Investment Roundup

18 June 2024

“FOMC Outlook Mixed: Median Forecast Signals Single Rate Cut in 2024”



JPM’s forecasted impact on total returns for bonds shows the benefits of locking in yields on core bonds like UST, MBS, ABS, and IG Corps. We would prefer to secure these yields in anticipation of rate cuts. Additionally, leveraged loans, or floating-rate loans, remain attractive due to their high total returns in both rising and falling interest rate environments.

Building on our fixed income strategy, we turn to private debt where the chart illustrates risk versus returns across asset classes from 2015 to 2023. Middle market private debt has delivered superior risk-adjusted returns compared to public debt instruments like ABS and leveraged loans. We favor private credit for its potential to provide higher current income at lower risk with strong manager selection.

In our scenario analysis, we are preparing for two potential interest rate environments: a “higher for longer” scenario (bear case) and a sudden aggressive rate cut cycle (bull case).

Should rates remain elevated for an extended period, we would reduce positions in riskier assets such as US HY, US large-cap, EU, and HK equities, in favor of more secure holdings like USD cash FD and UST. This shift extends to our private asset strategy, where we would favor floating rate private debt over more rate-sensitive assets like real estate and private equity.

Conversely, in the event of an aggressive rate cut cycle, we would reduce cash holdings in favor of risk-on assets such as US large-cap equities and Digital Assets, while retaining core fixed income for its rate cut capital appreciation. Within private assets, our focus would shift, decreasing allocation to private debt and hedge funds, and increasing investment in real estate and private equity, capitalising on the cheaper cost of capital. This balanced approach ensures we are well-positioned to navigate varying market conditions while aiming for stronger risk-adjusted returns.


Notwithstanding the recent slowing pace of inflation, the stated targets of central banks are yet to be met. While the ECB lowered rates last week, it revised upward next year’s forecast for consumer price inflation to 2.2% from 2% and comes on the back of May inflation, wage rises and business activity data all printing higher than expected. This likely indicates that inflation is not on trajectory for a rate cutting cycle to be sustained and therefore means fewer rate cuts than is currently priced. The FOMC continues to rethink the neutral policy rate, which suggest that upward revision to the long-run dots is therefore also likely. A Trump 2.0 administration carries more upside risks on yields, first on the fiscal budget outlook, given the potential of a fresh round of tax cuts, and second on the inflation outlook, given the proposals for greater use of trade tariffs. We are inclined to trim duration of bond portfolios.

In India, expect that the coalition of parties led by Modi is unlikely to significantly deviate from the path of fiscal consolidation. Cooling inflation – latest CPI at 4.83% vs 2023 high above 7% – can allow the Reserve Bank of India to embark on easing this year regardless of the US Federal Reserve’s action. This should support growth momentum. Notably, India reported GDP grew 8.2% in the 12 months to March 2024, the fastest growth rate among large EM economies. Meanwhile, S&P revised its outlook on India’s sovereign credit ratings of BBB- to positive, citing policy stability, deepening economic reforms, and high infrastructure investment as key drivers that support India’s long-term growth prospects. For India USD credit, the election outcome should remain supportive of earnings and cashflows while sectors favoured by the government such as infrastructure and renewables are expected to benefit from policy continuity.

Among Asia-Pacific bank bonds, Australia bank Tier 2 screen as having relatively high spread multiples. The average Tier 2/senior bond spread ratio is 1.6x across Asia Pacific, with the ratio highest for Singapore banks at an average of 2.4x, followed by Australia at 1.8x and South Korea at 1.7x; at the other end of the spectrum, the spread ratios are tightest for the Hong Kong global banks and Japan, both averaging 1.1x. Although Singapore Tier 2/senior spread ratio averaging 2.4x appears attractive, this ratio is high not because their Tier 2 spreads are particularly wide; rather it is because their senior bond spreads are very tight. Australia Tier 2 spreads are wider than Singapore counterparts by ~20 bp to their call dates. From a yield perspective, Korea, Singapore and China Tier 2 bonds all yield below 6%, whilst Thailand and HK Tier 2 bonds yield above 6%. For Australia Tier 2 bonds, their yields also average at 6%. Given Australia banks’ credit ratings are amongst the highest in the region, their Tier 2 bonds are more attractive.


Taking a snapshot of the global stock market, we observe that current price-to-earnings (P/E) ratios generally align with their 25-year averages, with notable exceptions in Japan and China showing favorable valuations. However, the U.S. stands out as relatively more expensive compared to other regions. While this suggests considering additional exposure to attractive regions for enhanced stock returns and diversification benefits, it does not warrant excessive concern or complete avoidance of US stocks. Our view remains cautiously bullish on US equities.

Examining the US stock market, indications suggest that it is not currently in bubble territory. Comparing the “Magnificent 7” (M7) stocks, which have contributed to the high P/E ratios, to historical bubble periods, we find that the rise from trough to peak stands is below previous bubble levels. Furthermore, the current P/E ratio is around 40, relatively far from the peak P/E ratios of 60+ during bubble periods. Analyzing sectors, we maintain a bullish stance on strong year-to-date performers, particularly those with current P/E ratios still below the average 3-year P/E ratios that points to further potential for gains. Thus, our preference lies with the technology, communication services, and utilities sectors. Within the technology sector, software companies are favored over tech hardware and equipment companies due to the same considerations.

Further analysis reveals a historical trend in the US markets, showing positive returns in the two years following the end of a Federal Reserve interest rate hiking cycle, with the second year often outperforming the first. In the graph, the dotted line represents the last rate hike, while the red line indicates the current position, approximately one year after the last hike in July 2023. Based on historical patterns, we can anticipate a continuation of stock market returns in the remaining second half of the year, considering the forward-looking nature of the market, which prices in anticipated interest rate cuts before they are implemented. It is worth noting that the 2000 tech bubble was an outlier or exception to the typical historical trend. However, we believe the current situation differs significantly from that scenario. The year 2000 was characterized by relatively higher unemployment and tech companies with poor earnings. In contrast, the present macroeconomic environment is positive, and the S&P earnings have been solid. First-quarter earnings were impressive, and the full-year 2024 earnings forecast shows a robust double-digit growth of 11.3%, which has been revised upward following the strong Q1 results.

For the Hong Kong/China market, we give preference to sectors displaying an improving year-over-year earnings per share (EPS) growth. The sectors that stand out in this regard are technology, healthcare, and energy, which are currently the most preferred choices. However, it is worth noting that sectors with greater year-over-year earnings variations, even if negative, present potential opportunities. This includes the real estate and industrial sectors, where certain stocks may offer significant upside if external or idiosyncratic factors enable them to surpass earnings forecasts, leading to upward revisions in stock prices. Therefore, it is worthwhile to explore companies within the aforementioned sectors.

In addition, we examine the current valuations compared to the 15-year average for different sectors. From a valuation standpoint, most sectors are trading below their 15-year average price-to-earnings (P/E) ratios, indicating relatively cheaper valuations compared to historical levels. Notably, the consumer discretionary and communication services sectors exhibit the most significant discounts, highlighting the greater potential upside opportunities that may exist within these sectors. Investors can consider conducting further analysis to identify quality names in those sectors.

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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