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DBS CIO Hou Wey Fook presents why you should stay the course amid QE tapering and China’s regulatory tightening

Chief Investment Office27 Sep 2021

  • Normalising growth from reopening of US and Europe economies will lead to a Fed taper
  • Stay invested with our Barbell Strategy – secular growth equities & income-generating assets
  • Go with Innovators, Disruptors, Enablers & Adapters (I.D.E.A.) – big winners in our digital economy
  • Generate income from diversified pool of BBB/BB-rated credits
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Risk assets of equities and high yield bonds continued to grind higher in the third quarter of the year, despite the Federal Reserve’s intent to taper its quantitative easing (QE) policy.

Thus far, the Fed’s USD120b monthly purchase of government securities has been an effective tool in supporting the economy against the pandemic storm. Now, with growth normalising on the back of US and European economies reopening, will the QE taper lead to a tantrum in financial markets?

You may recall in the 2013 QE taper that panic ensued, leading to heightened market volatility. This time around, we believe the Fed will be very deliberate in communicating their intent and roadmap, and financial markets will be on stronger footing amid a continued zero-bound rate policy stance.

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During the quarter, we also noted China’s regulatory tightening on the tutoring, property, and gaming sectors that led to a large selldown. We remain hopeful as China has solid long-term economic fundamentals and its stock market has corrected to attractive GARP (Growth-At-Reasonable- Price) valuations.

We continue to advocate that your portfolios stay invested. Our Barbell Strategy comprising overweight positions in secular growth equities and income-generating assets has a proven track record, and we are convinced that such a portfolio is well positioned to outperform going forward. In this quarterly publication, we also feature Treasury Inflation-Protected Securities to provide a deeper understanding of this instrument.