Investment Roundup

8 November 2022

“Monetary authorities remain focused on their price stability mandates and continue to tighten policy”


Markets were expecting to see a peak in the aggressivehiking cycles that have lifted global policy rates (ex-Japan and China) nearly 200bp in just seven months. In developed markets, core inflation remains at levels that are still multiple percentage-points above their targets. It is no surprise that monetary authorities remain focused on their price stability mandates and continue to tighten policy. This was underscored this week with yet another Fed hike of 75bp further into restrictive territory. One key takeaway from policymakers is that there is still more policy tightening after years of easy conditions, combined with a supply challenges that push energy, food, services and shelter inflation, giving rise to recession as a likely consequence and/or the possibility of a “liquidity event” in the financial system. Also, key concern remains the pace of disinflation rather than timing of peak inflation and accordingly, the consensus view amongst policymakers is that hiking later increases the pain and under-tightening would pose a bigger risk than overtightening.

Global growth projected by the IMF is now on a decline from 3.2% in 2022 to 2.7% in 2023. In October, global PMIs on average fell into contraction territory for a second straight month at 49.2, after 49.8 in September. In Asia, 8 of 10 markets showed declines in October, with more than half below 50. Taiwan (41.5) and Korea (48.2) remained the markets with the sharpest contraction, both most impacted by US semiconductor curbs. Slowing activity suggests that tightening is beginning to have an impact, but a step down in the pace of tightening also raises the risks of hiking cycle extension, which is not adequately being priced in the belly of rates curves. For the long end, fiscal and debt sustainability discussions are back on the radar, especially with the UK fiscal situation posing somewhat of a wake-up call for central banks and governments.

In China, as markets digested the implications of China’s 20th Party Congress, the last 2 weeks has been one of the most volatile in recent memory for China assets, and credit markets were no exception, as spreads on even high quality SOEs and best quality POEs widened drastically. President Xi is in complete control in the Party and his focus on security, distribution, and high-quality growth will drive China’s economic policies for years to come. Markets pushed up risk premiums across sectors on concerns that decision making and regulatory policy may be less predictable and more opaque, while offering little relief in the zero COVID policy and stronger support on the housing market. Manufacturing and services activity contracted in October with official manufacturing PMI falling to 49.2 vs forecast 49.8 and official services PMI falling to 48.7 vs forecast 50.1. October new homes sales dropped 28.4% year-on-year, widening from September’s 25.4% slump. The slow decline in home prices continued for a 13th straight month among 70 cities, with top tier cities leading the decline. China growth outlook staying soft with relaxation of the zero COVID policy expected at the earliest during 1Q23, which makes it less likely for credit to outperform in the near

China Tier-1 Cities Led Recent Residential Property Price Decline

Source: CRIC, Bloomberg

Fixed Income Strategy

In a US hiking cycle that will be extended, economic activity wobbling in Asia and Europe, and rising defaults in China credit, there are no compelling reasons to deviate from our positioning in short-dated income across IG and HY, and to stay up in credit quality. Anticipate continued HY-IG decompression.

Position for travel rebound in Hong Kong and Macau. Strong demand and passenger yields on the back of quarantine easing in Hong Kong are expected to boost airline earnings. The return of tour groups to Macau casinos supports operators with mass market gaming focus and non-gaming facilities. Renewal of gaming licences expected by year-end should remove a source of uncertainty. However, as concerns on the pace and magnitude of travel resumption between mainland and Macau SAR resurfaced recently, it is a reminder that the recovery may not be one-way and smooth, with disruptions in between.

Reduce exposure to metals & mining, on concern about slower growth in China, increased likelihood that higher power costs and lower energy availability in Europe constrain demand for industrial metals and signs of margin compression as companies work through high-cost inventory.

Position in selected European banks vs Asian and US banks with similar capitalization ratios, on the back of attractive relative valuations. Reduce exposure to S$-denominated Singapore bank AT1s on rich valuations.

Equities Strategies:

We recommend to sell into current strength of the broader Equities market and minimize buying while monitoring the outcomes and market reactions of the US mid-term elections today and the looming US October CPI data that follows. Remaining of the portfolio should be skewed towards more defensive and high dividend yielding names/stocks;

Should the Democrats lose the majority, Biden will face greater resistance in passing Bills going forward which will add to greater uncertainty for the US internally and for the World. Furthermore, the Fed remains hawkish on US CPI data and hence the 75bps hike last week. Overhang from inflationary pressures and corresponding interest rate hikes will persist for a while longer even if CPI begins to taper.

Given the numerous uncertainties we currently face, our preferred prudent approach constitutes asset allocation based on several key theme, namely 1) potential China easing of Covid restrictions and 2) Disinflation, to capture potential upside should inflation eases while remaining Overweight in defensive, high dividend yielding sectors should inflation continues to run away.

  • Our most favored sector is Telecommunications Operators, in particular Chinese Telco operators that offer high dividend yields at attractive valuations alongside smaller price and hence P&L volatility
  • We continue to prefer certain Consumer Discretionary sector that serve as natural hedges to inflation like certain high end luxury consumer brands that can continue to deliver earnings and ability to pass on higher prices to consumers with minimal impact to demand
  • Position in selected Banks, in particular, Singaporean Banks higher credit quality and NIM expansion amid improving macro-outlook and SEA growth prospects
  • Position in selected Banks, in particular, Singaporean Banks higher credit quality and NIM expansion amid improving macro-outlook and SEA growth prospects
  • For mid-longer-term exposures, position in sectors levered to the China reopening theme, including but not limited to Sportswear, Auto as well as Airlines
  • We also like more defensive selected names in the US in sectors such as Healthcare and Consumer Staples/Durables

Consider hedging your Equity exposures if you have not already done so, in particular, new exposures, ie. for every dollar of Equity exposure you put on, hedge with downside protection instruments such as inversely correlated ETFs (Eg. 7300 HK, 7500 HK, SQQQ, etc)

Continue to employ shorter-term tactical trading across both core and peripheral positions to capture market dislocations and volatility

Cash Levels: Keep at least 15% cash on hand to remain defensive


In an elevated inflationary and interest rate environment, we review the role of fixed-income funds in our client portfolios. We back tested the performance of 60% equities and 40% bonds portfolio against an all-equity portfolio. According to our findings, we see a reduction in volatility and downside risks in both short and long term, particularly during bear markets.

Both equities and bonds both face headwinds

Source: Bloomberg, data as of 28 October 2022

Historical Stress Test

Source: Bloomberg, data as of 11 November 2022

Historical Back Test

Source: Bloomberg, data as of 11 November 2022

Despite the increase in fixed income volatility this year, it remains an important tool in reducing standard deviation and increasing risk-adjusted returns (i..e better Sharpe ratio) of an all-equity portfolio in the long run – without sacrificing too much maximum returns albeit with higher minimum returns.

In our study, we have also collated and analysed several popular bond funds marketed among banks. Broadly speaking, we observe an increase in treasury play and purchases within the bond funds.

For bond duration, yield, YTM and total return, we prefer the JPM Income Fund as compared to PIMCO GIS Income Fund. With that being said, the PIMCO GIS Fund has an advantage in terms of the number of share classes (CCY) they offer. Additionally, they also have a strong affiliation with private banks and in turn a higher LV as compared to JPM Income Fund.

We prefer the Allianz Global Opportunistic Bond for its lower volatility, PIMCO GIS Income Fund for its yield and JPM Income Fund for its shorter duration and returns respectively.

Duration Breakdown

Source: Bloomberg, Data as of 28 October 2022

Credit Rating Breakdown

Source: Bloomberg, Data as of 28 October 2022

Sector Breakdown

Source: Bloomberg, Data as of 28 October 2022

Geographic Exposure Breakdown

Source: Bloomberg, Data as of 28 October 2022

One of the top 5 tactical strategies for this year is the Capped Floored Floater Note which we highly recommend. We discussed this strategy in May and would like to reiterate this strategy as RMs or clients look for a hedging strategy against a rising interest rate; instead of a fixed deposit or holding cash.

The Capped Floor Note has recently returned as the flavour of the month due to the re-adjustment of the floor coupon in response to the increase in the Fed Funds Rate. The floor coupon can now be more than 5% and the capped return can be adjusted to 6 to 7%.

The floor coupon is the return that can be adjusted according to SOFR rates which follow closely to the Fed Funds Rate. This strategy is appropriate for investors with a conservative risk appetite who is seeking more yield (i.e. SG T-Bills YTM is at 4% while the US Treasury is at 4.7%)

As usual, the risk involved with this strategy would be the counterparty risk where the issuer defaults. Due to the nature of the note, it is more expensive to unwind the trade and therefore be expected to hold it till maturity. Lastly, the note can be called after 1 year of issue.

Apart from the benefits mentioned earlier, we are positive about this strategy as an interest rate hedge due to the following reason. In the scenario where the note gets called 1 year later due to SOFR dropping to below the floor coupon, it would be a better strategy to reallocate capital into riskier assets such as growth stock in a lower interest rate environment.

However, we remain cautious about taking a loan to do a Capped Floor Note as the cost of funds for USD is at around 5%. We prefer a cash play instead.

This material is provided for informational purposes only. It is not a recommendation or solicitation of any investment or investment strategy. There is no guarantee that any investment or strategy will achieve its objectives. Unless otherwise stated, all information contained in this document is from Raffles Assets Management (HK) Ltd. and/or Raffles Family Office Pte Ltd (Singapore) and is as of the stated date on page 1 (top left corner). The views expressed regarding market and economic trends are those of the authors and are subject to change at any time based on market and other conditions and there can be no assurances that countries, markets, or sectors will perform as expected. By acceptance of these materials, you agree that you shall use the information solely to evaluate your investment in this Raffles Assets Management (HK) Ltd and/or Raffles Family Office Pte Ltd (Singapore) sponsored investment opportunity and you shall keep the information confidential.

Portfolio Managers:

William Chow – Deputy Group CEO

William Chow – Deputy Group CEO

Mr. Chow brings over two decades of asset management experience and currently oversees Raffles Family Office’s (RFO’s) Advanced Wealth Solutions division while also serving on its Board of Management and Investment Committee.

He joined RFO from China Life Franklin Asset Management (CLFAM), where as Deputy CEO from 2018 to 2021 he oversaw $35 billion in client investments. Mr. Chow also chaired the firm’s Risk Management Committee and was a key member of its Board of Management, Investment Committee and Alternative Investment Committee.

Prior to CLFAM, Mr Chow spent 7 years at Value Partners Group, the first hedge fund to be listed on the Hong Kong Stock Exchange, where he was a Group Managing Director.

He started his career at UBS as an equities trader and went on to take up portfolio management roles at BlackRock and State Street Global Advisors from 2000 to 2010.

Mr. Chow holds a Master’s degree in Science in Operational Research from the London School of Economics and Political Science, and a Bachelor’s degree in Engineering (Hons) in Civil Engineering from University College London in the UK.

Derek Loh, Head of Equities

Derek Loh – Head of Equities

Mr. Derek Loh is the Head of Equities at Raffles Family Office. Derek has numerous years of work experience from top asset management firms and Banks – 13 Years on the Buy-side across 3 Major Cities in Hong Kong, Singapore and Tokyo. Derek demonstrates in-depth industrial knowledge and analysis, covering mostly listed equities.

Ex-Portfolio Manager for ACA Capital Group, managing a multi-billion dollar global fund for a world-renowned sovereign wealth fund and reputable institutional investors. Previous notable Investors serviced include Norges Bank (Norwegian Central Bank), Bill & Melinda Gates Foundation and Mubadala. Derek holds an Executive MBA from Kellogg School Of Management and HKUST. He is also a CPA.

Ek Pon Tay – Head of Fixed Income

Ek Pon Tay – Head of Fixed Income

Ek Pon is responsible for fixed income investment management at Raffles Family Office. He has over 20 years of fixed income experience across Singapore and Japan.

Prior to joining Raffles Family Office, he was a portfolio manager at BNP Paribas Asset Management since 2018, responsible for Asia fixed income mandates. From 2016 to 2018, Ek Pon led the team investing in Asian credit at Income Insurance. From 2011 to 2016, he worked at BlackRock, managing benchmarked and absolute return fixed income funds. Earlier in his career, he held several positions as a credit trader in banks for 9 years.

Ek Pon graduated from the University of Melbourne with a Bachelor of Commerce and Bachelor of Arts.

Sky Kwah – Director, Investment Advisory

Sky Kwah – Director, Investment Advisory

Sky Kwah has over a decade of work experience in the investment industry with his last stint at DBS Private Bank. He has achieved and receive multiple awards over the years being among the top investment advisors within the bank. He often deploys a top-down investment approach, well versed in multiple markets and offering bespoke advice in multiple assets and derivatives.

Prior to his role, he worked at Phillip Capital as an Equities Team leader handling two teams offering advisory, spearheading portfolio reviews and developing trading/investment ideas.

He has been interviewed on Channel News Asia, 938Live radio, The Straits Times and LianheZaobao as a market commentator and was a regular speaker at investment forums and tertiary institutions.

Like this article?