Investment Roundup

2 July 2024

“Historical Insights on Fed Rate Cut Cycles and Asset Class Returns”


In today’s outlook, we will examine past Federal Reserve (Fed) cut cycles and their effects on various asset class returns. Since the 1980s, there have been more than nine rate cut cycles, which can be broadly categorised as pre-recession cuts or insurance cuts.

Pre-Recession Cuts: These occur when the Fed cuts rates but fails to prevent the economy from entering a recession.

Insurance Cuts: These happen when the Fed cuts rates in response to slumping equity markets (1987), international financial stability risks (1998), or to bolster sluggish growth (1984, 1995). In these cases, the Fed’s actions successfully prevented a recession.

Over the last 40 years, there have been five pre-recession cycles and four insurance cycles. On average, each rate cut cycle delivered significant rate reductions (greater than 4%) and lasted over a year.
Currently, markets are pricing in two 25 bps rate cuts to happen this year, starting in September. We believe the Fed is on track to engineer a soft landing by lowering rates and inflation without causing a recession, leading us to anticipate the upcoming rate cut cycle to be an insurance one.

The analysis done by Allianz Global Investors of historical aggregated excess returns of various assets versus cash across all rate cut cycles provides insightful trends.

All Rate Cut Cycles:

  • US Treasuries were the best performers, with 12.5% excess returns against cash.
  • US Investment Grade Corporate Bonds outperformed cash in 7 out of 9 cycles with an excess return of 11%.
  • We have reiterated our preference to lock in bond yields since Q1, given the increased total returns resulting from rate cuts.

Insurance Cycles:

  • Global equities outperformed fixed income when the Fed cut interest rates and economic growth remained positive, with excess returns of 18.7%.
  • On average, growth stocks outperformed value stocks, and large-cap stocks outperformed small caps.
  • Given the current macro environment, we have reiterated our preference to remain invested in quality large-cap US equities.

Pre-Recession Cycles:

  • On the currency front, the USD typically fell against other currencies when only the Fed was cutting rates.
  • However, when both the Fed and other central banks lowered rates, the USD, JPY, and CHF rose.

In summary, historical data suggests that US Treasuries and Investment Grade Corporate Bonds perform well across all rate cut cycles, while equities, particularly growth and large-cap stocks, excel during insurance cycles. The currency response varies depending on global central bank actions. Given the current market conditions and the Fed’s trajectory, we believe positioning in bonds and quality large-cap equities remains prudent.


Over the past 2 weeks, Treasury yields retraced to their lowest levels since March. The recent data allay concerns that inflation is reaccelerating, and leaves the door open to lower policy rates later this year. However, the FOMC is in no rush to ease, with the median 2024 dot showing one cut, and 15 of 19 participants projecting one or two cuts this year. With markets pricing a deeper magnitude of rate cuts than the shallow easing projected, it will be challenging for yields to decline further over the near term. Meanwhile, the US presidential election is shifting into focus. Trump’s policies overall imply significant upside risks to inflation expectations and US Treasury issuance, while current yields show little risk premia for the implications of a Trump win. We are inclined to trim duration of bond portfolios.

Markets Price Deeper Cuts Than Fed This Year and Next

Source: Bloomberg Finance L.P.

Should Indonesia fiscal expansion occur, a moderately higher deficit that generates higher levels of growth could be viewed positively by the markets and by the rating agencies; conversely, additional borrowings that have relatively limited impact on growth could be a source of concern. Furthermore, investors may begin pricing in more supply of offshore bonds. In the near term however, deterioration in Indonesia’s credit profile is unlikely. First, debt increases will take several years for a 2 ppt/annum increase in debt-to-GDP ratio. Second, Indonesia’s external position is strong. The government’s external indebtedness represents around 29% of GDP, and the current account has improved in recent years, with a modest deficit of 0.1% of GDP in 2023. To benefit from the wider premiums available recently in Indonesia credit, we look to increase positions in Indonesia corporates and quasi-sovereigns.

Indonesia Credit Spreads Widened vs Southeast Asia Peers

Source: Bloomberg Finance L.P.

Macau May visitor arrivals climbed 22% year-on-year to 2.69 million, reaching 79.3% of the figure in the same month of 2019. Sequentially, the May figure was up 3.5% month-on-month. May gross gaming revenue (GGR) increased 29.7% year-on-year to MOP 20.2 billion, making the highest tally since January 2020 at the beginning of the pandemic. The result is quite impressive, especially given lingering investor concerns on consumption elsewhere in China. Since end-May, eight major cities became active members of China’s exit visa system for independent travellers wishing to visit Macau and Hong Kong, the Individual Visit Scheme, known as IVS. June is seasonally the weakest month of the year for GGR which may result in 2Q earnings being modestly lower quarter-on-quarter but does not materially alter the medium-term outlook of strong cash flows driving deleveraging. In the event of a broader spread correction, that presents an opportunity to increase positions in Macau gaming operators.

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.
An investment in any product mentioned in this document may carry different risks of varying degrees, including credit, market, liquidity, legal, cross-jurisdictional, foreign exchange and other risks (including the risks of electronic trading and trading in leveraged products). Investments involve risks. The prices of investment products may fluctuate and sometimes dramatically. The price of an investment product may move up or down, and may become valueless. It is as likely that losses will be incurred rather than profit made as a result of buying and selling investment products. Nothing in this publication constitutes personalized accounting, legal, regulatory, tax, financial or other advice that regards the personal circumstances of a particular recipient. You should seek your financial, legal, tax or other professional adviser to understand the risks involved and whether it is appropriate for you to assume such risks before investing in any product.
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This document and its contents are only intended for Accredited Investors (as defined in Section 4A of the Singapore Securities and Futures Act (Chapter 289)) in Singapore and Professional Investors (as defined in the Hong Kong Securities and Futures (Professional Investor) Rules (Cap. 571D)) in Hong Kong. This document and its contents have not been reviewed by the Monetary Authority of Singapore or the Securities and Futures Commission of Hong Kong.

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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