Equities (November 2017)

Don’t Lower Your Guard

“Taking the view that global monetary policies would be increasingly less dovish, led by the unprecedented U.S. central bank unwinding and potential rate hikes, we remain cautious on equities.”

– Sean Quek, Head Equity Research, Bank of Singapore

The global risk rally continued in October with Asia ex-Japan leading the equities charge. In particular, Asia ex-Japan, which underperformed in September, benefited from expanding global growth expectations and investor confidence.

Taking the view that global monetary policies would be increasingly less dovish, led by the unprecedented U.S. central bank unwinding and potential rate hikes, we remain cautious and continue to advocate a rotation strategy. Also extended valuations provide limited support in any sell-offs. We continue to prefer the U.S. and Europe over Japan and Asia ex-Japan.

United States

U.S. equities extended its rally as the reflation trade gained pace in October, following the earlier release of the ‘Big 6’ tax reform framework. The market seems to expect some form of tax reform passed by 1Q2018. In fact, U.S. Treasury Secretary Steven Mnuchin said that the market has priced in expectations that the Trump administration and Congress will successfully pass tax reforms and would see a significant reversal of those gains if otherwise.


Although economic growth indicators out of the Eurozone continue to be positive, the region underperformed in October as investors’ focus shifted to the next ECB meeting, and, to a lesser extent, the political risk in Spain. At the same time, the improving macroeconomic outlook means that pressure for the central bank to start phasing out its quantitative easing would intensify. Near-term, financial market movements could still be dictated by clues on the ECB’s next move. We see a less dovish central bank as the economic recovery continues to gain pace. We maintain a neutral stance here.


Japanese equities rallied further as foreign investors return after the victory for PM Shinzo Abe indicates that Japan’s loose monetary policy will continue. Despite the incumbent’s landslide win, the latest move is not expected to result in major economic policy changes. The economy is in a decent state but sustained re-rating of the market would require more meaningful structural reform to boost restrained wages and overall growth. Hence, besides near-term euphoria, we see macro factors and movements of the yen to remain key drivers here.

Asia ex-Japan

Riding on the global risk trade, Asia ex-Japan led the rally in equities in October. North Asian markets, led by Korea and Taiwan, were the biggest beneficiaries and ASEAN market continued to underperform. China, the best performing market year-to-date, bounced back from the profit-taking wave in September. Expectations and valuations are increasingly discounting a faster growth trajectory for the region. Also, macro risk factors, such as the trade war risk between China and the U.S. and potential impact of the unprecedented global central bank unwinding further ahead, persist.


Singapore equities moved in line with Asian equities last month, with strong outperformance by property developers. Helped by a recent spate of deals, en bloc sales fever in Singapore have hit a 10-year high this year. Further to our call since last year to invest in property developers which were trading at attractive valuations, sector share prices have rallied year-to-date on positive sentiment over en bloc news flow and improving data points. Our view on the Singapore residential market remains positive over the medium term, with home prices likely to have marked their cyclical lows in mid-June this year. A gradual recovery looks underway towards our forecast for physical residential price to appreciate 3 to 8 per cent in 2018.