend yield stocks.

With the yield spread versus the Singapore 10-year bond yield remaining supportive, we believe that yield strategies remain relevant in the current sluggish macro environment where interest rates are expected to remain accommodative.

While Singapore REITS (SREITs) have outperformed the STI index, the sector still offers attractive yields and is among the highest yielding REIT markets globally. Within the SREITs sector, our preference is for retail and industrial sub-sectors over office and hospitality.

Stock picks with more stable earnings visibility include Keppel DC REIT (KDCREIT SP) , SPH REIT (SPHREIT SP) and Frasers Centrepoint Trust (FCT SP).

We remain neutral on the property sector, which saw some lift in sentiment following regulatory announcements made to fine-tune refinancing rules for borrowers of owner-occupied residential properties. Overall sector fundamentals remain muted with home prices expected to decline over FY16-17.

Our preferred sector picks are diversified blue chips with healthy balance sheets, such as City Developments (CIT SP) and CapitaLand (CAPL SP).

In the U.S., cyclical sectors, led by Technology and Financials, continued to outperform in September. Given our cautious view on global equities, we continue to look for global sectors with a combination of consumer exposure as well as relatively attractive valuations. These would be Consumer Discretionary, Healthcare, Technology and Telecoms. At the same time, we are raising Financials from negative to Neutral and downgrading Energy from neutral to negative.

The latest move by the BOJ to introduce yield curve management rather than expansion of negative interest suggests that central banks are recognizing the ineffectiveness. This augurs well for the banks which were de-rated further since the introduction of negative interest rates. However, we see further risks from rising operational uncertainties post the UK referendum, with the regulatory environment and dilution risk capping the upside. Our preferred pick here is Bank of New York Mellon (BK US).

Energy stocks continued to underperform in-line with the weakness in crude oil prices. Crude oil price is forecast at US$48-50/bbl over the next 6-12 months, with limited upside catalysts for the sector, especially after the recent outperformance.

The U.S. economic recovery remains on track. Steady improvements in labour markets remain supportive for U.S. consumption growth. Also, the Consumer Discretionary sector continues to trade at a discount to its global peers. We pick Lowe’s (LOW US) and Starbucks (SBUX US).

We continue to be overweight the Technology sector, especially names with consumer exposure. Valuations are relatively less demanding and preferred names include Visa (V US) and Salesforce.com (CRM US).

Healthcare underperformed in August in-line with other defensive sectors as risk appetite improved. Our positive stance remains intact here. Besides healthy fundamentals from expected strong pricing power for drug and biotech companies, the sector is likely to be less impacted should global growth decelerate.

Valuations remain undemanding versus global peers while M&A activities provide potential catalysts. We prefer Allergan (AGN US) and Sanofi (SAN FP).

Bonds

GuocoLand Limited 3.95%, 1 April 2019

GuocoLand Ltd (GLL) is a subsidiary of Guoco Group, which is listed on the Hong Kong stock exchange and is in turn, a member of the Hong Leong Group, one of the largest conglomerates in Southeast Asia.

GLL develops and invests in properties. The company also provides investment trading, underwriting managers, and fund management & advisory services. In addition, GLL offers internet commerce services.

GLL is increasing its focus on commercial development to diversify its portfolio. Launched in February 2015, the Tanjong Pagar Centre’s (an integrated mixed-use development in the Singapore central business district) is expected to be completed this year and will be a near term catalyst.

GLL paid S$595.1 m during a government land sale in June for a plot in River Valley. In all, there were 13 bidders, indicating healthy interest and potentially signalling a trough to the Singapore private residential market. While GLL’s credit profile has improved since its Dongzhimen divestment, the redemption of its perpetual securities and its recent land acquisition in River Valley would result in an uptick in its gearing.

As at 30 June, GLL’s total debt to total capital was 52.67 per cent (from 51.18 per cent in 31 March 2016) while its EBITDA to interest expense was 6.20 times (from 3.25 times in 31 March 2016). GLL has demonstrated ability to access credit in the Singapore corporate bond market as well as divesting its integrated developments for capital recycling.

Bond Funds

Interested investors may consider the LionGlobal Short Duration Bond Fund. It allows investors to invest in investment grade bonds. Investors can receive potential payout 2.5 per cent p.a quarterly. This may be less risky when or if interest rates rise.

You can also consider the Fullerton USD Income Fund. This fund invests in a diversified portfolio of USD-denominated bonds, focused on quality companies with robust fundamentals. At least 70 per cent will be invested in investment-grade bonds to provide a combination of capital gains and stable dividend payouts.

In a low growth environment, Asian credits remain well-supported by monetary policy and the continued hunt for yield. This fund may provide an attractive income with lower volatility versus other asset classes. Its concentration risk is managed by careful credit selection and diversification and the interest rate risk is managed by ensuring that portfolio duration does not exceed five years.

Mixed-Asset Funds

Three funds have shown resilience in the face of the volatility caused by the UK’s referendum to exit the EU and possibly other events going forward. A portfolio of these 3 funds gives you a fair diversification of your investment.

The BlackRock Global Multi-Asset Income Fund’s dynamic asset allocation lets investors exploit opportunities in both traditional and non-traditional asset classes.

Investors may also consider the Schroder Asia Income Fund which offers an attractive potential monthly pay out of about 5.25 per cent per annum paid monthly. The fund aims to capture the growth potential of Asia through both equities and bonds. Investors may gain from an active asset allocation strategy which aims to maximize yield and total return in different market environments.

We also recommend the JPMorgan Global Macro Opportunities Fund. This fund leverages on global macro themes to generate performance. It aims to deliver absolute performance in various market environments. The fund also has low correlation with many asset classes and provides good diversification for your portfolio. The fund manager can employ traditional and/or sophisticated investment instruments.

Currencies: Fed inaction leaves U.S. Dollar vulnerable for now. But we do not expect the U.S. Dollar setback to last given Fed’s readiness to hike in December.

Global Outlook - Signs of a Shift in Policy Thinking

“The focus is shifting towards greater acceptance of the potential for fiscal policy to support growth if necessary, due to the sense that monetary policy is starting to reach its limits.”

– Richard Jerram, Chief Economist, Bank of Singapore; Member of OCBC Wealth Panel

Key Points:

  • Central banks have come round to realise that negative interest rate policies need to be calibrated more carefully, so the harm to the financial sector does not neuter the impact from lower borrowing costs.

  • In any case, there is a limit to how far into negative territory interest rates can go. Even confidence in the soothing effects of ever-more quantitative easing seems to be diminishing.

  • In many cases, fiscal or monetary policy does not offer solutions to the deeper causes of slow growth – issues like demographics or poor productivity.

  • With the U.S. (and even Japan) bordering on full employment, raising potential growth is becoming more important than delivering a short-term stimulus to demand. Unfortunately, in most developed markets there appears to be little commitment to deliver the effective structural reform that is necessary to boost potential growth./

  • The implication is that developed economies will struggle to escape from the sluggish growth of recent years, although downside risks will be limited by a flexible approach to policy marking. That leaves the global economy stuck in the range of 3.0-3.5 per cent growth.

  • The U.S. economy remains in a sweet spot where growth is fast enough to absorb unemployed workers, but not so strong that it is generating much of a rise in inflation. As long as this balance is maintained, the Fed can continue with its cautious approach to tightening monetary policy.

  • A move in early November – just before the presidential election – looks unlikely, so we continue to see the next move as coming in December, followed by another two hikes in 2017. Faster inflation would be a threat to this gradual pace of tightening.

  • Concern that the Eurozone would suffer significant contagion from the UK’s Brexit vote has faded. Taking the purchasing managers’ index (PMI) as the broadest and most timely guide to economic activity, it is hard to see any impact. Readings are still comfortably above 50, at levels associated with GDP growth of around 1.5 per cent.

  • Political risk in Europe is inescapable over the coming year, with the referendum on a new constitution in Italy (probably November), followed by national elections in France, the Netherlands and Germany in 2017.

  • China’s PMI readings show that the manufacturing sector is steady, while non-manufacturing is stronger, which is supportive of claims of re-balancing. Unfortunately the stability comes at a price. The credit bubble continues to expand very rapidly, despite official claims that it will come under control.

  • The partial recovery in commodity prices has eased the pressure on some emerging markets (EM) and allowed a rebound in exchange rates. Several countries are benefitting from improved policy-making, often in the wake of political change.

  • More fundamentally there are signs of improving growth heading towards 2017 in major EM such as Argentina, Brazil, Indonesia, Mexico and Russia. This should help resilience if the U.S. implements two or three rate hikes in 2017, as we expect.

  • Asia still looks solid in the face of sluggish growth in the developed world and troubles in China. Low inflation and (mostly) solid government finances give policy flexibility if needed.

Equities - Brace for Volatility

“Investors' focus is expected to shift towards the U.S. Presidential Election as swings in election polls in the run up to November could impact investor-sentiment and result in greater volatility.”

– Sean Quek, Head Equity Research, Bank of Singapore; Member of OCBC Wealth Panel

Key Points:

  • Global equities ended September higher as dovish indications from central banks buoyed investor enthusiasm. Volatility, which spiked in mid-September, collapsed back to August’s levels.

  • The conditions are already in place to expect a rate hike at the December meeting. As the focus shifts towards the U.S. President Election, extended valuations continue to provide limited downside margin even as volatility is expected to return.

  • Coupled with the extended valuations at 18.9 times forward price earnings, we are turning more cautious on U.S. equities even as they recovered to end September in positive territory as less hawkish Fed commentary restored investor risk appetite.

  • European equities gained as macroeconomic data suggest that the impact of Brexit has been more muted than expected. At the same time, the earnings downgrade appears to be stabilising. Overall, we are turning less negative on the region.

  • However, the risk of a political contagion is still a potential overhang in anticipation of a busy 2017 political calendar. Also, even as investors question the efficacy of ECB stimulus, the resilient economic numbers for Europe has reduced the need for the central bank to respond in the near future. With forward price earnings of 16.5 times above the long-term average of 13 times, we remain cautious on European equities given the prospect of higher uncertainty.

  • A lower JPY helped Japanese equities to outperform in September. However, the disappointing BOJ move received underwhelming market response. Nevertheless, the absence of any further cut in negative interest rates and the introduction of yield curve control by the BOJ provided a fillip for the banks.

  • Looking forward, we maintain the view that sustained re-rating of Japanese equities would require more meaningful structural reforms. Valuations, at forward price earnings of 14.4 times are not demanding. We stay Negative here and prefer companies with high earning visibility.

  • Asia ex-Japan was the top performing region again, as the less hawkish than expected Fed commentary provided the biggest relieve for Asia ex-Japan equities.

  • North Asian markets led by China and Hong Kong outperformed. On the other hand, the Philippines, Thailand and Malaysia lost ground. Although Asia ex-Japan continues to trade at a significant discount to its developed market peers, valuations for the region are no longer cheap versus its own historical levels, so we maintain our Neutral stance.

  • Within developed markets, Cyclical sectors, led by Technology and Financials, continued to outperform in September. We continue to look for global sectors with a combination of consumer exposure as well as relatively attractive valuations. These would be Consumer Discretionary, Healthcare, Technology and Telecoms.

  • Overall, we maintain our cautious stance on equities. As always we advocate a diversified portfolio and investors may consider paring down their exposure to regional equities, which in sum, should lead to a paring down of overall equity exposure. Thus, investors will continue to have exposure to equities, but with a lower weightage relative to the size of the portfolio.

Bonds - Fed's Delay a Boon for Credit Markets

“With accommodative monetary policy globally, bonds should continue to deliver performance over the coming months. However, we expect returns to be driven more by income than capital appreciation.”

– Vasu Menon, Senior Investment Strategist, Wealth Management Singapore, OCBC Bank; Member of OCBC Wealth Panel

Key Points:

  • After a modest decline early in the month, the Fed’s decision to put off a rate hike led to a rally in global bond markets. Emerging Market (EM) produced its seventh consecutive positive month.

  • The JPM CEMBI, a global, liquid corporate emerging markets benchmark that tracks U.S.-denominated corporate bonds issued by emerging markets entities, was up 12.1 per cent with High Yield gaining 16.7 per cent and High Grade up 9.3 per cent. EM bond seem on track to eclipse the 12.5 per cent return of 2010, the second best year on record, barring unforeseen calamities.

  • Within Developed Markets, U.S. High Yield managed to eke out a modest 0.1 per cent gain while Global Investment Grade declined 0.4 per cent.

  • Returns in Latin America have been both significant as well as broad-based. As such, valuations are no longer as attractive and we advocate a more neutral Asia/CEEMEA/Latin America top-down strategy. Our focus will be on specific Country, Sector and Individual Credit bets as the primary driver of performance for the remainder of the year.

  • Within Asia we would take a more neutral stance on High Yield given that spread levels have tightened to around ~500 bps, well below the 5-year historical average of ~700 bps. We would also maintain our Underweight in Asian Investment Grade (particularly Korea and Malaysia) where spreads often trade inside of comparably rated Developed Market Credits.

  • We expect the spike in High Yield issuance to continue in October as issuers have found a receptive audience in the current ‘Hunt for Yield” environment.

  • While we remain constructive on the EM High Yield asset class in general, investors should be both circumspect and selective as this risk-on environment tends to result in increasingly lower quality issuers.

  • As such, we would maintain our preference for higher quality names (‘BB’ and above) despite less compelling valuations. Although the BOJ and Fed actions should be supportive for long dated bonds in the short-term, investors should be mindful of duration risk on an increased likelihood of a December hike.

  • An accommodative monetary policy globally should enable Fixed Income assets to continue to deliver performance over the coming months.

  • However, we expect returns to be driven more by income than capital appreciation. Given current valuations within EM, we are positive on EM High Yield along with U.S. and EM Investment Grade.

Foreign Exchange & Commodities - From Policy to Politics

“Fed inaction at its September meeting leaves the U.S. dollar vulnerable for now. However we do not expect the setback to last given Fed's readiness to hike interest rates in December.“

– Michael Tan, Senior Investment Counsellor, OCBC Bank; Member of OCBC Wealth Panel

Key Points:

  • We are back to yield hunting following the Fed’s inaction in September. The U.S. Dollar will likely trade sideways after losing some ground.

  • The U.S. elections will be the main market theme as central banks take a break. The possibility of Trump win is negative for currencies that would be affected by his anti-immigration and anti-trade rhetoric. A Trump victory carries higher risk of policy uncertainty but it is unclear if this would be broadly negative for the U.S. Dollar.

  • The likelihood of a Trump presidency could weigh on the U.S. Dollar versus reserve currencies such as Japanese Yen, and also versus gold. Trump’s victory also poses a negative for Asian currencies, given the risk of rising global trade tensions.

  • The BOJ policy to steepen the yield curve is good for the financial sector but does not matter much for USD/JPY given that there is no addition of monetary stimulus. The fact that USD/JPY is below the pre-BOJ level shows that the Fed matters more than BOJ in driving USD/JPY.

  • We expect USD/JPY to hover in a broad ¥100-110 range for the rest of 2016, with the downside capped by expectations of closer coordination of monetary and fiscal policies in Japan.

  • A patient ECB (the central bank is not rushing to ease policy) is a positive risk for the EUR. Extension of QE by ECB in December and resumption of Fed rate hikes by end-2016 should limit the risk of EUR becoming the new JPY.

  • However, upside risk to EUR will amplify if perceived European political risk unexpectedly turns begin.

  • The MAS is likely to maintain its neutral slope stance in the upcoming policy announcement in mid-October, judging from hints of a slightly more positive take on Singapore’s core inflation outlook.

  • But given prospects of below-trend growth and a softening labour market, we believe that MAS would like to see SGD/NEER trade in the weaker half of the policy band.

  • Gold losing steam on worries over hawkish Fed but prices should find support around US$1,300.

  • Gold bulls are likely to remain wary of hints that the Fed might raise rates in December. We maintain the view that gold will continue to trade in a new higher range of US$1250-1400 for the rest of 2016. Implied volatility for gold options is back near the lows of the year.

  • Oil rebounded in August as speculative short positions were cut on rumours of supply restraint, but there is a lack of fundamental drivers to produce a significant move in prices.

  • The equilibrium price where long-term supply and demand is in balance is an unknowable number, but most specialists put it in the US$60-70 range.


Important Information

Any opinions or views of third parties expressed in this material are those of the third parties identified, and not those of OCBC Bank. The information provided herein is intended for general circulation and/or discussion purposes only. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. Before you make any investment decision, please seek advice from your OCBC Relationship Manager regarding the suitability off any investment product taking into account your specific investment objectives, financial situation or particular needs. In the event that you choose not to seek advice from youfr OCBC Relationship Manager, you should carefully consider whether the product 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 any transaction or to participate in any particular trading or investment strategy.

A copy of the prospectus of each fund is available and may be obtained from the relevant fund manager or any of its approved distributors. Potential investors should read the prospectus for details on the relevant fund before deciding whether to subscribe for, or purchase units in the fund. The value of the units in the funds and the income accruing to the units, if any, may fall or rise. Please refer to the prospectus of the relevant fund for the name of the fund manager and the investment objectives of the fund.

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.

Foreign currency investments or deposits are subject to inherent exchange rate fluctuation that may provide opportunities and risks. Earnings on foreign currency investments or deposits would be dependent on the exchange rates prevalent at the time of their maturity if any conversion takes place. Exchange controls may be applicable from time to time to certain foreign currencies. Any pre-termination costs will be deducted from your deposit.

No representation or warranty whatsoever (including without limitation any representation or warranty as to accuracy, usefulness, adequacy, timeliness or completeness) in respect of any information (including without limitation any statement, figures, opinion, view or estimate) provided herein is given by OCBC Bank and it should not be relied upon as such. OCBC Bank does not undertake an obligation to update the information or to correct any inaccuracy that may become apparent at a later time. 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.

Cross-Border Marketing Disclaimer

  1. Indonesia: The offering of the investment product in reliance of this document is not registered under the Indonesian Capital Market Law and its implementing regulations, and is not intended to constitute a public offering of securities under the Indonesian Capital Market Law and its implementing regulations. The investment product may not be offered or sold, directly or indirectly, within Indonesia or to citizens (wherever they are domiciled or located), entities or residents, in any manner which constitutes a public offering of securities under the Indonesian Capital Market Law and its implementing regulations.
  2. Malaysia: Oversea-Chinese Banking Corporation Limited (“OCBC Bank”) does not hold any licence, registration or approval to carry on any regulated business in Malaysia (including but not limited to any businesses regulated under the Capital Markets & Services Act 2007 of Malaysia), nor does it hold itself out as carrying on or purport to carry on any such business in Malaysia. Any services provided by OCBC Bank to residents of Malaysia are provided solely on an offshore basis from outside Malaysia, either as a result of “reverse enquiry” on the part of the Malaysian residents or where OCBC Bank has been retained outside Malaysia to provide such services. As an integral part of the provision of such services from outside Malaysia, OCBC Bank may from time to time make available to such residents documents and information making reference to capital markets products (for example, in connection with the provision of fund management or investment advisory services outside of Malaysia). Nothing in such documents or information is intended to be construed as or constitute the making available of, or an offer or invitation to subscribe for or purchase any such capital markets product.
  3. Myanmar: OCBC Bank does not hold any licence or registration under the FIML or other Myanmar legislation to carry on, nor do they purport to carry on, any regulated activity in Myanmar. All activities relating to the client are conducted strictly on an offshore basis. The customers shall ensure that it is their responsibility to comply with all applicable local laws before entering into discussion or contracts with the Bank.
  4. Taiwan: The provision of the information and the offer of the service concerned herewith have not been and will not be registered with the Financial Supervisory Commission of Taiwan pursuant to relevant laws and regulations of Taiwan and may not be provided or offered in Taiwan or in circumstances which requires a prior registration or approval of the Financial Supervisory Commission of Taiwan. No person or entity in Taiwan has been authorised to provide the information and to offer the service in Taiwan.
  5. Thailand: Please note that OCBC Bank does not maintain any licences, authorisations or registrations in Thailand nor is any of the material and information contained, or the relevant securities or products specified herein approved or registered in Thailand. Interests in the relevant securities or products may not be offered or sold within Thailand. The attached information has been provided at your request for informational purposes only and shall not be copied or redistributed to any other person without the prior consent of OCBC Bank or its relevant entities and in no way constitutes an offer, solicitation, advertisement or advice of, or in relation to, the relevant securities or products by OCBC Bank or any other entities in OCBC Bank's group in Thailand.
  6. Hong Kong SAR: This document is for information only and is not intended for anyone other than the recipient. It has not been reviewed by any regulatory authority in Hong Kong. It is not an offer or a solicitation to deal in any of the financial products referred to herein or to enter into any legal relations, nor an advice or a recommendation with respect to such financial products. It does not have regard to the specific investment objectives, financial situation and the particular needs of any recipient or Investor. This document may not be published, circulated, reproduced or distributed in whole or in part to any other person without OCBC Bank's prior written consent. This document is not intended for distribution to, publication or use by any person in any jurisdiction outside Hong Kong, or such other jurisdiction as the Bank may determine in its absolute discretion, where such distribution, publication or use would be contrary to applicable law or would subject the Bank and its related corporations, connected persons, associated persons and/or affiliates to any registration, licensing or other requirements within such jurisdiction.

© Copyright 2016 - OCBC Bank | All Rights Reserved.


Top Investment Ideas

Good Yield Hunting

Financial markets remain in a tentative risk-on mode, encouraged by good enough economic data to take recession risks off the table for now, but enough economic uncertainty to keep central banks in easing mode.

We prefer emerging market high yields and are neutral on investment grade bonds.

For fixed income, investors should continue to hold bonds with shorter tenors, as such bonds are less sensitive to increases in interest rates.

Asset allocation should be the key consideration in managing and building your core portfolio.


Recommendations

Equity Funds

For a diversified equity strategy, you may consider the Fidelity Global Dividend Fund for stable and rising dividends, strong performance with lower volatility and exposure to the best dividend stocks globally.

Equity-Linked Convertible Investments or Stock Ideas

The latest earnings season saw more misses than beats, which did not come as a surprise. Some downward revisions were seen in the commodity sector (due to weaker earnings production and hedging issues), as well as aviation and energy sectors. The surprise liquidation announcement by troubled energy services firm Swiber Holdings also resulted in share price volatility in banks and oil and gas stocks last month.

Following the correction in DBS Bank shares over the past month, the buy rating is maintained on the view that the expected increase in allowances has been priced in. Nevertheless, we expect the near term asset quality overhang on the sector to persist, and prefer accumulation in stages for long term investors. Similarly, we remain cautious on oil and gas names on the view that concerns over the prolonged impact of weak global growth and over-supply situation is likely to remain as a headwind in the offshore oil services industry.

2Q earnings for S-REITs have largely met expectations with stable dividends per unit from a year ago and weaker performances in hospitality and industrial REITs. Within Singapore equities, we reiterate our preference for yield plays with more stable earnings visibility such as Keppel DC REIT (KDCREIT SP), Mapletree Greater China (MAGIC SP), SPH REIT (SPHREIT SP) and Frasers Centrepoint Trust (FCT SP). While SREITs have performed well year to date, we expect the outperformance to continue on the back of a global hunt for yield.

In the U.S., cyclical sectors - led by Technology and Consumer Discretionary - rebounded sharply in July and defensive names generally underperformed. Our preferred sectors continue to be Consumer Discretionary, Healthcare, Technology and Telecoms.

We remain positive on Consumer Discretionary, especially in the U.S. where economic recovery remains on track. Improvements in labour markets, solid household balance sheets and lower oil price are supportive for U.S. consumption growth.

Also, valuations for the sector remain relatively attractive, especially in an environment where most sectors are already trading above their long-term average PE levels. Key picks include Starbucks (SBUX US) and Walt Disney Co. (DIS US). Similarly, we continue to be overweight the Technology sector, especially names with primarily consumer exposure. Similarly, valuations for the sector are relatively less demanding. Preferred names include Paypal Holdings (PYPL) and VISA Inc. (V US).

Healthcare underperformed in August in-line with other defensive sectors as risk appetite improved. Our positive stance remains intact here. Besides healthy fundamentals from expected strong pricing power for drug and biotech companies, the sector is likely to be less impacted should global growth decelerate. Valuations remain undemanding versus global peers, while M&A activities provide potential catalysts. Buy-rated names include Wide-Moat rated Amgen (AMGN US) and Sanofi S.A. (SAN FP).

Marred by asset quality concerns and the low interest rate environment, valuations for Financials remain depressed. However, we see further potential downside from rising operational uncertainties post the UK referendum, with the regulatory environment and dilution risk capping the upside. Taking a more defensive stance within Financials, one of our top picks here is Bank of New York Mellon Corp. (BK US), the largest player in the asset custody and servicing business.

Bonds

First Real Estate Investment Trust 4.125%, 2 May 2018

First Real Estate Investment Trust (First REIT) is Singapore's pioneer REIT focusing on healthcare and/or healthcare-related real estate assets across Asia. These assets include hospitals, nursing homes, medical clinics, pharmacies, laboratories, lifestyle & wellness management etc. Since its IPO listing on the SGX in 2006, First REIT had managed to grow its portfolio of 4 hospital assets to a total of 17 as at FY2015 (ending Dec). Currently, these 17 assets have an investment value of around S$1.27 billion as at Dec 2015. Properties are mainly located in Indonesia with 3 in Singapore and 1 in South Korea (Yeosu City). First REIT has a current market capitalization of S$1 billion as at Jul 2016.

PT Lippo Karawaci TBK (PLKT) is the main Sponsor for First REIT (33% owned) and also a Master Lessee for all of First REIT's Indonesian properties excluding Siloam Hospitals Purwakarta and Siloam Sriwijaya, which are leased to PT Metropolis Propertindo Utama. PLKT is the largest listed property developer in Indonesia with a market capitalization of US$2.48 billion as at Jan 2015; it currently has a strong pipeline of 46 hospitals to which First REIT has a Right-of-First-Refusal (ROFR) for the purpose of future acquisitions. First REIT is also managed by Bowsprit Capital Corporation Ltd., a wholly-owned subsidiary of PLKT.

Master Lease Agreements

The properties which are leased by the Group's respective special purpose companies (SPC) to the Master Lessee are typically held under long-term master leases of between 10 to 15 years, with a base rent to include a step-up mechanism based on CPI rates respective of the various geographical segments. A Master Lessee bears all operating costs relating to the property, which reduces the Group's exposure to increasing operating expenses.

Bond Funds

We always advocate a diversified investment strategy to mitigate risks, and interested investors may consider investing in a bond fund to reduce single issuer risk. The LionGlobal Short Duration Bond Fund allows investors to invest in investment grade bonds and receive potential payouts of 2.5 per cent p.a quarterly. This may be less risky when or if interest rates rise.

Mixed-Asset Funds:

Three funds have shown resilience in the face of the volatility caused by the U.K.'s referendum to exit the EU and possibly other events going forward. A portfolio of these 3 funds gives you a fair diversification of your investment.

The BlackRock Global Multi-Asset Income Fund's dynamic asset allocation lets investors exploit opportunities in both traditional and non-traditional asset classes.

Investors may also consider Schroder Asia Income Fund, which offers an attractive potential monthly pay out of about 5.25 per cent per annum paid monthly. The fund aims to capture the strong growth potential of Asia through both equities and bonds. Investors may gain from an active asset allocation strategy which aims to maximize yield and total return in different market environments.

We also recommend the JPMorgan Global Macro Opportunities Fund. This fund leverages on global macro themes to generate performance. It aims to deliver absolute performance in various market environments. The fund also has low correlation with many asset classes and provides good diversification for your portfolio. The fund manager can employ traditional and/or sophisticated investment instruments.

Currencies: The markets have repriced the odds of interest rate hike/s this year after the speeches delivered at the Jackson Hole meeting of central bankers on 26 August. Those who had collected US dollar when it dipped below SGD1.3400 should probably be looking at higher levels like SGD1.3700-1.3800 to take profits.

 

Global Outlook - Global Economy Has Been Resilient

“In a low-growth, post-crisis world, plagued by political instability there are plenty of things that can go wrong. Policy offers some insurance, but no guarantees. However, in 2016 the world economy has continued to dodge the downside risks.”

– Richard Jerram, Chief Economist, Bank of Singapore; Member of OCBC Wealth Panel

Key Points:

  • A period of slow growth in the wake of a financial crisis is unsurprising, and in recent years it has been exacerbated by weak productivity. The result is global growth has been stuck in a 3 to 3.5 per cent range that is neither impressive, nor particularly problematic.

  • However, the world economy has dodged various predicted disasters in recent years, sometimes thanks to timely policy interventions. This has continued in 2016 with a bounce in commodity prices, firmer emerging market growth and stability in China.

  • The outlook will never be entirely free of concern. The next major risk will be the U.S. Presidential election, where a Trump victory would drive uncertainty. The odds are against him, but that was also true for Brexit.

  • The lesson is that we need to be sensitive to observable downside risks and to have some insurance against unpredictable “black swan” events. At the same time, we must remember the resilience and mean-reverting nature of the global economy, as well as the backdrop of policy support.

  • In the United States, the economy has enjoyed a steady recovery from the depths of recession in 2009. Recent data releases are volatile but the secret is to focus on finding consistency among the majority of the releases and not put too much emphasis on outliers. If policy is loose and the external environment is stable, then we should expect recovery to continue.

  • Concern that the Eurozone would suffer significant contagion from the U.K.'s Brexit vote has faded. Taking the purchasing managers' index (as the broadest and most timely guide to economic activity), it is hard to see any impact. Readings are still comfortably above 50, at levels associated with GDP growth of around 1.5 per cent.

  • In Japan, another fiscal package has completed Japan's U-turn from budget deficit reduction to economic stimulus. Despite the shift in priorities, it is hard to find evidence of material progress on the structural reform that is needed to raise the potential growth rate.

  • In China, the steady expansion of the credit bubble and the need for regular bursts of policy stimulus are two signs that, so far, reform has not been effective in producing an acceptable pace of sustainable growth. Adjustment will be a multi-year process, but at the moment progress seems slow and this suggests that another round of stimulus will be on the agenda by the end of the year.

  • Asia still looks solid in the face of sluggish growth in the developed world and troubles in China. The internally-driven dynamism that has been the feature of the past few years should continue to deliver growth. Current account surpluses, large foreign exchange reserves and floating exchange rates should be an adequate buffer against external events.


Equities - Maintain Cautious Stance

“We continue to expect market volatility in the near term amid the political and global growth uncertainties, even as central banks are ready to act further to support growth. Valuations are extended and overall downside risks have increased.”

– Sean Quek, Head Equity Research, Bank of Singapore; Member of OCBC Wealth Panel

Key Points:

  • Since the Brexit-triggered sell-off in late June, global equities have rebounded by almost 11 per cent. Valuations at a forward price-to-earnings ratio (PE) of 17.5 times continue to look stretched. While we maintain our cautious stance on equities, we do not yet want to downgrade our call further, as there appears to be enough growth to prevent an outright contraction in earnings. Nevertheless, we think markets will trade sideways with heightened volatility and we prefer to focus on income over growth.

  • U.S. equities extended further into all-time high territory in August, albeit at a decelerated pace. Defensive sectors, led by Telecom and Utilities, continued to underperform as risk appetite grew. Looking ahead, we continue to see the on-going U.S. recovery and domestic consumption growth, driven by the tight labour market and rising inflation, to be supportive of earnings growth. Near-term, we see rising political risk running up to the Presidential election in November.

  • European equities recovered in August as the latest figures suggest that the economic fallout of Brexit could be isolated to the United Kingdom. However, the risk of political contagion is a potential overhang in anticipation of a busy political calendar over the next 6 to 12 months. These include Italy's referendum on constitutional reforms and the general elections in France and Germany. With forward PE of 16.3 times above the long-term average of 13 times, we remain cautious on European equities given the prospect of higher uncertainty.

  • Japanese equities continued to bounce back in August as the better-than-expected quarterly results season helped to stem the sharp earnings downgrade trend. Following the big Upper House election win, the Abe administration's stimulus package is nowhere close to the level anticipated by the market and there is now further pressure on the BOJ to introduce more aggressive easing measures. We maintain the view that a sustained re-rating of Japanese equities would require more meaningful structural reforms. Valuations, at a forward PE of 13.6 times, are not demanding.

  • Asia ex-Japan equities climbed further in August. Unlike its global peers, consensus 2016 earnings-per-share forecast for Asia ex-Japan has continued to improve after picking up in June. Investors still seem complacent about a lower for longer interest rate environment even as Fed commentary has started to take a more hawkish stance with the U.S. economy showing further signs of strengths. The low expectations of a U.S. rate hike this year suggests that the market could be easily spooked by any hawkish Fed commentary.



Bonds - Still Positive EM High Yields

“Our prognosis that interest will stay low for a fairly long period, given accommodative monetary policy globally, is a forecast that is supportive of bonds, especially emerging market high yield bonds which still enjoy reasonable valuations.”

– Vasu Menon, Senior Investment Strategist, Wealth Management Singapore, OCBC Bank; Member of OCBC Wealth Panel

Key Points:

  • Recent months of strong jobs growth and a lack of contagion – either financial or economic – from the Brexit vote have emboldened Fed officials to guide towards a rate hike before the end of the year. Fed Chair Yellen's speech at the Jackson Hole conference rounded off a sequence of positive comments, without giving any clarity on the precise timing, which seems to be dependent on the data flow. We see a Fed move in December as more likely than September.

  • Even though further easing from the Bank of Japan or European Central Bank might be limited, their current quantitative easing policies are likely to run for at least another year, and probably much longer. The resultant flows into the U.S. are likely to restrain the rise in U.S. Treasury yields even if the Fed puts through a series of rate hikes over the next couple of years.

  • Foreign inflows are expected to limit the increase in U.S. bond yields, but not prevent it altogether. In this scenario we see 10-year Treasury yields at around 1.75 per cent by year end, with further modest increases in 2017. This should mean that investment grade bonds offer slightly better returns than cash for the remainder of the year.

  • While some equity markets have been reaching all-time highs, bonds have been performing equally well. We are less worried about the valuations on corporate bonds. One of the key valuation metrics of such bonds is its spread over government bonds. This is measured simply by the additional yield paid to the investor compared to the yield that would be paid on a government bond of the same maturity.

  • Emerging Market (EM) assets are typically vulnerable to Fed rate hikes. Higher U.S. rates often buoy the U.S. dollar and weigh on EM assets and commodity prices. Yet the reaction to the next rate rise could be muted. We expect the Fed to raise rates just once this year − likely in December − and to proceed gingerly thereafter.

  • The recent strong flow into EM assets is not without reason. EM fundamentals that saw the worst of the three year downturn is on the cusp of recovery, with external imbalances shrinking, and EM growth dynamics improving compared to Developed Market growth.

  • The lower-for-longer outlook for Fed rates extends investors' reach for yield. It also buys time for EMs to implement structural reforms, such as India's recent tax reform and Indonesia's renewed push for fiscal reform. This could enable selected EMs to be more resilient when the Fed eventually normalises rates.

  • Fixed income should be in a position to continue to deliver performance over the coming months. Given current valuations within Emerging Markets, we continue to favour Emerging Market High Yield Bonds and maintain our positive stance towards the asset class.



Foreign Exchange & Commodities - U.S. Dollar Bears Should be Wary

“Our view of the trade-weighted U.S. Dollar is still one bounded in the year's range. With the exception of a brief broad U.S. Dollar surge in late 2015 driven by a China devaluation scare, as well as the hit to commodity currencies, the U.S. Dollar index has been in a broad holding pattern since early 2015.“

– Michael Tan, Senior Investment Counsellor, OCBC Bank; Member of OCBC Wealth Panel

Key Points:

  • The U.S. Dollar had dipped near to the low end of this year's range against the Euro, the Australian Dollar and the New Zealand Dollar respectively. U.S. Dollar bears should be wary of a reversal. The Fed is increasingly worried about an overheating U.S. economy and its hesitance to raise rates may end once the November U.S. Presidential election is over.

  • The Japanese Yen and gold have proven to be attractive portfolio diversifiers so far this year. However with both the Yen and gold near the strong end of this year's range, and with Bank of Japan governor Kuroda's hint of more easing likely at the 21 September meeting, this could limit the effectiveness of the Yen and gold as a risk-off hedge. If the source of shock is a hawkish Fed, being long the Yen and gold may also not be particularly good hedges against the resulting risk-off sentiment.

  • A Trump victory carries higher risk of policy uncertainty. But it is unclear this would be broadly negative for the U.S. Dollar. Greater likelihood of a Trump presidency could weigh on the U.S. Dollar versus reserve currencies such as Japanese Yen, and also versus gold. A Trump presidency could be a negative for Asian currencies given the risk of rising global trade tensions.

  • Our view on the targets for the Pound are unchanged. Its recent stabilisation is not strong enough yet to suggest that the lows are in place. We continue to believe that the broader Pound downtrend remains intact, reflecting the U.K.'s chronic funding position.

  • If Fed comments turns more hawkish, this could push gold price to test the key psychological level at US$1,300 per ounce. We expect buying interest to emerge around this area. Any significant dips should be viewed as opportunities to build long tactical gold exposure for a 3 to 6 month timeframe.

  • We maintain the view that gold will continue to trade in a US$1,250 to US$1,400 per ounce range in 2H16. With other G3 central banks continuing with loose monetary policy and with core bond yields low to negative, gold remains an attractive portfolio diversifier against policy event risks such as a Trump election victory.

  • Oil prices are stabilising just below US$50 per barrel as solid demand gradually absorbs supply. Short-term volatility is being driven by speculative activity, apparently in response to sentiment over supply disruptions or hopes of an OPEC deal to limit production. Oil rebounded in August as speculative short positions were cut on rumours of supply restraint, but there is a lack of fundamental drivers to produce a significant move in prices.

  • Most specialists put the equilibrium price where long-term supply and demand is in balance in the US$60 to US$70 per barrel range. This is a reasonable medium-term target, which implies a moderate upward bias to prices. Feedback loops should mean that if prices push much higher, then the supply and demand adjustment will stall, which is a barrier to having an overly positive view.




Important Information

Any opinions or views of third parties expressed in this material are those of the third parties identified, and not those of OCBC Bank. The information provided herein is intended for general circulation and/or discussion purposes only. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. Before you make any investment decision, please seek advice from your OCBC Relationship Manager regarding the suitability off any investment product taking into account your specific investment objectives, financial situation or particular needs. In the event that you choose not to seek advice from youfr OCBC Relationship Manager, you should carefully consider whether the product 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 any transaction or to participate in any particular trading or investment strategy.

A copy of the prospectus of each fund is available and may be obtained from the relevant fund manager or any of its approved distributors. Potential investors should read the prospectus for details on the relevant fund before deciding whether to subscribe for, or purchase units in the fund. The value of the units in the funds and the income accruing to the units, if any, may fall or rise. Please refer to the prospectus of the relevant fund for the name of the fund manager and the investment objectives of the fund.

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.

Foreign currency investments or deposits are subject to inherent exchange rate fluctuation that may provide opportunities and risks. Earnings on foreign currency investments or deposits would be dependent on the exchange rates prevalent at the time of their maturity if any conversion takes place. Exchange controls may be applicable from time to time to certain foreign currencies. Any pre-termination costs will be deducted from your deposit.

No representation or warranty whatsoever (including without limitation any representation or warranty as to accuracy, usefulness, adequacy, timeliness or completeness) in respect of any information (including without limitation any statement, figures, opinion, view or estimate) provided herein is given by OCBC Bank and it should not be relied upon as such. OCBC Bank does not undertake an obligation to update the information or to correct any inaccuracy that may become apparent at a later time. 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.

Cross-Border Marketing Disclaimer

  1. Indonesia: The offering of the investment product in reliance of this document is not registered under the Indonesian Capital Market Law and its implementing regulations, and is not intended to constitute a public offering of securities under the Indonesian Capital Market Law and its implementing regulations. The investment product may not be offered or sold, directly or indirectly, within Indonesia or to citizens (wherever they are domiciled or located), entities or residents, in any manner which constitutes a public offering of securities under the Indonesian Capital Market Law and its implementing regulations.
  2. Malaysia: Oversea-Chinese Banking Corporation Limited (“OCBC Bank”) does not hold any licence, registration or approval to carry on any regulated business in Malaysia (including but not limited to any businesses regulated under the Capital Markets & Services Act 2007 of Malaysia), nor does it hold itself out as carrying on or purport to carry on any such business in Malaysia. Any services provided by OCBC Bank to residents of Malaysia are provided solely on an offshore basis from outside Malaysia, either as a result of “reverse enquiry” on the part of the Malaysian residents or where OCBC Bank has been retained outside Malaysia to provide such services. As an integral part of the provision of such services from outside Malaysia, OCBC Bank may from time to time make available to such residents documents and information making reference to capital markets products (for example, in connection with the provision of fund management or investment advisory services outside of Malaysia). Nothing in such documents or information is intended to be construed as or constitute the making available of, or an offer or invitation to subscribe for or purchase any such capital markets product.
  3. Myanmar: OCBC Bank does not hold any licence or registration under the FIML or other Myanmar legislation to carry on, nor do they purport to carry on, any regulated activity in Myanmar. All activities relating to the client are conducted strictly on an offshore basis. The customers shall ensure that it is their responsibility to comply with all applicable local laws before entering into discussion or contracts with the Bank.
  4. Taiwan: The provision of the information and the offer of the service concerned herewith have not been and will not be registered with the Financial Supervisory Commission of Taiwan pursuant to relevant laws and regulations of Taiwan and may not be provided or offered in Taiwan or in circumstances which requires a prior registration or approval of the Financial Supervisory Commission of Taiwan. No person or entity in Taiwan has been authorised to provide the information and to offer the service in Taiwan.
  5. Thailand: Please note that OCBC Bank does not maintain any licences, authorisations or registrations in Thailand nor is any of the material and information contained, or the relevant securities or products specified herein approved or registered in Thailand. Interests in the relevant securities or products may not be offered or sold within Thailand. The attached information has been provided at your request for informational purposes only and shall not be copied or redistributed to any other person without the prior consent of OCBC Bank or its relevant entities and in no way constitutes an offer, solicitation, advertisement or advice of, or in relation to, the relevant securities or products by OCBC Bank or any other entities in OCBC Bank's group in Thailand.
  6. Hong Kong SAR: This document is for information only and is not intended for anyone other than the recipient. It has not been reviewed by any regulatory authority in Hong Kong. It is not an offer or a solicitation to deal in any of the financial products referred to herein or to enter into any legal relations, nor an advice or a recommendation with respect to such financial products. It does not have regard to the specific investment objectives, financial situation and the particular needs of any recipient or Investor. This document may not be published, circulated, reproduced or distributed in whole or in part to any other person without OCBC Bank's prior written consent. This document is not intended for distribution to, publication or use by any person in any jurisdiction outside Hong Kong, or such other jurisdiction as the Bank may determine in its absolute discretion, where such distribution, publication or use would be contrary to applicable law or would subject the Bank and its related corporations, connected persons, associated persons and/or affiliates to any registration, licensing or other requirements within such jurisdiction.

© Copyright 2016 - OCBC Bank | All Rights Reserved.



Eligibility

You can become a Premier Banking customer with deposits and/or investments of

S$200,000

or more with us.


Terms and Conditions Governing Premier Banking (Revised)

Effective 3 January 2017


How to apply


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With effect from 1 November 2015, there will be a revision to the service charges for Outward Remittance for Premier Banking customers.

The Outward Remittance charges will be revised as follows:

Type of Outward Remittance Current Charges Revised Fees
Telegraphic Transfer Commission and fee waived for Telegraphic Transfer to OCBC first party accounts overseas Commission and fee waived for Telegraphic Transfer to any accounts with OCBC Group1
Telegraphic Transfers/ Overseas Fund Transfer via Online Banking Commission Waived
(Cable Charge $20 and Agent Fee apply)
Commission and Cable Charge Waived
(Agent Fee apply)

1Commission and Fee waiver will apply for Outward Telegraphic Transfer to accounts with OCBC China, OCBC Malaysia, OCBC NISP Indonesia, OCBC Wing Hang, Bank of Singapore, Great Eastern, Lion Global Investors and OCBC Securities.

Click here for Pricing Guide