DBS CIO Hou Wey Fook presents why we are on track for growth, and identifies winning investment strategies for the quarter aheadChief Investment Office24 Mar 2021
Photo credit: Unsplash
We are today at the inflexion point of moving from “A New Hope” to “Back on Track”.
The rollout of vaccines will break the start-stop cycle of economic lockdowns and reopenings. Coupled with trillions of dollars in fiscal stimulus globally, we are now on track for growth and for corporate earnings to normalise.
Over the past quarter, we have seen two significant developments. On bonds, the 10- year Treasury yield spiked by 90% from 0.9% to 1.7%. This was on the back of inflation fears, fanned by optimism of a V-shaped recovery. On equities, we saw a strong rotation from the Growth sector of Technology to Value sectors of Financials and Energy.
But the top-of-mind questions among investors are:
• Have equity valuations already factored in the good news?
• Is the high-flying Tech sector about to crash?
• Will bond yields continue to spike?
While there is no denying valuations are above historical averages, the abundance of zero cost liquidity across the world, in our view, will minimise an imminent market crash. Unlike the dot-com bubble era of 2000, Big Tech companies today generate “structural” earnings growth and free cashflows. In addition, we will see increasing “recurring” profits from their subscription-based models. The strong recovery in energy and financial stocks also signals to us a healthy broadening of the market.
On inflation, we are of the view the fear is premature, hence the rise in bond yields will not go unabated. Given these dynamics, we remain constructive of risk assets going forward.
In this publication, we have a special feature on the “covered call” strategy, which when implemented through a disciplined portfolio approach would enhance income generation.
I wish you a profitable quarter ahead!
Hou Wey Fook, CFA
Chief Investment Officer