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Rally in equities to broaden with energy and healthcare sectors benefitting, says DBS CIO

At this point, the CIO prefers bonds to cash due to their 5% yield, which provides consistent cashflows into a portfolio.

Looking back at its calls for 1Q2024, DBS’s chief investment officer (CIO), Hou Wey Fook, noted that the portfolio’s favourites, technology, artificial intelligence (AI) and quiet luxury, scored “hefty gains”. Gold, too, was a strong performer within the DBS CIO portfolio.

In 2Q2024, Hou recommends investors remain invested in the market and deploy excess cash into multi-asset portfolios. With the US expected to conduct rate cuts, Hou sees a soft landing in the country in his base case scenario, which is “constructive” for both bonds and equities.

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At this point, the CIO prefers bonds to cash due to their 5% yield, which provides consistent cashflows into a portfolio.

“Stay with investment grade (IG) bonds with [an] average portfolio duration within three to five years [given the inverted yield curve],” says Hou, noting that these should be rated A and/or BBB corporates. Investors can also have a “measured” exposure to BB+ rated credits.

Furthermore, bond coupons and capital gains can provide higher total returns compared to cash deposits, he adds.

The equity rally also looks set to broaden. Unlike the rally in 2023, which was mainly dominated by counters in big tech, other sectors are expected to join in the fun as rates trend down.

In Hou’s view, laggard sectors such as energy and healthcare are set to benefit.

Globally, the bank is keeping its “overweight” call on Asia ex-Japan stocks as the “beaten down market” is starting to “show signs of improvement”.

In other assets, gold also continues to offer favourable risk-reward with tailwinds such as persistent central bank buying, lower rates, and US dollar weakness.

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