Investment Roundup

7 May 2024

“Market sentiment has been oscillating, reflecting hopes for a shift in the Fed’s rate policy”


The landscape for Asian currencies in the second quarter is shaped by a mix of global economic factors and regional dynamics. Dollar-Asia FX pairs are likely to remain influenced by the overall resilience of the US dollar especially as the Feds maintains its current stance on interest rates until the latter half of the year. Geopolitical tensions, particularly in northeast Asia, alongside seasonal factors, are expected to exert additional pressure on Asian currencies.

Implied volatility in dollar-Asia FX options could see an uptick as the prospect of the first Fed rate cut and the upcoming US presidential elections in November draw closer. Market sentiment has been oscillating, reflecting hopes for a shift in the Fed’s rate policy and a consequent decline in the dollar. This volatility tends to intensify during key US economic data releases and FOMC meetings, as witnessed post-Trump’s election victory in 2016.

The trajectory of the dollar-yen pair remains heavily influenced by the Fed’s policy outlook. Despite expectations among dollar-yen bears for rate cuts in the first half of the year, evolving US economic data and inflation trends have shifted market expectations towards a more hawkish stance. This adjustment may further bolster the dollar-yen pair by lifting US-Japan yield differentials.

In the second quarter, Asian central banks could face increased pressure to intervene in currency markets to support their currencies against the US dollar. The Bank of Japan, in particular, may attract attention as the yen hovers near its lowest levels against the dollar since 1990. Similarly, Singapore may face calls to weaken its currency, given its proximity to the upper end of its trading band against the USD. However, most Asian central banks still possess ample FX reserves for intervention if necessary.

Looking ahead, uncertainties loom with the potential for escalating US-China trade tensions following a Trump election victory in November. A higher-than-expected US inflation print could further bolster the US dollar, exerting downward pressure on Asian currencies. Safe-haven Asian currencies like the HKD and the SGD may serve as alternatives for investors seeking stability amid volatility.

Conversely, investors looking to diversify away from the dollar may explore currency or option strategies to convert USD to JPY in anticipation of a possible intervention by the BoJ. Additionally, the prevailing “higher for longer” scenario supporting dollar strength and benefiting US equities underscores the importance of considering currency yield differentials in investment decisions.

In summary, while the Asian FX market navigates through various challenges and uncertainties, strategic currency picks and FX strategies tailored to prevailing market conditions could offer avenues for investors to manage risks and capitalise on opportunities in the evolving landscape.

Fixed Income

Since the start of 2Q, US Treasury 10-year yields have risen 30 bp and remain around the higher end of the year-to-date range. The limited response tightening in broader financial conditions to this repricing is, thus far, indicative of sustained growth in a high-for-long environment. With US inflation-adjusted consumer expenditure growth remaining brisk year-to-date, the data supports the US Federal Reserve holding, if not raising, rates, giving policy more time to work. A continuation of current trends would potentially produce a narrative shift from the FOMC when it reviews projections in June. Expect that a high-for-long environment remains, and an imminent reversal is unlikely. We look to maintain shortened duration of bond portfolios.

US Inflation-Adjusted Consumer Expenditure Remains Brisk

Source: Bloomberg Finance L.P.

India credit is ripe for an increase in offshore issuance volume, driven by more favourable funding costs in USD after hedging relative to INR funding, relatively tight credit spreads in the USD market, and expectations of a pickup in capital expenditure. A sector expected to contribute to more issuance is Renewable energy – India government has a target of 500GW of clean energy capacity by 2030, and current capacity is below 200GW. Yet issuance year-to-date has been muted due to renewable energy companies turning to loan markets for refinancing. Although sector leverage has been trending higher, it is a function of ongoing capex. The key positives of improving receivables and ample funding access in domestic markets overall should outweigh some of the temporary leverage spikes. Valuations of the India renewables complex remain attractive with 1- to 3-year bonds yielding ~7%. We are inclined to increase positions in India renewables.

Macau’s gaming industry is expected to benefit after Chinese authorities introduced new policies to streamline travel processes for mainlanders. Travel documents including Macau visas for residents from 20 big cities can be updated or reissued entirely online without having to visit public security offices, and Macau will have its first-ever multi-entry group visa that allows mainlanders travelling within a specified tour group to travel back and forth multiple times within 7 days. These measures could attract incremental visitors and help Macau gaming operators at a time when the post-COVID recovery has lost some momentum, with April gross gaming revenue falling to 79% of 2019 levels from 81% in December. The measures also indicate that the authorities view Macau as the preferred destination for gambling, in contrast to the government warnings on gambling overseas and crackdowns on illegal gambling this year. Meanwhile, yields of the Macau gaming complex have increased ~40 bp since late February. We are inclined to increase positions in Macau gaming operators.

New Travel Measures Can Increase Mainland Tourist Arrivals to Macau

Source: Bloomberg Finance L.P.


At the latest Federal Open Market Committee (FOMC) meeting in May, the Federal Reserve unanimously decided to maintain the target federal funds rate at its current range of 5.25-5.5%, keeping policy rates steady for the sixth consecutive meeting. A notable highlight from the meeting was Federal Reserve Chair Jerome Powell emphasizing that it is unlikely the next policy move will be a rate hike.

The latest monthly jobs data showed signs of cooling in the US labor market. In April, nonfarm payrolls increased by 175,000, considerably below the consensus estimate of 240,000 additions and representing the slowest pace of jobs growth in six months. While the unemployment rate edged up 10 basis points to 3.9% last month from 3.8% in March, the jobless level has now been under 4% for a sustained 27 months. These labor market indicators point to some moderation, fueling discussions that the Fed may achieve a soft economic landing and allaying concerns around stagflation.However, we think it is improbable the Federal Reserve will embark on an interest rate cutting cycle before the latter half of the year, as the jobs sector remains relatively tight. Both the softer-than-forecast jobs numbers in April and less hawkish guidance from the Fed post-meeting prompted markets to reconsider the timing of anticipated rate decreases. Overall, while signs of cooling are emerging, full-fledged rate cuts later in 2022 seem a more likely policy response if economic momentum continues to ebb, according to the latest commentary and data.

The U.S. stock market has maintained its momentum this year supported by healthy corporate earnings and easing monetary policy expectations. Reviewing historical valuation multiples reveals diverging trends across market segments. The top 10 S&P 500 holdings, accounting for over 20% of the index by market cap, trade at a sizable 40% premium – a P/E of 28.4x versus 21.0x for the broader index. Meanwhile, the remaining constituents trade near their long-term average P/E of 18.3x, appearing relatively cheaper.An interesting insight is that while the top 10 stocks comprise around a third of the entire S&P 500, they contributed only one-quarter of the total earnings. This indicates the potential merits of diversifying beyond these mega-cap leaders into other index components. The rest of the index provides more compelling valuations worthy of consideration.

Given valuations appear extended for the largest stocks versus earnings fundamentals, we maintain a cautiously bullish outlook on the U.S. market overall. Expanded exposure to the broader index, outside the concentrated top holdings, seems prudent to balance upside potential with downside risks from elevated large-cap valuations. On balance, a diversified approach could offer a more attractive risk-return profile.While the U.S. has led in earnings growth recently, other regions are showing signs of improvement. In Japan, higher inflation has allowed companies to hike prices and widen margins. The end of negative rates should also boost the banking sector.

Although China earnings estimates were weighed down by pessimism, they have stabilized in recent months, suggesting much of the downside may now be priced in. Both China and Japan currently trade below their 25-year average P/E ratios based on the chart. Considering both absolute and relative valuations, Japan and China appear attractively priced versus the U.S. This presents an appealing opportunity to diversify given prospects for shifting earnings trends and discounted levels in these markets.The case for overweighting Hong Kong and China is strengthening. Recently, China’s Politburo meeting emphasized the importance of fiscal policy in supporting growth, while also addressing issues like property sector health and local government debt. Measures aim to spur China’s recovery and sentiment.

We anticipate positively the upcoming Third Plenum in July, as policy focus turns increasingly growth-friendly. Sentiment should also get a lift from ramping bond issuance and capital market development. With valuations discounting much negativity, the risk-reward for these regions looks favorable on a relative basis versus other markets. Overall, diversifying into Japan and China offers exposure to recovering earnings at reasonable prices levels.

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.
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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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