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We maintain a generally favourable view on equities as they are poised to gain from the global economic recovery. However, we are neutral on fixed income and see a need to be selective as longer-term interest rates are likely to trend higher. Despite strong US economic growth, the US dollar is likely to weaken against most Asian currencies.

Amid the global economic recovery, we remain constructive on equities but neutral on fixed income. As the recovery path is still uncertain, investors should be mindful of possible policy changes that could result from stronger or weaker-than-expected economic data.

Equities

We are positive on Asia ex-Japan and European equities, as they present attractive investment opportunities in the economic recovery phase.

Asia’s GDP is expected to grow by 8.6% in 2021. Strong economic growth in Asia and a recovery in global trade will be the main drivers for export-oriented Asia ex-Japan equities.

European equities are an ideal investment opportunity for the next six months. Given their value-cyclical nature, they are poised to benefit at this early stage of the economic cycle.

We maintain our neutral view on US equities. While we remain cautious of their stretched valuations, there are still selective opportunities. Value-cyclical sectors such as Financials and Materials are likely to retain their strong momentum for the rest of 2021.

Similarly, we are cautious of the mixed recovery in Emerging Markets ex-Asia as many countries within this bloc continue to struggle with COVID-19 cases and low vaccine supplies.

Japan remains the last major developed market still grappling with COVID-19. Prime Minister Suga’s low popularity due to the fallout from his government’s handling of the pandemic and the troubled Olympics raises political risk ahead of the upcoming general elections. Unattractive valuations round up our neutral view on Japanese equities.

Equities

VTAR Legend
Subclass
VTAR
Negative
Slightly Negative
Neutral
Slightly Positive
Positive
US
Neutral
VTAR
Value
Trend
Activity
Risk
Europe
Slightly Positive
VTAR
Value
Trend
Activity
Risk
Japan
Neutral
VTAR
Value
Trend
Activity
Risk
Asia (ex-Japan)
Slightly Positive
VTAR
Value
Trend
Activity
Risk
Emerging markets (ex-Asia)
Neutral
VTAR
Value
Trend
Activity
Risk

Fixed Income

We are extremely cautious on Developed Market government bonds, especially US Treasuries. This is because longer-term interest rates are likely to trend higher as a result of the ongoing global recovery and expectations that the US Federal Reserve could taper bond buying as soon as end-2021.

As shorter-term rates are likely to remain anchored until 2023, short-duration bonds will offer some safety for income investors.

With a 3.5% spread over government bonds, we do not think that the risk-reward profile for global high-yield bonds is attractive as the possibility of higher interest rates could raise default risk.

Given the depreciating US dollar, Emerging Market debt – particularly local-currency issues – has become more attractive. However, investors should be extremely selective and shift to bonds that will benefit from the ongoing recovery such as Asian corporate bonds.

Fixed Income

VTAR Legend
Subclass
VTAR
Negative
Slightly Negative
Neutral
Slightly Positive
Positive
Developed market (DM) government bonds
Slightly Negative
VTAR
Value
Trend
Activity
Risk
DM investment grade bonds
Neutral
VTAR
Value
Trend
Activity
Risk
Global high yield bonds
Slightly Negative
VTAR
Value
Trend
Activity
Risk
US-dollar emerging market (EM) debt
Neutral
VTAR
Value
Trend
Activity
Risk
Local-currency EM debt
Neutral
VTAR
Value
Trend
Activity
Risk

Currencies and Commodities

Despite a strong US economy, the US dollar is expected to continue weakening against most Asian currencies. It could ease to $1.33 against the Singapore dollar by end-2021.

We are slightly positive on Gold with a target price of US$1,850 by year-end. Gold's price should benefit from US dollar weakness but will be weighed down by the hawkish tilt from the Fed. Brent crude oil is expected to climb towards US$76 per barrel as OPEC production cuts constrain supply while a stronger global economy boosts demand.

Currencies and Commodities

Asset Class
Subclass
Negative
Slightly Negative
Neutral
Slightly Positive
Positive
Commodities
Commodities
Gold
Slightly Positive
Oil
Neutral
Currencies
Currencies
US dollar
Slightly Negative
Singapore dollar
Slightly Positive
VTAR Framework