Investment Roundup

05 March 2024

“Equity markets continue to favour quality growth-oriented assets, prudent asset allocation dictates a measured approach”


The US markets continue to exhibit remarkable resilience as the S&P 500 Index and the Bloomberg analyst rating median reach all-time highs of 5,130 and 5,000 respectively. However, beneath the surface of this bullish trend lies a growing concern among investors regarding the lofty valuations propelled by the dominance of the Magnificent 7 tech giants and the tailwinds of artificial intelligence.

Elevated price-to-earnings and price-to-growth ratios, coupled with uncertain inflation data, raise apprehensions about the potential for steeper corrections in the near future. The dependence on a handful of tech behemoths for market momentum adds a layer of fragility to the current market landscape.

Amid these considerations, investors eyeing diversification opportunities may find solace in the international markets. As a result of geopolitical tensions and economic uncertainties in certain regions, the valuation gap between the S&P 500 and MSCI All Country Index ex USA has widened to its largest extent in over two decades.

Historical precedents suggest that such valuation gaps tend to undergo mean reversionalthough the process may require patience beyond the comfort zone of many investment managers. Contrarian investors who are willing to weather short-term value drawdowns stand to potentially reap rewards as market dynamics shift. From a family office perspective, it is essential to maintain a long-term perspective and reference capital market assumptions when constructing an investment strategy.

While international markets have displayed mixed performance in recent years, Europe presents a compelling case for investment diversification. However, it is crucial to exercise selectivity within European markets by focusing on global leaders – Europe’s own Magnificent 7. Criteria such as solid earnings growth, low volatility, high and stable margins, strong balance sheets, and sustainable dividends should guide investment decisions in the coming months.

Furthermore, exposure to Europe’s Magnificent 7 offers diversification benefits, particularly in sectors such as healthcare, consumer staples, and consumer discretionary, which complement the tech-heavy US market.

Bloomberg Finance L.P., as of February 26, 2024

Bloomberg Finance L.P., as of February 26, 2024

A comparison of valuation metrics reveals that the US Magnificent 7 ex-Tesla commands a premium in price-to-earnings ratios given their operating profitability and interest coverage ratio.On the other hand, Europe’s counterparts boast similar operating margins and attractive dividend yields. This presents an opportunity for investors to capitalise on Europe’s value proposition while mitigating risk through diversified exposure.

In sum, while equity markets continue to favour quality growth-oriented assets, prudent asset allocation dictates a measured approach. Maintaining exposure to US markets while tactically allocating a portion of capital to European equities can enhance portfolio resilience and capture emerging opportunities in a dynamic global landscape.

Fixed Income Strategy

Investors are moving to the view of a shallow adjustment cut cycle, replacing the deeper cut scenario, which markets assigned significant probability at the start of the year. The shifts bring the market view in line with what Fed policymakers have indicated is the likeliest outcome. This is a result of both an upgrade in the growth outlook, and for the front end particularly, a significant reassessment of the Fed’s policy stance. The latter is most likely driven by a change in the anticipated path for core inflation this year, which investors have revised up from excessively optimistic levels following firm inflation data. Looking ahead, with recession odds largely priced out, and market-implied odds of scenarios of the Fed funds rate remaining at or above current levels and deeper adjustment cuts converging, rates appear priced fairly. While May FOMC cuts could become completely priced out, in the event of some reversal in employment and inflation data, that could be a catalyst for the re-introduction of cut pricing. We are included to increase duration of bond portfolios.

Market Aligns with Fed’s Rate Cut Projection

Source: Bloomberg Finance L.P.

In China, the PBOC cut the 5yr Loan Prime Rate to 3.95% from 4.20%, whilst the 1yr LPR was kept unchanged at 3.45%. As the 5yr LPR is the reference rate for mortgages (versus the 1yr LPR which is used to price corporate loans), this asymmetrical cut sends a signal that policymakers are supportive of the property market amid price declines moderating. The National Bureau of Statistics’ 70-city house price data indicates that the weighted average property price in the primary market fell 0.37% in January vs 0.45% in December. The secondary market also improved with price declines narrowing to 0.68% vs 0.79% in December. In upper-tier cities, housing demand is relatively resilient and upgraders trying to take advantage of lower property valuations also leads to pent-up demand. For lower-tier cities, the improvement may be marginal despite improved affordability amid record low borrowing rates. Overall, improving housing affordability alone is unlikely to restore homebuyer confidence given weak economic expectations. The continued demand-side easing, however, helps to cushion downside risk for the sector with an expected “L-shaped” path for physical sales. SOEs remain likely to maintain their dominant market positions and reap a larger share of any sales improvement. We are inclined to position in leading China SOE property developers.

China Home Price Declines Moderate

Source: Bloomberg Finance L.P.

In Indonesia, sample vote counts indicate that presidential candidate Prabowo Subianto leads by a comfortable share of votes needed to win the presidency. This is in line with the most recent pre-election opinion polls, and official results are scheduled to be released by 20th March. In the event a Prabowo Subianto win is confirmed, broad policy continuity is expected, with a potentially looser fiscal stance compared to the current administration, though the 3% of GDP fiscal deficit limit would unlikely be changed in the short to medium term. Meanwhile, 2024 expected economic growth and inflation are relatively healthy at 5% and 2.9% respectively. Long dated Indonesia IG bonds screen as offering attractive spread pickup relative to shorter dated bonds, with the differential being among the widest within Asia IG. We are inclined to position in Indonesia long dated IG.

This document contains material based on publicly-available information. Although reasonable care has been taken to ensure the accuracy and objectivity of the information contained in this document, Raffles Family Office Pte. Ltd. (“RFOPL”) and Raffles Assets Management (HK) Co. Limited (“RAM”) make no representation or warranty as to, neither has it independently verified, the accuracy or completeness of such information (including any valuations mentioned).  RFOPL and RAM do not represent nor warrant that this document is sufficient, complete or appropriate for any particular purpose. Any opinions or predictions reflect the writer’s views as at the date of this document and may be subject to change without notice.
The information contained in this document, including any data, projections and underlying assumptions, are based on certain assumptions, management forecasts and analysis of known information and reflects prevailing conditions as of the date of publication, all of which are subject to change at any time without notice. Past performance figures are not indicative of future results.
Not an investment recommendation, offer or solicitation to any particular person
This document should not be regarded as an investment recommendation, offer or solicitation to any particular person to transact in any product mentioned. Before deciding to invest in any product, you should seek advice from your financial, legal, tax or other professional advisers on the suitability of the product for you, taking into account your specific investment objectives, financial situation or particular needs (to which this document has no regard). If you do not wish to seek such advice at your own decision, you should consider and assess carefully whether any product mentioned is suitable for you after having received and read in detail the specific product information and relevant risk disclosure statements.
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Portfolio Managers:

William Chow – Deputy Group CEO

William Chow – Deputy Group CEO

Mr. William 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. William 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, he 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.

William 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 – 16 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.

As an Ex-Portfolio Manager for ACA Capital Group, Derek managed 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

Mr. Tay 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, Ek Pon 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

Mr. 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 at Raffles Family Office, Sky 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.

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