Market Insights

Market Outlook

Stay updated with Market Outlook articles which consolidate key market indices and information each month. We hope you will find these insights and recommendations useful when deciding how best to manage your investment portfolio.

Focus on Fed and volatility should continue

 

For those with a significant exposure to equities, it still makes sense to reduce some exposure in order to raise cash, which may be deployed when prices fall given the anticipated volatility in the coming months.

Among equity markets, we still favour developed markets over emerging markets; and among developed markets, European equities are our favourite with the European Central Bank’s Quantitative Easing measures providing the tailwind.

We are neutral on high yield bonds but prefer them to investment-grade ones, and continue to advise investors to hold bonds with shorter tenures, as such bonds tend to be less sensitive to increases in interest rates.

Recommendations:

  • Unit Trust: Investors who are seeking regular income plus potential capital growth in one collective investment scheme could consider CIMB-Principal Global Multi Asset Income Fund, as the Fund invests in a diversified portfolio of global assets and will actively allocate between global equities, bonds and other alternative assets such as ETF.
  • Unit Trust: Investors who want a meaningful medium to long-term capital growth with a bias towards receiving regular income could consider Affin Hwang Select Income Fund who invests in a diversified portfolio with at least 70 per cent allocation to fixed income instruments.
  • Dual Currency Investment: We recommend customers to pair Ringgit Malaysia (MYR) against U.S. Dollar (USD) as lower oil prices could continue to pressure MYR further while interest rate normalization by the Fed and solid economic expansion in US could drive USD higher.

WARNING
THE RETURNS ON YOUR STRUCTURED PRODUCT INVESTMENT WILL BE AFFECTED BY THE PERFORMANCE OF THE UNDERLYING ASSET/REFERENCE, AND THE RECOVERY OF YOUR PRINCIPAL INVESTMENT MAY BE JEOPARDISED IF YOU MAKE AN EARLY REDEMPTION.
THIS STRUCTURED PRODUCT INVESTMENT IS NOT INSURED BY PERBADANAN INSURANS DEPOSIT MALAYSIA.



This document is not intended to constitute research analysis or recommendation and should not be treated as such.

We recommend that you read and understand the contents of the Information Memorandum for CIMB-Principal Global Multi Asset Income Fund dated 20 March 2014. Investments in the Fund are exposed to fund manager’s risk, country risk, currency risk, legal and taxation risk and default risk.

We recommend that you read and understand the contents of the Replacement Master Prospectus for Affin Hwang Select Income Fund by Affin Hwang Asset Management Berhad dated 22 September 2014. Investments in the Fund are exposed to stock specific risk, country risk, currency risk, fund manager’s risk, legal and taxation risk and counterparty risk.

Unit Trust investments are not bank deposits and are not obligations of or guaranteed or insured by OCBC Bank (Malaysia) Berhad. Unit Trust investments are not guaranteed and are subject to investment risk unless otherwise specified. The investment risk includes general risks as described in the Information Memorandum/Prospectuses for Unit Trust investment funds (“Information Memorandum/Prospectuses”) and specific risks which may be different for each Unit Trust investment. Description of specific risks and general risks are published in the Information Memorandum/Prospectuses. With respect to Unit Trust investment, past performance is not indicative of future results; the net asset value can go up or down. Investors should also note that the net asset value per unit and distributions payable, if any, may go down as well as up.

Where unit trust loan financing is available, investors are advised to read and understand the contents of the unit trust loan financing risk disclosure statement before deciding to borrow to purchase units. Where a unit split/distribution is declared, investors are advised that following the issue of additional units/distribution, the NAV per unit will be reduced from pre-unit split NAV/cum-distribution NAV to post-unit split NAV/ex-distribution NAV; and where a unit split is declared, investors should be highlighted of the fact that the value of their investment in Malaysian ringgit will remain unchanged after the distribution of the additional units.

The Information Memorandum/Prospectuses have been registered with the Securities Commission Malaysia, which takes no responsibility for its content. A copy of the Information Memorandum/Prospectuses can be obtained at OCBC Bank’s branches. Units will only be issued upon the receipt of application form referred in, and accompanying the Information Memorandum/Prospectuses. Investors are advised to read and understand the contents of the Information Memorandum/Prospectuses, and if necessary consult their adviser(s), as well as consider the fees and charges involved before investing in the Unit Trust.

This document has been prepared without taking account of the objectives, financial situation or needs of any specific person or organisation who may receive this document. Accordingly prior to making an investment decision, you should conduct such investigation and analysis regarding the product described herein as you deem appropriate and to the extent you deem necessary obtain independent advice from competent legal, financial, tax, accounting and other professionals, to enable you to understand and recognise fully the legal, financial, tax and other risks arising in respect of the product and the purchase, holding and sale thereof.

You should obtain and read the Product Highlight Sheet of the product before you make a decision to acquire the product. All information provided in this document is general and does not take into account your individual objectives, financial situation or specific needs.

You are required to read and understand the terms and Product Highlight Sheet of the product carefully before executing any transaction relating to the product with us.You may request for a copy of the Product Highlight Sheet at OCBC Banks’ branches.




ONG SHI JIE
  Vice President, Consumer Financial Services, OCBC Bank (Malaysia) Berhad

 

Global Outlook – Sanguine Growth Outlook

 

Looser monetary policy and lower oil prices will help global growth to be slightly stronger than the past few years, but it remains unbalanced. The U.S. is strong enough to consider policy tightening, while much of the rest of the developed world is still loosening monetary policy to boost growth.

Key Points:

  • U.S. economic data remains strong, with the fastest growth in a decade. The drop in the unemployment rate is ahead of Fed expectations and is defying hopes that a rebound in the participation rate could slow down the tightening of labour markets. So far, wage gains have been muted but surveys show that both firms and workers realise that bargaining power is shifting.
  • There did not seem to be a pressing need for the ECB to adopt quantitative easing (QE) in January, but it should help to pull the region away from the risk of deflation. Conditions were already becoming more supportive of growth, with fading headwinds from fiscal tightening and an end to the drag from falling bank lending. Lowering borrowing costs and the drop in Euro following ECB action will further support the recovery.
  • Greece will again be a source of uncertainty, but the Eurozone is much less vulnerable than a few years ago. Nearly all remaining Greek debt is owed to the IMF or European institutions, while the banking system is more resilient and the ECB is prepared to be more active in stabilising markets. The real issue is what example Greece will set to other Eurozone members, especially Spain and Portugal which have elections in late 2015. Germany will not want to give many concessions to Greece for fear of encouraging the others. Conversely, a painful Greek exit from the Eurozone could show others that continued membership is the best way forward.
  • Like Europe, Japan’s economy was already showing signs of improvement even before factoring in the impact of the recent BOJ policy move and subsequent drop in the exchange rate. The BOJ will be focused on the upcoming talks between trade unions and companies to see the impact of the tightest labour markets since the early 1990s and the surge in profitability implied by the recent drop in Japanese yen. We do not expect any further significant policy moves by the BOJ this year as the economic performance is set to improve in 2015.



 

Foreign Exchange & Commodities – U.S. Dollar Rally Should Continue

 

The multi-year U.S. dollar rally should continue. Volatility in foreign exchange markets is back amid policy divergence, the rapidly falling commodity prices and the surprise reminder from Swiss National Bank to expect the unexpected. Rising disinflation has prompted central banks to either deliver dovish surprises or take steps to ease policy.

Key Points:

  • Divergent monetary policies between the U.S. and Eurozone/Japan, a relentless bear market in commodity prices and idiosyncratic factors such as the surprise ditching of the Euro-Swiss Franc floor by the Swiss National Bank, have driven up currency volatility, reversing the downtrend since 2011.
  • We see more downside for the Euro after the ECB went big on QE, exceeding market expectations by delivering a convincing QE package that is more or less open-ended. The open-ended nature of QE, coupled with other policy measures, adds further pressure to the already-established Euro downtrend.
  • In the U.K., the minutes of the BOE’s January Monetary Policy Committee meeting surprised markets as the vote for keeping the policy rate was unanimous, and no longer contained any dissent in favor of higher rates.
  • We see lower oil prices as mainly reflecting a supply shock, so evidence of a reduction in supply will be the key to any rebound. This seems unlikely to come from a new OPEC agreement, but we are starting to see aggressive cuts to investment plans, while the U.S. rig count is already down 20 per cent.
  • As a result, we think that prices can stabilise around current levels and then see a moderate rebound as supply continues to contract. Admittedly, with a high degree of uncertainty, we have a 12-month target for WTI and Brent of US$60 per barrel. The need to squeeze high cost producers out of the market means that prices are likely to undershoot for some time. A recovery to marginal production costs of US$70-80 per barrel will be a slow process unless we see a geopolitical negative supply shock or a sudden OPEC deal.
  • Its safe haven appeal has boosted the price of gold from time to time but we remain in the bear camp on the medium-term outlook for gold. We maintain our 12-month gold price target at US$1,050 per ounce.



 

Malaysia Outlook – Malaysia Revised Budget Plan

 

Rather than sticking to unrealistic assumptions after the tumbling oil prices, Malaysia government had revised the budget to a more grounded approach, with new measures to address the current issues.

Key Points:

  • The government is planning to counter the hit of oil price’s drop on fiscal balance by revising the budget with a slash in operating expenditure of RM 5.5 billion, plus another RM 3.2 billion due to be saved from a review of transfers and grants to government trust funds.
  • In aggregate, the combined effect of savings from November’s fuel subsidy removal and upcoming cutbacks on government’s unnecessary expenditure will keep the budget deficit to 3.2 per cent of GDP. This is not as ideal as the 3.0 per cent originally pencilled in, but would nonetheless represent a reduction from 3.5 per cent of 2014.
  • Besides, the needs for Malaysia to maintain its current account surplus status were highlighted with a few measures. These range from efforts to boost exports of goods and services to measures of limiting imports.
  • Exports figure in December 2014 rose 2.7 per cent on yearly basis, the most in six months due to a weaker currency that boosted external demand. Meanwhile, trade surplus was lower compared to November 2014 and could be under pressure with mounting import cost.



 

Investment Insights - Cautious In The Short-Term

 

Global equity markets have been volatile, and trading in a wide range. We remain cautious on equities in the near-term given the still uncertain outlook for oil prices and the pending Fed rate hikes. Among equity markets we prefer developed markets, especially Europe, which looks set to benefit from the ECB’s bolder-than-expected quantitative easing

Key Points:

  • U.S. equities kicked-off 2015 on a negative note as the earnings season yielded more disappointments than positive surprises. In addition to the challenge of an appreciating greenback, potentially higher labour cost represent a further headwind for U.S. corporate margins over the next few quarters, even as the effect of lower energy costs starts to kick-in.
  • The U.S. dollar strength and oil weakness suggest that the Fed has less urgency to normalise rates. But maintaining the view that the Fed is already behind the curve and therefore would still hike rates sooner-than-expected, we continue to see the swings between liquidity and growth focus driving market volatility – at least until the Fed clearly signals its intention.
  • The ECB’s bold QE move has clearly lifted investor sentiments and the growth outlook for the region, as the weaker currency and easier credit is expected to boost demand. Coupled with relatively more relaxed fiscal policies and sharply lower commodity costs, we re-iterate our view that the region is going into 2015 in a much better position than it started in 2014.
  • We maintain the view that consensus earnings in Japan remain too conservative despite the ongoing upgrades. Also, we continue to see effects of efforts by Japan Inc. to improve on corporate governance and shareholder returns kicking -in. Separately, the Government Pension Investment Fund’s move to gradually raise its holdings in domestic equities from 17 per cent to 25 per cent provides downside support to equities.
  • January was a largely better month for Asia Ex-Japan equities as the slew of major central bank monetary easing buoyed risk appetite. North Asian markets did relatively better as Southeast Asia, especially Malaysia, bore the brunt of weaker commodity prices. Near-term, we continue to see concerns over U.S. monetary policy driving volatility of Emerging Market equities. Hence, we remain cautious on Asia Ex-Japan.



 

Important Information

 

This document is not intended to constitute research analysis or recommendation and should not be treated as such.

Any opinions or views expressed in this material are those of the author and third parties identified, and not those of OCBC Bank (Malaysia) Berhad (“OCBC Bank”, which expression shall include OCBC Bank’s related companies or affiliates).OCBC Bank does not verify or endorse any of the opinions or views expressed in this material.You should beware that all opinions and views expressed are subject to change without notice, and OCBC Bank does not undertake the responsibility to update anyone with any changes to the opinions and views expressed.

This does not constitute an offer or solicitation to buy or sell or subscribe for any security or financial instrument or to enter into a transaction or to participate in any particular trading or investment strategy at any price quoted or indicated herein. The proposed transaction(s) herein (if any) is/are subject to the final expression of the terms set forth in the definitive agreement(s) and/or confirmation(s).

The information provided herein is intended for general circulation and/or discussion purposes only and does not contain a complete analysis of every material fact. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. Without prejudice to the generality of the foregoing, please seek advice from a financial adviser regarding the suitability of any investment product taking into account your specific investment objectives, financial situation or particular needs before you make a commitment to purchase the investment product. In the event that you choose not to seek advice from a financial adviser, you should consider whether the product in question is suitable for you.

OCBC Bank is not acting as your adviser. This material is provided based on OCBC Bank’s understanding that (1) you have sufficient knowledge, experience and access to professional advice to make your own evaluation of the merits and risks of any investment product and (2) you are not relying on OCBC Bank or any of its representatives or affiliates for information, advice or recommendations of any sort except for specific factual information about the terms of the transaction proposed.This does not identify all the risks or material considerations that may be associated with any of the investment products. Prior to purchasing the investment product, you should independently consider and determine, without reliance upon OCBC Bank or its representatives or affiliates, the economic risks and merits, as well as the legal, tax and accounting characterisations and consequences of the investment product and that you are able to assume these risks.

The information provided herein may contain projections or other forward looking statement regarding future events or future performance of countries, assets, markets or companies. Actual events or results may differ materially.Past performance figures are not necessarily indicative of future or likely performance. Any reference to any specific company, financial product or asset class in whatever way is used for illustrative purposes only and does not constitute a recommendation on the same.

No representation or warranty whatsoever (including without limitation any representation or warranty as to accuracy, usefulness, adequacy, timeliness or completeness) in respect of any information (including without limitation any statement, figures, opinion, view or estimate) provided herein is given by OCBC Bank and it should not be relied upon as such. OCBC Bank does not undertake an obligation to update the information or to correct any inaccuracy that may become apparent at a later time. All information presented is subject to change without notice. OCBC Bank shall not be responsible or liable for any loss or damage whatsoever arising directly or indirectly howsoever in connection with or as a result of any person acting on any information provided herein.

OCBC Bank and its respective associated and connected corporations together with their respective directors and officers may have or take positions in any securities mentioned in this report (which positions may change from time to time without notice) and may also perform or seek to perform broking and other investment or securities related services for the corporations whose securities are mentioned in this report as well as other parties generally.

This document has been prepared without taking account of the objectives, financial situation or needs of any specific person or organisation who may receive this document. Accordingly prior to making an investment decision, you should conduct such investigation and analysis regarding the product described herein as you deem appropriate and to the extent you deem necessary obtain independent advice from competent legal, financial, tax, accounting and other professionals, to enable you to understand and recognise fully the legal, financial, tax and other risks arising in respect of the product and the purchase, holding and sale thereof.

You should obtain and read the Product Highlight Sheet of the product before you make a decision to acquire the product. All information provided in this document is general and does not take into account your individual objectives, financial situation or specific needs.

You are required to read and understand the terms and Product Highlight Sheet of the product carefully before executing any transaction relating to the product with us.You may request for a copy of the Product Highlight Sheet at OCBC Banks’ branches.

The contents hereof may not be reproduced or disseminated in whole or in part without OCBC Bank's prior written consent.


 


Stay Diversified

 

For those looking to deploy their surplus cash amid market volatility, we continue to advocate exposure to mixed asset strategies as it provides a balance of yield and equity market participation.

Among equity markets, we still favour developed markets over emerging markets. European equities are our favourite with the European Central Bank‘s Quantitative Easing measures providing the tailwind. Following the recent correction, U.S. high yield bonds are starting to look attractive. However, we encourage investors to adopt a diversified approach towards this asset class. Our advice to investors on holding bonds with shorter tenure still holds true, as these bonds tend to be less sensitive to increases in interest rates.

Recommendations:

  • Unit Trust: Investors who are seeking to participate on global equity markets growth could consider RHB-OSK Global Equity Stabiliser Fund, as the Fund invests into global equity with an added downside risk management strategy.
  • Auto-Callable ETF Linked Structure Investment: Investors who like to capture the potential bottoming out of oil prices could consider United States Oil Fund, an Exchange-Traded Fund tracking the movement of West Texas Intermediate (WTI).
  • Dual Currency Investment: We recommend customers to pair Ringgit Malaysia (MYR) against U.S. Dollar (USD) as lower oil prices could continue to pressure MYR further while interest rate normalization by the Fed and solid economic expansion in US could drive USD higher.

WARNING
THE RETURNS ON YOUR STRUCTURED PRODUCT INVESTMENT WILL BE AFFECTED BY THE PERFORMANCE OF THE UNDERLYING ASSET/REFERENCE, AND THE RECOVERY OF YOUR PRINCIPAL INVESTMENT MAY BE JEOPARDISED IF YOU MAKE AN EARLY REDEMPTION.
THIS STRUCTURED PRODUCT INVESTMENT IS NOT INSURED BY PERBADANAN INSURANS DEPOSIT MALAYSIA.



This document is not intended to constitute research analysis or recommendation and should not be treated as such.

We recommend that you read and understand the content of the Information Memorandum for RHB-OSK Global Equity Stabiliser Fund dated 15 January 2015 by RHB Asset Management Sdn Bhd. Investments in the Fund are exposed to country risk, equity risk, currency risk, management risk, emerging market risk and others as disclosed in the Information Memorandum.

Unit Trust investments are not bank deposits and are not obligations of or guaranteed or insured by OCBC Bank (Malaysia) Berhad. Unit Trust investments are not guaranteed and are subject to investment risk unless otherwise specified. The investment risk includes general risks as described in the Information Memorandum/Prospectuses for Unit Trust investment funds (“Information Memorandum/Prospectuses”) and specific risks which may be different for each Unit Trust investment. Description of specific risks and general risks are published in the Information Memorandum/Prospectuses. With respect to Unit Trust investment, past performance is not indicative of future results; the net asset value can go up or down. Investors should also note that the net asset value per unit and distributions payable, if any, may go down as well as up.

Where unit trust loan financing is available, investors are advised to read and understand the contents of the unit trust loan financing risk disclosure statement before deciding to borrow to purchase units. Where a unit split/distribution is declared, investors are advised that following the issue of additional units/distribution, the NAV per unit will be reduced from pre-unit split NAV/cum-distribution NAV to post-unit split NAV/ex-distribution NAV; and where a unit split is declared, investors should be highlighted of the fact that the value of their investment in Malaysian ringgit will remain unchanged after the distribution of the additional units.

The Information Memorandum/Prospectuses have been registered with the Securities Commission Malaysia, which takes no responsibility for its content. A copy of the Information Memorandum/Prospectuses can be obtained at OCBC Bank’s branches. Units will only be issued upon the receipt of application form referred in, and accompanying the Information Memorandum/Prospectuses. Investors are advised to read and understand the contents of the Information Memorandum/Prospectuses, and if necessary consult their adviser(s), as well as consider the fees and charges involved before investing in the Unit Trust.

This document has been prepared without taking account of the objectives, financial situation or needs of any specific person or organisation who may receive this document. Accordingly prior to making an investment decision, you should conduct such investigation and analysis regarding the product described herein as you deem appropriate and to the extent you deem necessary obtain independent advice from competent legal, financial, tax, accounting and other professionals, to enable you to understand and recognise fully the legal, financial, tax and other risks arising in respect of the product and the purchase, holding and sale thereof.

You should obtain and read the Product Highlight Sheet of the product before you make a decision to acquire the product. All information provided in this document is general and does not take into account your individual objectives, financial situation or specific needs.

You are required to read and understand the terms and Product Highlight Sheet of the product carefully before executing any transaction relating to the product with us.You may request for a copy of the Product Highlight Sheet at OCBC Banks’ branches.




Michael Lai
  Head of Research, Wealth Management, OCBC Bank (Malaysia) Berhad

 

Global Outlook – Rebound in Eurozone and Japan

 

U.S. economic data, especially labour market data, has been strong. Wages are still stable but workers are expecting to see wage increases in the coming months, which should boost consumption further. The outlook for the Eurozone and Japan are also looking brighter, aided by accommodative monetary policies and weaker currencies.

Key Points:

  • The buoyant U.S. economy is capturing most of the headlines, but a cyclical rebound is also building in the Eurozone and Japan. The Eurozone’s 1.4 per cent economic growth in 4Q2014 was lower than the 2.2 per cent growth in both Japan and the U.S., but it still marks a significant improvement.
  • Even with the slowdown in 4Q, U.S. growth in the second half of 2014 was still the strongest in a decade. Labour demand is booming, with 1 million new jobs created in the past three months. So far, tight labour markets have not translated into a big pick-up in wages, but normal time lags suggest that this should become a major feature of 2015.
  • The Eurozone has remained strikingly calm in the face of renewed uncertainty over the continued membership of Greece. A more solid banking system and liquidity support from the ECB means that the region is not particularly vulnerable to events in Greece, which also explains why the Eurozone can take such a tough line in negotiations. Greek exit still looks like a reasonable possibility in the coming months, as it struggles to meet the terms of the bailout.
  • Like the Eurozone, the Japanese economy is also benefitting from a more favourable fiscal policy stance as well as the boost to export competitiveness from the drop in Japanese yen after the BOJ’s recent policy easing. We expect the U.S. dollar to strengthen further against the yen with the move coming from U.S. rate hikes, rather than BOJ easing.
  • Looking ahead, we are approaching a critical period for Fed policy. If the Fed is considering a June rate hike, as we expect, then it needs to change the language in its policy statement at the 17-18 March policy meeting. Specifically, the Fed needs to stop saying it will be “patient” in normalising policy, with Fed Chair Yellen hinting that this will happen.



 

Foreign Exchange & Commodities – U.S. dollar bullish cycle intact

 

We are of the view that medium-term U.S. dollar bullish cycle remains in place. We think we are only halfway through the strong U.S. dollar trend. Growth and monetary policy differentials are likely to work in favour of the greenback, and the fundamental drivers of the currency’s strength have not changed.

Key Points:

  • While the U.S. dollar may take a breather from time to time, we still believe that the greenback has more room to head higher given the divergent monetary policies between the Fed and other major central banks like the ECB, BOJ and RBA. Central banks in emerging markets have also been easing policy due to concerns about growth and deflation.
  • Amongst the European currencies, the Pound is our preferred proxy to play for better European data. Political uncertainty ahead of the 7 May U.K. election is potentially negative for the Pound but much of the concerns appear to be already in the price. The improved tone in U.K. data and a more upbeat BOE Inflation Report have contributed to a more stable Pound.
  • Growing signs of supply responding to the recent price shock, increases confidence that the worst is over for oil. The U.S. rig count is down by almost one-third, while firms are announcing aggressive cuts to capital spending plans.Prices should stabilise as high-cost producers are pushed out of the market, followed by a moderate rebound as supply continues to contract.
  • We have a 12-month target for WTI of US$60 per barrel and Brent of US$65 per barrel. A recovery to neutral levels of US$70 to US$80 per barrel will be a slow process unless we see a geopolitical negative supply shock or a sudden OPEC deal.
  • The safe haven appeal of gold has waned further after Greece and Eurozone leaders reached a deal to extend Greece’s bailout by four months (i.e. through June). Stronger U.S. growth should sustain upside risks for U.S. real interest rates and downside risks for the gold price. We remain in the bear camp on the medium-term gold outlook with a 12-month price target at US$1,050 per ounce.



 

Malaysia Outlook – Strong Growth in 2014

 

Malaysia’s Gross Domestic Product (GDP) was seen at 6.0 per cent growth compare to the previous year, this marks the strongest growth of the country since 2010. However, this figure leaves little room for improvement with more clouds of uncertainties swirling in.

Key Points:

  • For an economy whereby private consumption has made up more than half of GDP, private consumption actually contributed 4 percentage points to headline growth in last quarter of 2014, the highest for the year. Malaysian consumers appeared determined to whet their shopping appetite despite a tighter monetary policy and perennial global uncertainties.
  • The slump in investment activities that we started to see in 3Q appeared to have reversed itself, posting a contribution of 1.2 percentage points to headline growth, compared to just 0.3 percentage points in 3Q 2014. While this is lower than the contributions in first half of 2014, it has nonetheless marked a surprisingly quick upturn.
  • Export activities remained relatively lacklustre even as the drag from imports continued to be sizable, resulting in net negative contribution in net export terms and causing lower account surplus.
  • Overall, the 4Q GDP growth has definitely been a strong upside surprise, which might continue for another quarter due to front-loaded purchases ahead the implementation of Goods and Services Tax (GST) in April. Nonetheless, things are invariably going to be weighed by oil-and-gas sector’s weakness as well as global uncertainties.



 

Investment Insights – Tread Cautiously For Now

 

Among equity markets, Europe is our favourite region. A combination of weaker currency, easier credit, more relaxed fiscal policies and sharply lower commodity costs means that the region is in a much better position for a sustained recovery. Although the short-term risk of a pullback on profit-taking remains, the medium-term outlook is positive.

Key Points:

  • Eurozone equities surged in February on growing optimism over the effects of the ECB’s recently announced stimulus and the region’s economic growth outlook. Greece’s 4-month bailout extension also removed immediate concerns about a run on Greek banks, boosting investors’ confidence in Eurozone equities.
  • The corporate earnings outlook for the Eurozone seems to be improving with the impact of a weaker Euro flowing through. Not surprisingly, exporters continued to do well with Eurozone automobile companies for example, surging to multi-year highs.
  • Japanese equities also had a strong month in February, which we believe was driven by further public pension fund purchases. Latest figures as of end-2014 released by the Government Pension Investment Fund (aGPIF) in late February revealed that the GPIF increased its holding of domestic stocks from 17 per cent to 21 per cent. The GPIF is targeting to raise the share of domestic stock holdings to 25 per cent.
  • U.S. equities also did well last month, rebounding from the dismal performance in January, despite a mixed earnings result season. Reflecting a turnaround in growth expectations, cyclical sectors such as Consumer Discretionary and Technology did well while the more defensive Utilities and Consumer Staples lagged.
  • The appreciating U.S. dollar and potentially higher wage cost represent further headwinds for U.S. corporate margins over the next few quarters, even as the effect of lower energy costs flow through. Maintaining the view that the Fed is already behind the curve and is paving the way for a rate hike this year, we continue to see the swings in focus between liquidity and growth driving market volatility, at least until the Fed hikes rates.
  • Asia Ex-Japan lagged their Developed Market peers in February, partly reversing the outperformance in January. Near-term, we continue to see concerns over U.S. monetary policy driving volatility of Emerging Market equities.



 

Important Information

 

This document is not intended to constitute research analysis or recommendation and should not be treated as such.

Any opinions or views expressed in this material are those of the author and third parties identified, and not those of OCBC Bank (Malaysia) Berhad (“OCBC Bank”, which expression shall include OCBC Bank’s related companies or affiliates).OCBC Bank does not verify or endorse any of the opinions or views expressed in this material.You should beware that all opinions and views expressed are subject to change without notice, and OCBC Bank does not undertake the responsibility to update anyone with any changes to the opinions and views expressed.

This does not constitute an offer or solicitation to buy or sell or subscribe for any security or financial instrument or to enter into a transaction or to participate in any particular trading or investment strategy at any price quoted or indicated herein. The proposed transaction(s) herein (if any) is/are subject to the final expression of the terms set forth in the definitive agreement(s) and/or confirmation(s).

The information provided herein is intended for general circulation and/or discussion purposes only and does not contain a complete analysis of every material fact. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. Without prejudice to the generality of the foregoing, please seek advice from a financial adviser regarding the suitability of any investment product taking into account your specific investment objectives, financial situation or particular needs before you make a commitment to purchase the investment product. In the event that you choose not to seek advice from a financial adviser, you should consider whether the product in question is suitable for you.

OCBC Bank is not acting as your adviser. This material is provided based on OCBC Bank’s understanding that (1) you have sufficient knowledge, experience and access to professional advice to make your own evaluation of the merits and risks of any investment product and (2) you are not relying on OCBC Bank or any of its representatives or affiliates for information, advice or recommendations of any sort except for specific factual information about the terms of the transaction proposed.This does not identify all the risks or material considerations that may be associated with any of the investment products. Prior to purchasing the investment product, you should independently consider and determine, without reliance upon OCBC Bank or its representatives or affiliates, the economic risks and merits, as well as the legal, tax and accounting characterisations and consequences of the investment product and that you are able to assume these risks.

The information provided herein may contain projections or other forward looking statement regarding future events or future performance of countries, assets, markets or companies. Actual events or results may differ materially.Past performance figures are not necessarily indicative of future or likely performance. Any reference to any specific company, financial product or asset class in whatever way is used for illustrative purposes only and does not constitute a recommendation on the same.

No representation or warranty whatsoever (including without limitation any representation or warranty as to accuracy, usefulness, adequacy, timeliness or completeness) in respect of any information (including without limitation any statement, figures, opinion, view or estimate) provided herein is given by OCBC Bank and it should not be relied upon as such. OCBC Bank does not undertake an obligation to update the information or to correct any inaccuracy that may become apparent at a later time. All information presented is subject to change without notice. OCBC Bank shall not be responsible or liable for any loss or damage whatsoever arising directly or indirectly howsoever in connection with or as a result of any person acting on any information provided herein.

OCBC Bank and its respective associated and connected corporations together with their respective directors and officers may have or take positions in any securities mentioned in this report (which positions may change from time to time without notice) and may also perform or seek to perform broking and other investment or securities related services for the corporations whose securities are mentioned in this report as well as other parties generally.

This document has been prepared without taking account of the objectives, financial situation or needs of any specific person or organisation who may receive this document. Accordingly prior to making an investment decision, you should conduct such investigation and analysis regarding the product described herein as you deem appropriate and to the extent you deem necessary obtain independent advice from competent legal, financial, tax, accounting and other professionals, to enable you to understand and recognise fully the legal, financial, tax and other risks arising in respect of the product and the purchase, holding and sale thereof.

You should obtain and read the Product Highlight Sheet of the product before you make a decision to acquire the product. All information provided in this document is general and does not take into account your individual objectives, financial situation or specific needs.

You are required to read and understand the terms and Product Highlight Sheet of the product carefully before executing any transaction relating to the product with us.You may request for a copy of the Product Highlight Sheet at OCBC Banks’ branches.

The contents hereof may not be reproduced or disseminated in whole or in part without OCBC Bank's prior written consent.


 


Global Monetary Policy Supportive of Growth

 

For those with cash to deploy amidst the market volatility, we continue to advocate exposure to mixed asset strategies as they provide a balance of yield and equity market participation.

Among equity markets, we still favour developed markets over emerging markets, notably European equities on the back of the ECB QE measures.

Following the recent correction, US high yield bonds are starting to look attractive. However, we still encourage investors to adopt a diversified approach towards this fixed income sector. We also continue to advise investors to hold bonds with shorter tenures as such bonds tend to be less sensitive to increases in interest rates.

Recommendations:

  • Unit Trust: Investors who are seeking to participate on global equity markets growth could consider RHB-OSK Global Equity Stabiliser Fund, as the Fund invests into global equity with an added downside risk management strategy.
  • Auto-Callable ETF Linked Structure Investment: Investors who like to capture the potential bottoming out of oil prices could consider United States Oil Fund, an Exchange-Traded Fund tracking the movement of West Texas Intermediate (WTI).
  • Dual Currency Investment: We recommend customers to pair Ringgit Malaysia (MYR) against U.S. Dollar (USD) as lower oil prices could continue to pressure MYR further while interest rate normalization by the Fed and solid economic expansion in US could drive USD higher.

WARNING
THE RETURNS ON YOUR STRUCTURED PRODUCT INVESTMENT WILL BE AFFECTED BY THE PERFORMANCE OF THE UNDERLYING ASSET/REFERENCE, AND THE RECOVERY OF YOUR PRINCIPAL INVESTMENT MAY BE JEOPARDISED IF YOU MAKE AN EARLY REDEMPTION.
THIS STRUCTURED PRODUCT INVESTMENT IS NOT INSURED BY PERBADANAN INSURANS DEPOSIT MALAYSIA.



This document is not intended to constitute research analysis or recommendation and should not be treated as such.

We recommend that you read and understand the content of the Information Memorandum for RHB-OSK Global Equity Stabiliser Fund dated 15 January 2015 by RHB Asset Management Sdn Bhd. Investments in the Fund are exposed to country risk, equity risk, currency risk, management risk, emerging market risk and others as disclosed in the Information Memorandum.

Unit Trust investments are not bank deposits and are not obligations of or guaranteed or insured by OCBC Bank (Malaysia) Berhad. Unit Trust investments are not guaranteed and are subject to investment risk unless otherwise specified. The investment risk includes general risks as described in the Information Memorandum/Prospectuses for Unit Trust investment funds (“Information Memorandum/Prospectuses”) and specific risks which may be different for each Unit Trust investment. Description of specific risks and general risks are published in the Information Memorandum/Prospectuses. With respect to Unit Trust investment, past performance is not indicative of future results; the net asset value can go up or down. Investors should also note that the net asset value per unit and distributions payable, if any, may go down as well as up.

Where unit trust loan financing is available, investors are advised to read and understand the contents of the unit trust loan financing risk disclosure statement before deciding to borrow to purchase units. Where a unit split/distribution is declared, investors are advised that following the issue of additional units/distribution, the NAV per unit will be reduced from pre-unit split NAV/cum-distribution NAV to post-unit split NAV/ex-distribution NAV; and where a unit split is declared, investors should be highlighted of the fact that the value of their investment in Malaysian ringgit will remain unchanged after the distribution of the additional units.

The Information Memorandum/Prospectuses have been registered with the Securities Commission Malaysia, which takes no responsibility for its content. A copy of the Information Memorandum/Prospectuses can be obtained at OCBC Bank’s branches. Units will only be issued upon the receipt of application form referred in, and accompanying the Information Memorandum/Prospectuses. Investors are advised to read and understand the contents of the Information Memorandum/Prospectuses, and if necessary consult their adviser(s), as well as consider the fees and charges involved before investing in the Unit Trust.

This document has been prepared without taking account of the objectives, financial situation or needs of any specific person or organisation who may receive this document. Accordingly prior to making an investment decision, you should conduct such investigation and analysis regarding the product described herein as you deem appropriate and to the extent you deem necessary obtain independent advice from competent legal, financial, tax, accounting and other professionals, to enable you to understand and recognise fully the legal, financial, tax and other risks arising in respect of the product and the purchase, holding and sale thereof.

You should obtain and read the Product Highlight Sheet of the product before you make a decision to acquire the product. All information provided in this document is general and does not take into account your individual objectives, financial situation or specific needs.

You are required to read and understand the terms and Product Highlight Sheet of the product carefully before executing any transaction relating to the product with us.You may request for a copy of the Product Highlight Sheet at OCBC Banks’ branches.




Lai Mun Yew (Michael)
  Vice President, Research, Wealth Management, OCBC Bank (Malaysia) Berhad

 

Global Outlook – Sanguine about the outlook

 

The Eurozone and Japan are accelerating, while the U.S. has hit a softer patch, but we are sanguine on the outlook for the global economy which we anticipate will grow by a healthy 3.4 per cent this year. Delayed Fed tightening, looser monetary conditions elsewhere and lower oil prices should help to boost global growth.

Key Points:

  • Despite the softer U.S. data, we should not expect the economy to deliver a constant pace of expansion in a cyclical upturn. Trade data shows that the strong U.S. dollar is holding back growth, but the U.S. is a relatively closed economy – exports are only 13 per cent of GDP – so this is unlikely to be enough to halt the recovery. The exchange rate is more of a threat to listed companies which derive a substantial part of their earnings from abroad.
  • Cyclical recovery in Europe began well before the latest move from the ECB, but the shift to QE has given an extra boost. The composite Eurozone PMI is at the highest level since early 2011, while consumer confidence is the best since the global financial crisis began. It looks like consumers are enjoying the gains from lower energy prices.
  • Japanese firms seem to have greater confidence in the durability of the competitive exchange rate and it is notable that the latest episode of yen weakness has produced more of an export improvement than before as domestic production expands. In the labour market, the annual spring wage round has produced a marked improvement on last year. The vacancy rate is the best in over two decades and firms realise that pay has to rise. In turn, this should push inflation higher and convince the BOJ that it does not need to add to the current pace of liquidity injections.
  • Stronger growth in the developed markets should offer support to exports from emerging markets and this is already apparent in trade with the United States. However, commodity exporters are suffering from lower prices and weaker demand from China, which compounds the problems caused by external deficits. However, currencies have already moved a long way in anticipation of higher U.S. interest rates and we do not expect Fed rate hikes to trigger systemic problems across emerging markets.



 

Foreign Exchange & Commodities – U.S. dollar to take a breather

 

We believe the U.S. dollar uptrend is not over, but dovish comments from the Fed and soft U.S. data mean that the greenback could consolidate and retrace over the next few weeks after a strong run over the past few months. We retain a strategic pro-U.S. dollar bias, especially against Euro and Yen given that U.S. rates are still headed higher over the medium-term.

Key Points:

  • The U.S. dollar’s uptrend, particularly versus the Euro and Yen, remains intact but the road towards a stronger greenback will be bumpier and less impulsive than before given the dovish Fed meeting outcome last month.
  • The Pound could see further near-term weakness as the 7 May U.K. election build-up begins to gather pace. But we think the resilience of the U.K. macro data will dominate election concerns over the medium-term. We prefer thee Pound among European currencies and we could see a resumption of the Pound’s outperformance against the Euro in due course.
  • The dovish Fed meeting outcome provides some near-term support for emerging market currencies. But we expect the relief for these currencies to prove transitory. Even if an eventual Fed exit is more gradual than markets expected, the direction for U.S. rates is likely to be higher and would undermine yield seeking flows into emerging market currencies.
  • On the commodities front, potential rate hikes by the Fed and the possibility of a stronger U.S. dollar increases the downside risks for gold, making it less appealing to investors. Interest rate hikes reduces the allure of gold which offer no yield. A stronger U.S. dollar also make gold more expensive and reduces demand for the metal. We are bearish on gold and have a 12-month price target at US$1,050 per ounce for the metal.
  • Growing signs of supply responding to the recent price shock, increases confidence that the worst is over. The U.S. rig count is down by almost one-third, while firms are announcing aggressive cuts to capital spending plans. Prices should stabilise as high-cost producers are pushed out of the market, followed by a moderate rebound as supply continues to contract. We have a 12-month price target of US$60-65 per barrel for oil prices.



 

Bonds – No Fed rate hike yet

 

The strong U.S. dollar seems to have convinced the Fed to delay the first interest rate hike to September. This makes sense – exchange rate appreciation has a similar effect to higher interest rates. However, financial markets still seem to be underestimating the potential for interest rate increases as tight labour markets push up wages and inflation.

Key Points:

  • The March Fed policy meeting outcome was more dovish than expected. The timing of the first rate hike will still be data-dependent - September would be the most likely lift-off date. However, June could not be ruled out, if there was further acceleration in the labour market recovery.
  • However, we continue to caution that the pace of interest rate hikes may be faster than what the market is expecting, given rising wage inflation pressures. Surveys show that firms and employees realise that bargaining power has shifted, so it is only a matter of time before that translates into wage growth, even though it is muted at the moment.
  • In the short term, a stronger U.S. dollar may have a positive impact on bonds. Bonds benefit for two reasons. Firstly a stronger greenback will push out the timing of the Fed rate hikes. This lower-for-longer interest rate environment will help to support bond prices in the near-term.Second, a stronger U.S. dollar will lead to a fall in imported inflation. This increases deflationary risk, and lead to lower longer-term bond yields.
  • In the bond space, we generally prefer high yield to investment grade bonds. Refinancing needs remain modest till 2017, and default rates are expected to be low this year. As a result, we see U.S. high yield bonds as having a decent carry and credit spread buffer against both a sell-off in U.S. Treasury bonds and expected defaults.
  • Although we are positive on U.S. high yield bonds in the short term, we still encourage investors to adopt a diversified approach towards the high yield fixed income sector. We also continue to advise investors to hold bonds with shorter tenures as such bonds tend to be less sensitive to increases in interest rates.



 

Equities – Greater short-term volatility

 

We believe equities will encounter greater volatility in the short term ahead of the quarterly earnings results as well as on news of Fed rate hike. We continue to prefer developed markets over Asia in particular European equities. Asia, being a small market in terms of capitalisation as compared to U.S., Europe and Japan is more exposed to capital repatriation when U.S. rates rise.

Key Points:

  • Historically we have seen more equity volatility surrounding the first Fed rate hike in previous tightening cycles. Therefore, equities may only gain a firmer footing once volatility over the Fed rate hikes subsides and earnings growth improves.
  • In the U.S., corporate earnings will continue to remain under pressure in the near-term with a stronger U.S. dollar. In addition to the challenge of an appreciating U.S. dollar, potentially higher labour cost represent further headwind for U.S. corporate margins over the next few quarters, even as the effect of lower energy costs flow through.
  • Within global equities, our preference for Europe has played out nicely with the boost from the ECB’s sovereign QE announcement. While there may be near-term profit-taking on the back of more expensive valuations and more crowded fund manager positioning, we remain positive on Europe in the medium-term. Notably, we are starting to see more signs of Eurozone growth picking up, and we expect forward earnings growth to be supported by the weaker Euro and lower oil prices.
  • Japanese equities had another strong month in March, as the strong momentum, particularly driven by public pension fund purchases, drove foreign inflows. Notwithstanding the strong domestic support, a pullback and some profit-taking in the short term cannot be discounted. Longer-term, we continue to see effects of efforts by Japan Inc. to improve on corporate governance and shareholder returns boosting equity market performance.
  • On Asia, we continue to be cautious on this region as we see potential for capital repatriation outflows that can result from the initial Fed rate hikes and stronger U.S. dollar. This is especially the case, given that Asian equity markets are small in comparison to developed markets.



 

Important Information

 

This document is not intended to constitute research analysis or recommendation and should not be treated as such.

Any opinions or views expressed in this material are those of the author and third parties identified, and not those of OCBC Bank (Malaysia) Berhad (“OCBC Bank”, which expression shall include OCBC Bank’s related companies or affiliates).OCBC Bank does not verify or endorse any of the opinions or views expressed in this material.You should beware that all opinions and views expressed are subject to change without notice, and OCBC Bank does not undertake the responsibility to update anyone with any changes to the opinions and views expressed.

This does not constitute an offer or solicitation to buy or sell or subscribe for any security or financial instrument or to enter into a transaction or to participate in any particular trading or investment strategy at any price quoted or indicated herein. The proposed transaction(s) herein (if any) is/are subject to the final expression of the terms set forth in the definitive agreement(s) and/or confirmation(s).

The information provided herein is intended for general circulation and/or discussion purposes only and does not contain a complete analysis of every material fact. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. Without prejudice to the generality of the foregoing, please seek advice from a financial adviser regarding the suitability of any investment product taking into account your specific investment objectives, financial situation or particular needs before you make a commitment to purchase the investment product. In the event that you choose not to seek advice from a financial adviser, you should consider whether the product in question is suitable for you.

OCBC Bank is not acting as your adviser. This material is provided based on OCBC Bank’s understanding that (1) you have sufficient knowledge, experience and access to professional advice to make your own evaluation of the merits and risks of any investment product and (2) you are not relying on OCBC Bank or any of its representatives or affiliates for information, advice or recommendations of any sort except for specific factual information about the terms of the transaction proposed.This does not identify all the risks or material considerations that may be associated with any of the investment products. Prior to purchasing the investment product, you should independently consider and determine, without reliance upon OCBC Bank or its representatives or affiliates, the economic risks and merits, as well as the legal, tax and accounting characterisations and consequences of the investment product and that you are able to assume these risks.

The information provided herein may contain projections or other forward looking statement regarding future events or future performance of countries, assets, markets or companies. Actual events or results may differ materially.Past performance figures are not necessarily indicative of future or likely performance. Any reference to any specific company, financial product or asset class in whatever way is used for illustrative purposes only and does not constitute a recommendation on the same.

No representation or warranty whatsoever (including without limitation any representation or warranty as to accuracy, usefulness, adequacy, timeliness or completeness) in respect of any information (including without limitation any statement, figures, opinion, view or estimate) provided herein is given by OCBC Bank and it should not be relied upon as such. OCBC Bank does not undertake an obligation to update the information or to correct any inaccuracy that may become apparent at a later time. All information presented is subject to change without notice. OCBC Bank shall not be responsible or liable for any loss or damage whatsoever arising directly or indirectly howsoever in connection with or as a result of any person acting on any information provided herein.

OCBC Bank and its respective associated and connected corporations together with their respective directors and officers may have or take positions in any securities mentioned in this report (which positions may change from time to time without notice) and may also perform or seek to perform broking and other investment or securities related services for the corporations whose securities are mentioned in this report as well as other parties generally.

This document has been prepared without taking account of the objectives, financial situation or needs of any specific person or organisation who may receive this document. Accordingly prior to making an investment decision, you should conduct such investigation and analysis regarding the product described herein as you deem appropriate and to the extent you deem necessary obtain independent advice from competent legal, financial, tax, accounting and other professionals, to enable you to understand and recognise fully the legal, financial, tax and other risks arising in respect of the product and the purchase, holding and sale thereof.

You should obtain and read the Product Highlight Sheet of the product before you make a decision to acquire the product. All information provided in this document is general and does not take into account your individual objectives, financial situation or specific needs.

You are required to read and understand the terms and Product Highlight Sheet of the product carefully before executing any transaction relating to the product with us.You may request for a copy of the Product Highlight Sheet at OCBC Banks’ branches.

The contents hereof may not be reproduced or disseminated in whole or in part without OCBC Bank's prior written consent.


 


Sweet spot in Emerging Market High Yield Bonds

 

For those with cash to deploy, we continue to advocate an exposure to mixed asset strategies as it provides a balance of yield and equity market participation.

Among equity markets, we still favour developed markets over emerging markets; and among developed markets, European equities are our favourite with the European Central Bank’s Quantitative Easing measures providing the tailwind.

Following the recent correction, U.S. high yield bonds and Emerging Market bonds are looking attractive. However, we encourage investors to adopt a diversified approach towards this fixed income sector. We also continue to advise investors to hold bonds with shorter tenors; as such bonds tend to be less sensitive to increases in interest rates.

Recommendations:

  • Unit Trust: In view of potentially higher volatility ahead due to uncertainty over the Fed’s actions, investors seeking exposure in global equity markets can consider RHB-OSK Global Equity Stabiliser Fund, as the Fund invests in a diversified portfolio of global equities with an added downside risk management strategy.
  • Auto-Callable Equity Linked Structure Investment: Rebound in oil prices might see a pause as supply continues to adjust. As such, customers can consider Las Vegas Sands as an alternative option to oil structures. With healthy fundamentals and a strong financial position, the casino operator is poised to benefit in the long run.
  • Dual Currency Investment: We recommend customers to pair Ringgit Malaysia (MYR) against the U.S. Dollar (USD). There is potential for the U.S. Dollar to move higher against MYR in view of divergent monetary policy expectations. Bank Negara is expected to hold off increasing interest rates in the near term in view of the lower oil prices while the Fed moves closer towards interest rate normalization.

WARNING
THE RETURNS ON YOUR STRUCTURED PRODUCT INVESTMENT WILL BE AFFECTED BY THE PERFORMANCE OF THE UNDERLYING ASSET/REFERENCE, AND THE RECOVERY OF YOUR PRINCIPAL INVESTMENT MAY BE JEOPARDISED IF YOU MAKE AN EARLY REDEMPTION.
THIS STRUCTURED PRODUCT INVESTMENT IS NOT INSURED BY PERBADANAN INSURANS DEPOSIT MALAYSIA.



This document is not intended to constitute research analysis or recommendation and should not be treated as such.

We recommend that you read and understand the content of the Information Memorandum for RHB-OSK Global Equity Stabiliser Fund dated 15 January 2015 by RHB Asset Management Sdn Bhd. Investments in the Fund are exposed to country risk, equity risk, currency risk, management risk, emerging market risk and others as disclosed in the Information Memorandum.

Unit Trust investments are not bank deposits and are not obligations of or guaranteed or insured by OCBC Bank (Malaysia) Berhad. Unit Trust investments are not guaranteed and are subject to investment risk unless otherwise specified. The investment risk includes general risks as described in the Information Memorandum/Prospectuses for Unit Trust investment funds (“Information Memorandum/Prospectuses”) and specific risks which may be different for each Unit Trust investment. Description of specific risks and general risks are published in the Information Memorandum/Prospectuses. With respect to Unit Trust investment, past performance is not indicative of future results; the net asset value can go up or down. Investors should also note that the net asset value per unit and distributions payable, if any, may go down as well as up.

Where unit trust loan financing is available, investors are advised to read and understand the contents of the unit trust loan financing risk disclosure statement before deciding to borrow to purchase units. Where a unit split/distribution is declared, investors are advised that following the issue of additional units/distribution, the NAV per unit will be reduced from pre-unit split NAV/cum-distribution NAV to post-unit split NAV/ex-distribution NAV; and where a unit split is declared, investors should be highlighted of the fact that the value of their investment in Malaysian ringgit will remain unchanged after the distribution of the additional units.

The Information Memorandum/Prospectuses have been registered with the Securities Commission Malaysia, which takes no responsibility for its content. A copy of the Information Memorandum/Prospectuses can be obtained at OCBC Bank’s branches. Units will only be issued upon the receipt of application form referred in, and accompanying the Information Memorandum/Prospectuses. Investors are advised to read and understand the contents of the Information Memorandum/Prospectuses, and if necessary consult their adviser(s), as well as consider the fees and charges involved before investing in the Unit Trust.

This document has been prepared without taking account of the objectives, financial situation or needs of any specific person or organisation who may receive this document. Accordingly prior to making an investment decision, you should conduct such investigation and analysis regarding the product described herein as you deem appropriate and to the extent you deem necessary obtain independent advice from competent legal, financial, tax, accounting and other professionals, to enable you to understand and recognise fully the legal, financial, tax and other risks arising in respect of the product and the purchase, holding and sale thereof.

You should obtain and read the Product Highlight Sheet of the product before you make a decision to acquire the product. All information provided in this document is general and does not take into account your individual objectives, financial situation or specific needs.

You are required to read and understand the terms and Product Highlight Sheet of the product carefully before executing any transaction relating to the product with us.You may request for a copy of the Product Highlight Sheet at OCBC Banks’ branches.




Lai Mun Yew (Michael)
  Vice President, Research, Wealth Management, OCBC Bank (Malaysia) Berhad

 

Global Outlook - Rebound in growth

 

Growth in global economies, while respectable, has not been exciting but remains on track to grow up to a healthy 3.5 per cent for this year. We need to be cautious of a sharp rebound in oil prices, as this would erode gains in consumers’ spending power and bring an end to the recent bout of global monetary easing.

Key Points:

  • Concerns over deflation should subside as growth improves in developed economies, and as oil prices move up. Markets may adopt a calmer tone as expectations for a U.S. rate hike have been pushed back to September, or perhaps even December.
  • U.S. GDP growth was weaker than expected in 1Q2015, with an annualised quarterly rise of just 0.2 per cent. This follows the pattern of recent years, where the first quarter of the year has been significantly weaker than the rest. The Fed appears relatively calm about the soft patch and expects activity to expand at a moderate pace.
  • It is hard to see the data turning sharply enough for the Fed to raise rates at its next meeting in June. There is still plenty of time for growth to pick up ahead of the September meeting and this still seems like the best candidate for the first tightening step.
  • In Europe, Greece has been hoarding the limelight as the focus shifts to whether default and capital controls will lead to an exit from the Eurozone. Confidence that the rest of the region is insulated from the consequences helps explain the tough bargaining position towards Greece. Inflation has stabilised and the unemployment rate is at the lowest in nearly three years for the region.
  • Things are heading in the right direction for Japan, with a tight labour market and rising wages. Bank of Japan may not hit the desired inflation target of 2 per cent this year, but it has less cause to loosen policy further.
  • We do not see any systemic risk in emerging markets. Southeast Asia stands out with its relatively solid economic fundamentals, external surpluses and as a beneficiary of lower commodity prices.
  • The limited impact of monetary stimulus on China is becoming a concern. More policy support seems likely, but this offers short-term relief at the cost of deepening the longer-term costs. Credit continues to grow at an alarming pace. Targeted fiscal spending will also be used to limit the scale of the economic slowdown, and government finances are solid enough to provide support.



 

Foreign Exchange & Commodities - U.S. Dollar uptrend not over

 

Recent soft data has pulled the brakes on a U.S. Dollar rally, but the uptrend remains intact. A range-bound U.S. Dollar looks likely for 2Q15, but it may strengthen later in the year as Fed rate hikes come into view. We remain bearish on the medium term outlook for gold, which has been in a consolidation phase brought on by the pause in the U.S. Dollar uptrend.

Key Points:

  • The soft patch in U.S. data has put the brakes on the U.S. Dollar rally. However, our core view that U.S. Dollar will further strengthen against the Euro and Japanese Yen over the medium-term is still intact.
  • Should the U.S. economic data snap back from the temporary drag caused by extreme winter as we expect, the U.S. Dollar may resume its uptrend in the second half of the year after a brief period of consolidation in this quarter.
  • We continue to prefer the Pound among European currencies like the Euro and the Swiss franc, given UK’s data resilience. The Pound may have room to price in further election risk, but we believe this over-talked. As far as drivers go, we are more inclined towards monetary policy dominating outlook for the Pound in the medium term.
  • Anticipation is high for a rate hike from the Bank of England in the next 10 to 14 months, a slower lift-off relative to the Fed, which is expected in the next 6 to 9 months. But our positive outlook for UK activity suggests scope for narrowing of the rate hike time lag vis-à-vis the U.S., which should keep Pound supported even against the U.S. Dollar.
  • On the commodities front, gold has been in a consolidation phase, supported by the pause in the U.S. Dollar uptrend in the wake of a delayed hike by the Fed following soft economic data. A rebound in gold price close to US$1,245 is likely to provide a selling opportunity in our view. Safe haven buying sparked by geopolitical tensions or concerns over Greek debt default should not be a strong sustained driver of gold price in 2015, in an environment of rising U.S. rates later this year.
  • The fundamentals for the crude oil sector appear little changed. Although inventories are rising, oil prices have bottomed as the market anticipates a contraction in supply. We have pushed up our 12-month price target to US$70-80 per barrel, with a bounce seen only in the event of a geopolitical negative supply shock.



 

Bonds - U.S. high yield corporate bonds still attractive

 

April was an outstanding month for credits globally; returns for emerging market high yield bonds led the way with the best month since early 2012. Valuations for high yield bonds within the emerging market sector remain attractive relative to high grade bonds.

Key Points:

  • Both U.S. and Emerging Market (EM) high yield corporate bonds performed well in April, with significant credit spread compression. This was on the back of an anticipated delay in a Fed rate hike, stabilisation in oil prices and improved sentiment in the EM region.
  • U.S. high yield – which still enjoy attractive yields – will benefit from improving U.S. growth, as well as bottoming oil prices. Refinancing needs remain modest.
  • We remain underweight on U.S. investment grade bonds due to expensive valuations and low yields. Moreover, risk of rising wage inflation may warrant a more hawkish Fed stance.
  • EM high yield posted the best monthly performance since early 2012. We have identified it as another sweet spot – in addition to U.S. high yield – over the next few months, on the back of improving macro visibility and attractive valuations.
  • Accommodative central bank policies and a consolidation in energy prices have provided an increased investor enthusiasm for credit, in particular EM credit. Valuations for high yield bonds within the EM sector remain attractive relative to high grade bonds.
  • Although we are positive on U.S. high yield bonds, we still encourage investors to adopt a diversified approach towards the high yield fixed income sector. We also continue to advise investors to hold bonds with shorter tenures as such bonds tend to be less sensitive to increases in interest rates.



 

Equities - Global equities bounce back

 

Global equities bounced back from March’s losses, led by Asia, as easier monetary outlook buoyed risk appetite. There was a clear cyclical bounce in Europe and Japan. Chinese equities had a volatile month, with a sharp run-up that was mostly ahead of fundamentals, even as policy-makers struggled to reinvigorate the economy.

Key Points:

  • Seasonal factors typically favour risk assets in April, and this year was no exception. Backed by the Fed's assurance that interest rates would stay lower for longer, investors threw caution to the wind. The search for yield intensified, with liquidity flowing into the higher yielding asset classes like equities and bonds.
  • Global equity markets performed well in April, with major indices reaching new highs. The S&P 500 rose to a new high of 2,117, the Euro Stoxx 50 hit a high of 3,828, while the Nikkei 225 crossed the 20,000 level. Notably, the China ‘H shares’ market also spiked by an impressive 20 per cent.
  • We sense this liquidity driven rally has legs. Lower for longer interest rates, excess QE liquidity, and improving economic growth combine to form a constructive macro backdrop for risk assets in the medium-term.
  • Over a shorter-term horizon, (3 to 6 months) however, there appears to be an uncomfortable disconnect between prices and fundamentals. Markets have chosen to look past the weakening U.S. growth momentum and weak S&P 500 earnings growth numbers. Therefore, a lot of the good news has already been priced into valuations.
  • Markets also appear complacent on the pace of Fed rate hikes. The Fed may be more aggressive than expected, as risks of rising wage inflation pressures develop. All these suggest that volatility levels are likely to rise when reality meets expectations.
  • More compelling stock picks are emerging from India, following the recent pullback there. Since hitting a high in March, the market has fallen by 10 per cent (in U.S. Dollar terms). Longer term, India offers one of the better fundamental prospects as growth starts to bounce back.



 

Important Information

 

This document is not intended to constitute research analysis or recommendation and should not be treated as such.

Any opinions or views expressed in this material are those of the author and third parties identified, and not those of OCBC Bank (Malaysia) Berhad (“OCBC Bank”, which expression shall include OCBC Bank’s related companies or affiliates).OCBC Bank does not verify or endorse any of the opinions or views expressed in this material.You should beware that all opinions and views expressed are subject to change without notice, and OCBC Bank does not undertake the responsibility to update anyone with any changes to the opinions and views expressed.

This does not constitute an offer or solicitation to buy or sell or subscribe for any security or financial instrument or to enter into a transaction or to participate in any particular trading or investment strategy at any price quoted or indicated herein. The proposed transaction(s) herein (if any) is/are subject to the final expression of the terms set forth in the definitive agreement(s) and/or confirmation(s).

The information provided herein is intended for general circulation and/or discussion purposes only and does not contain a complete analysis of every material fact. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. Without prejudice to the generality of the foregoing, please seek advice from a financial adviser regarding the suitability of any investment product taking into account your specific investment objectives, financial situation or particular needs before you make a commitment to purchase the investment product. In the event that you choose not to seek advice from a financial adviser, you should consider whether the product in question is suitable for you.

OCBC Bank is not acting as your adviser. This material is provided based on OCBC Bank’s understanding that (1) you have sufficient knowledge, experience and access to professional advice to make your own evaluation of the merits and risks of any investment product and (2) you are not relying on OCBC Bank or any of its representatives or affiliates for information, advice or recommendations of any sort except for specific factual information about the terms of the transaction proposed.This does not identify all the risks or material considerations that may be associated with any of the investment products. Prior to purchasing the investment product, you should independently consider and determine, without reliance upon OCBC Bank or its representatives or affiliates, the economic risks and merits, as well as the legal, tax and accounting characterisations and consequences of the investment product and that you are able to assume these risks.

The information provided herein may contain projections or other forward looking statement regarding future events or future performance of countries, assets, markets or companies. Actual events or results may differ materially.Past performance figures are not necessarily indicative of future or likely performance. Any reference to any specific company, financial product or asset class in whatever way is used for illustrative purposes only and does not constitute a recommendation on the same.

No representation or warranty whatsoever (including without limitation any representation or warranty as to accuracy, usefulness, adequacy, timeliness or completeness) in respect of any information (including without limitation any statement, figures, opinion, view or estimate) provided herein is given by OCBC Bank and it should not be relied upon as such. OCBC Bank does not undertake an obligation to update the information or to correct any inaccuracy that may become apparent at a later time. All information presented is subject to change without notice. OCBC Bank shall not be responsible or liable for any loss or damage whatsoever arising directly or indirectly howsoever in connection with or as a result of any person acting on any information provided herein.

OCBC Bank and its respective associated and connected corporations together with their respective directors and officers may have or take positions in any securities mentioned in this report (which positions may change from time to time without notice) and may also perform or seek to perform broking and other investment or securities related services for the corporations whose securities are mentioned in this report as well as other parties generally.

This document has been prepared without taking account of the objectives, financial situation or needs of any specific person or organisation who may receive this document. Accordingly prior to making an investment decision, you should conduct such investigation and analysis regarding the product described herein as you deem appropriate and to the extent you deem necessary obtain independent advice from competent legal, financial, tax, accounting and other professionals, to enable you to understand and recognise fully the legal, financial, tax and other risks arising in respect of the product and the purchase, holding and sale thereof.

You should obtain and read the Product Highlight Sheet of the product before you make a decision to acquire the product. All information provided in this document is general and does not take into account your individual objectives, financial situation or specific needs.

You are required to read and understand the terms and Product Highlight Sheet of the product carefully before executing any transaction relating to the product with us.You may request for a copy of the Product Highlight Sheet at OCBC Banks’ branches.

The contents hereof may not be reproduced or disseminated in whole or in part without OCBC Bank's prior written consent.


 


Opportunities In A Reflating World

 

For those with cash to deploy amidst market volatility, we continue to advocate exposure to mixed asset strategies as it provides a balance of yield and equity market participation.

Among equity markets, we still favour developed markets over emerging markets; and among developed markets, European equities are our favourite with the ECB QE measures providing the tailwind.

Following the recent correction, U.S. high yield bonds and Emerging Market bonds are starting to look attractive. However, we still encourage investors to adopt a diversified approach towards this fixed income investments. We also continue to advise investors to hold bonds with shorter tenors as such bonds tend to be less sensitive to increases in interest rates.

Recommendations:

  • Unit Trust: Investors can consider RHB-OSK Eurozone Index Beta Fund to tap on Europe’s growth potential. European equities remain our top pick with the European Central Bank’s quantitative easing measures providing the tailwind.
  • Bonds: Century Sunshine Group 7.2% 2018 SGD denominated bond is our recommendation. It is a 3-year tenor bond paper with attractive yield-to-maturity of 6.64 per cent.
  • Equity Booster Structured Investment: The People’s Bank of China (PBOC) continued to ease monetary policy with a 25 basis points interest rate cut in May following a 100 basis points reserve requirement ratio (RRR) cut in April. With policy still focused on protecting headline growth, we expect the PBOC to move with more interest rate and RRR cuts in the future as growth continues to remain sluggish. The financial services sector is well-positioned to benefit from such monetary easing. As such, we recommend a structured investment with HSBC bank and ICBC bank as the relevant underlying. These banks may be beneficiaries of accommodative monetary policy. Investors will also enjoy 90 per cent capital protection through this product.
  • Dual Currency Investment: We recommend customers to pair Ringgit Malaysia (MYR) against the U.S. Dollar (USD). The U.S. Dollar rally is likely to return in 2H2015 on the back of stronger economic data and comments from Federal Reserve officials pointing to a rate increase sometime this year.

WARNING
THE RETURNS ON YOUR STRUCTURED PRODUCT INVESTMENT WILL BE AFFECTED BY THE PERFORMANCE OF THE UNDERLYING ASSET/REFERENCE, AND THE RECOVERY OF YOUR PRINCIPAL INVESTMENT MAY BE JEOPARDISED IF YOU MAKE AN EARLY REDEMPTION.
THIS STRUCTURED PRODUCT INVESTMENT IS NOT INSURED BY PERBADANAN INSURANS DEPOSIT MALAYSIA.



This document is not intended to constitute research analysis or recommendation and should not be treated as such.

We recommend that you read and understand the content of the Information Memorandum for RHB-OSK Eurozone Index Beta Fund (MYR hedged) dated 15 January 2015 by RHB Asset Management Sdn Bhd. Investments in the Fund are exposed to country risk, equity risk, currency risk, management risk, emerging market risk and others as disclosed in the Information Memorandum. This fund is eligible to be purchased by High Net Worth Individuals only, the criterias of High Net worth Individuals as per stated in Schedules 6 and 7 of Capital Market and Services Act (CMSA) 2007.
Unit Trust investments are not bank deposits and are not obligations of or guaranteed or insured by OCBC Bank (Malaysia) Berhad. Unit Trust investments are not guaranteed and are subject to investment risk unless otherwise specified. The investment risk includes general risks as described in the Information Memorandum/Prospectuses for Unit Trust investment funds (“Information Memorandum/Prospectuses”) and specific risks which may be different for each Unit Trust investment. Description of specific risks and general risks are published in the Information Memorandum/Prospectuses. With respect to Unit Trust investment, past performance is not indicative of future results; the net asset value can go up or down. Investors should also note that the net asset value per unit and distributions payable, if any, may go down as well as up.

Where unit trust loan financing is available, investors are advised to read and understand the contents of the unit trust loan financing risk disclosure statement before deciding to borrow to purchase units. Where a unit split/distribution is declared, investors are advised that following the issue of additional units/distribution, the NAV per unit will be reduced from pre-unit split NAV/cum-distribution NAV to post-unit split NAV/ex-distribution NAV; and where a unit split is declared, investors should be highlighted of the fact that the value of their investment in Malaysian ringgit will remain unchanged after the distribution of the additional units.

The Information Memorandum/Prospectuses have been registered with the Securities Commission Malaysia, which takes no responsibility for its content. A copy of the Information Memorandum/Prospectuses can be obtained at OCBC Bank’s branches. Units will only be issued upon the receipt of application form referred in, and accompanying the Information Memorandum/Prospectuses. Investors are advised to read and understand the contents of the Information Memorandum/Prospectuses, and if necessary consult their adviser(s), as well as consider the fees and charges involved before investing in the Unit Trust.

This document has been prepared without taking account of the objectives, financial situation or needs of any specific person or organisation who may receive this document. Accordingly prior to making an investment decision, you should conduct such investigation and analysis regarding the product described herein as you deem appropriate and to the extent you deem necessary obtain independent advice from competent legal, financial, tax, accounting and other professionals, to enable you to understand and recognise fully the legal, financial, tax and other risks arising in respect of the product and the purchase, holding and sale thereof.

You should obtain and read the Product Highlight Sheet of the product before you make a decision to acquire the product. All information provided in this document is general and does not take into account your individual objectives, financial situation or specific needs.

You are required to read and understand the terms and Product Highlight Sheet of the product carefully before executing any transaction relating to the product with us.You may request for a copy of the Product Highlight Sheet at OCBC Banks’ branches.




Lai Mun Yew (Michael)
  Vice President, Research, Wealth Management, OCBC Bank (Malaysia) Berhad

 

Global Outlook - Reflationary Rebound Gains Pace

 

The reflationary rebound is gathering momentum. Supportive policy, stronger economic growth and a bounce in commodity prices have cut deflation risk. The better growth momentum should also help to allay some of the concerns over secular stagnation.

Key Points:

  • U.S. economic growth has been somewhat disappointing lately, although a strong bounce in housing starts in April supports the idea that extreme weather was partly responsible for the reported drop in the economy in 1Q2015. Minutes from its most recent policy meeting show that the Fed is relaxed about the outlook for the economy, but it will need to accumulate more evidence before it raises interest rates.
  • Eurozone growth was the fastest in four years in 1Q2015 as the fiscal austerity programmes of recent years eased, allowing the benefits from monetary stimulus and a more solid banking system to come to the fore. These should combine to pull the region away from the risk of deflation, with inflation readings picking up in coming months.
  • Japan continues to enjoy the benefits of the transformation in Bank of Japan policy over the past two years. Most tangibly, this is seen through heightened export competitiveness that has boosted industrial output and corporate profits. Meanwhile, the less tangible benefits of improved expectations for growth and inflation are helping to revive the domestic economy.
  • The bounce in oil prices and the pause in U.S. Dollar strength have brought some respite to emerging markets. Those running large external deficits will remain vulnerable, but these are not so numerous as to represent a system problem. The main concerns are focused on commodity exporters, where a sustained period of high prices appears to have led to policy complacency and a failure to address structural problems.
  • In China, the limited impact from monetary stimulus is becoming a concern, with the manufacturing PMI stuck below 50. More monetary policy support seems likely. Targeted fiscal spending will also be used to limit the scale of the economic slowdown, and government finances are solid enough to provide support.



 

Foreign Exchange & Commodities – Greenback To Strengthen in 2H2015

 

We see further moderate U.S. Dollar gains in the second half of 2015 after a brief period of consolidation in 2Q2015. At the core of this view is the idea that a revival of the U.S. economy and eventual Fed tightening in September will trigger a stronger greenback, especially versus the Euro and Yen.

Key Points:

  • There are signs that the U.S. Dollar consolidation period might soon reach a turning point to favour another leg of U.S. Dollar strength. The greenback should resume its climb as the Fed tightens while its peers continue to push quantitative easing. Japan and Europe are further back in the recovery cycle, just happy to be seeing growth pick up and deflationary risks recede.
  • The ECB’s announcement of front-loading QE ahead of the summer lull pushed German bond yields lower and ended the temporary rally of the Euro versus the U.S. Dollar. That puts the currency market's focus back on the Fed and the debates about if, or when and how quickly, U.S. policy rates will go up.
  • The BOJ is unlikely to provide a catalyst for Yen’s direction against the U.S. Dollar as its upgraded economic assessment means that it is unlikely to launch another round of QE soon. The Yen will therefore be largely dependent on better U.S. data-led recovery and higher U.S. yields for renewed upside momentum against the greenback.
  • Investors breathed a sigh of relief after elections in the U.K. unexpectedly resulted in a majority Conservative government. The market has quickly focused back on to positive U.K. fundamentals. Potential concerns over the EU referendum are probably too remote to have an immediate market impact. Due to its Economic and Monetary Union (EMU) links, the Pound is unlikely to further strengthen significantly against the U.S. Dollar, but strength against the Euro still seems likely.
  • We are less bearish on commodity currencies like the Australian Dollar, New Zealand Dollar and the Canadian Dollar in the near-term but expect further weakness in the second half of 2015.
  • We believe gold will continue to take its cue from Fed policy, the U.S. Dollar and market appetite for risky assets. Gold prices have been caught within range-bound trading, supported by deferred expectations of the Fed rate hike towards the end of 2015, but also struggled to break to the upside.
  • We would view the most likely catalysts for gold prices to climb higher to be a broad based sell off in global equity markets and/or escalation of Grexit fears. In the absence of such events, we expect an eventual tightening in Fed policy to push gold into a new and lower trading range.
  • The bounce in oil prices has largely run its course after correcting the overshoot earlier in the year. A continued improvement in the supply-demand balance suggests some moderate upside, reflected in our 12-month target of US$65 per barrel for WTI and US$70 per barrel for Brent. It is hard to see a bounce beyond neutral levels of US$70 to US$80 per barrel unless we see a geopolitical negative supply shock or a sudden OPEC deal.



 

Bonds – Fed Likely To Hike Rates Soon

 

We expect the Fed tightening cycle to begin in September. Assuming the first rate hike produces no serious adverse reaction, another hike could follow in December. As long as wages and inflation remain reasonably well under control, the Fed has signalled that it intends to proceed slowly.

Key Points:

  • The U.S. continues to lead the way. Wages are beginning to pick up, now that it is close to full employment and the Fed cannot wait much longer before it begins a cautious interest rate cycle. We worry that market expectations are too dovish, with September being the best candidate for the first rate hike.
  • In addition to potential headwinds from an expected Fed lift-off in September, markets appear to be overly complacent over the pace of rate hikes. The risk here is that the Fed may end up being more aggressive than expected, as risks of rising wage inflation pressures develop. Therefore, all these suggest that volatility levels are likely to rise when reality meets expectations.
  • The higher interest rates means bond markets may not do as well going forward, but still for prudence, investors should have some allocation to bonds as interest rates will still be low by historical standards and the search for yield should provide some support to bond markets.
  • As we expect the 10-year U.S. Treasury yield to rise to 2.75 per cent by year-end, we are negative on U.S. investment grade bonds. However we are positive on U.S. and Emerging Market high yield bonds which have higher current yields of more than 6.7 per cent and are trading more than 400 basis points above U.S. Investment Grade bonds.
  • Moreover, both U.S. and Emerging Market high yield bonds stand to benefit from stabilising oil prices, given that a significant proportion of their respective indices are in the energy sector.



 

Equities – Eurozone Is Still Our Top Pick

 

While we remain positive on equities in the medium-term on the back of their attractive valuations versus bonds and the potential fund flows from cash and bonds into equities, we do expect stock markets to run into a period of volatility ahead of the first Fed rate hike, most likely in September.

Key Points:

  • Despite the growing concerns of extended valuations, U.S. equities rallied to record levels in May, buoyed by the view that Fed is likely to hold back from raising interest rates as economic indicators were generally subdued and far from the second-quarter economic resurgence that U.S. policy makers were predicting. Given our view that the U.S. labour market continues to improve, this optimism can be dangerous.
  • Although stronger U.S. economic growth augurs well for the equity market, the risk remains that investors are not prepared for the normalisation of U.S. monetary policy. Following the extended run, valuations for U.S. equities are looking stretched and we remain selective on U.S. equities.
  • Despite continued uncertainty over Greece, the strong earnings season in May led to Eurozone’s positive return. For the first time since the start of the Eurozone crisis, we are starting to see company earnings outlook improve with the impact of a weaker Euro and energy prices flowing through.
  • Fundamentally, the macroeconomic environment continues to improve in the Eurozone, with the combination of both easier monetary and fiscal policies pointing to sustainability in the economic recovery for the region. The depressed earnings outlook following years of downgrades provides a relatively lower base as well. Hence, we remain more positive on the Eurozone.
  • Japanese equities gained for the fifth consecutive month in May, supported by pension funds’ purchases and Japan Inc. improving on shareholders’ return. We continue to see longer-term potential for Japan equities as companies work on corporate governance and shareholders’ return.
  • On Asia ex-Japan, we continue to be cautious on this region as we see potential for capital repatriation outflows that can result from the initial Fed rate hikes and stronger U.S. Dollar. This is especially the case, given that Asian equity markets are small in comparison to developed markets.
  • On China, after the sharp run-up in stock prices we have turned cautious and would be inclined to take profit. The fundamental outlook for the market does not look very attractive given the slowing economy.Valuations are also not very compelling and the market is trading above its historical average price-to-earnings ratio over the last five years. Nevertheless, Chinese equities could continue to benefit from government policy support and liquidity, with better value and opportunities found among “H” shares at this juncture compared with “A” shares which have outperformed. We would recommend waiting for a pull-back before putting new funds into the market.



 

Important Information

 

This document is not intended to constitute research analysis or recommendation and should not be treated as such.

Any opinions or views expressed in this material are those of the author and third parties identified, and not those of OCBC Bank (Malaysia) Berhad (“OCBC Bank”, which expression shall include OCBC Bank’s related companies or affiliates).OCBC Bank does not verify or endorse any of the opinions or views expressed in this material.You should beware that all opinions and views expressed are subject to change without notice, and OCBC Bank does not undertake the responsibility to update anyone with any changes to the opinions and views expressed.

This does not constitute an offer or solicitation to buy or sell or subscribe for any security or financial instrument or to enter into a transaction or to participate in any particular trading or investment strategy at any price quoted or indicated herein. The proposed transaction(s) herein (if any) is/are subject to the final expression of the terms set forth in the definitive agreement(s) and/or confirmation(s).

The information provided herein is intended for general circulation and/or discussion purposes only and does not contain a complete analysis of every material fact. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. Without prejudice to the generality of the foregoing, please seek advice from a financial adviser regarding the suitability of any investment product taking into account your specific investment objectives, financial situation or particular needs before you make a commitment to purchase the investment product. In the event that you choose not to seek advice from a financial adviser, you should consider whether the product in question is suitable for you.

OCBC Bank is not acting as your adviser. This material is provided based on OCBC Bank’s understanding that (1) you have sufficient knowledge, experience and access to professional advice to make your own evaluation of the merits and risks of any investment product and (2) you are not relying on OCBC Bank or any of its representatives or affiliates for information, advice or recommendations of any sort except for specific factual information about the terms of the transaction proposed.This does not identify all the risks or material considerations that may be associated with any of the investment products. Prior to purchasing the investment product, you should independently consider and determine, without reliance upon OCBC Bank or its representatives or affiliates, the economic risks and merits, as well as the legal, tax and accounting characterisations and consequences of the investment product and that you are able to assume these risks.

The information provided herein may contain projections or other forward looking statement regarding future events or future performance of countries, assets, markets or companies. Actual events or results may differ materially.Past performance figures are not necessarily indicative of future or likely performance. Any reference to any specific company, financial product or asset class in whatever way is used for illustrative purposes only and does not constitute a recommendation on the same.

No representation or warranty whatsoever (including without limitation any representation or warranty as to accuracy, usefulness, adequacy, timeliness or completeness) in respect of any information (including without limitation any statement, figures, opinion, view or estimate) provided herein is given by OCBC Bank and it should not be relied upon as such. OCBC Bank does not undertake an obligation to update the information or to correct any inaccuracy that may become apparent at a later time. All information presented is subject to change without notice. OCBC Bank shall not be responsible or liable for any loss or damage whatsoever arising directly or indirectly howsoever in connection with or as a result of any person acting on any information provided herein.

OCBC Bank and its respective associated and connected corporations together with their respective directors and officers may have or take positions in any securities mentioned in this report (which positions may change from time to time without notice) and may also perform or seek to perform broking and other investment or securities related services for the corporations whose securities are mentioned in this report as well as other parties generally.

This document has been prepared without taking account of the objectives, financial situation or needs of any specific person or organisation who may receive this document. Accordingly prior to making an investment decision, you should conduct such investigation and analysis regarding the product described herein as you deem appropriate and to the extent you deem necessary obtain independent advice from competent legal, financial, tax, accounting and other professionals, to enable you to understand and recognise fully the legal, financial, tax and other risks arising in respect of the product and the purchase, holding and sale thereof.

You should obtain and read the Product Highlight Sheet of the product before you make a decision to acquire the product. All information provided in this document is general and does not take into account your individual objectives, financial situation or specific needs.

You are required to read and understand the terms and Product Highlight Sheet of the product carefully before executing any transaction relating to the product with us.You may request for a copy of the Product Highlight Sheet at OCBC Banks’ branches.

The contents hereof may not be reproduced or disseminated in whole or in part without OCBC Bank's prior written consent.


 


Opportunities Amid the Volatility

 

Looking ahead, markets face challenges and greater volatility as the Fed prepares to hike rates. The problems in Greece and uncertainties in China are also causing turbulence in financial markets. For those with cash to deploy amid the market volatility, we continue to advocate exposure to mixed asset strategies, as it provides a balance of yield and equity market participation.

We still favour developed markets over emerging markets. Among developed markets, European equities are our favourite.

In the bond space, U.S. high yield bonds and emerging market bonds are attractive. However, we still encourage investors to adopt a diversified approach towards these fixed income investments. We also continue to advise investors to hold bonds with shorter tenors as such bonds tend to be less sensitive to increases in interest rates.

Recommendations:

  • Unit Trust: Investors can consider RHB-OSK Eurozone Index Beta Fund to tap on Europe’s growth potential. European equities remain our top pick with the European Central Bank’s quantitative easing measures providing the tailwind.
  • Bonds: Ascott Residence Trust 4.68% perpetual non-callable 5 years SGD denominated bond is our recommendation. Ascott Residence Trust is a serviced REIT invests in income-producing real estate assets.
  • Equity Booster Structured Investment: The People’s Bank of China (PBOC) continued to ease monetary policy with a 25 basis points interest rate cut in June following a 50 basis points reserve requirement ratio (RRR) cut for selected banks. With policy still focused on protecting headline growth, we expect the PBOC to stay supportive as growth continues to remain sluggish. The financial services sector is well-positioned to benefit from such monetary easing. As such, we recommend a structured investment with HSBC bank and ICBC bank as the relevant underlying. These banks may be beneficiaries of accommodative monetary policy. Investors will also enjoy 90 per cent capital protection through this product.
  • Dual Currency Investment: We recommend customers to pair Ringgit Malaysia (MYR) against the U.S. Dollar (USD). The potential interest rate hike is imminent as the U.S. recovery remains on track, this impending hike is likely to boost the greenback later this year.

WARNING
THE RETURNS ON YOUR STRUCTURED PRODUCT INVESTMENT WILL BE AFFECTED BY THE PERFORMANCE OF THE UNDERLYING ASSET/REFERENCE, AND THE RECOVERY OF YOUR PRINCIPAL INVESTMENT MAY BE JEOPARDISED IF YOU MAKE AN EARLY REDEMPTION.
THIS STRUCTURED PRODUCT INVESTMENT IS NOT INSURED BY PERBADANAN INSURANS DEPOSIT MALAYSIA.



This document is not intended to constitute research analysis or recommendation and should not be treated as such.

We recommend that you read and understand the content of the Information Memorandum for RHB-OSK Eurozone Index Beta Fund (MYR hedged) dated 15 January 2015 by RHB Asset Management Sdn Bhd. Investments in the Fund are exposed to country risk, equity risk, currency risk, management risk, emerging market risk and others as disclosed in the Information Memorandum. This fund is eligible to be purchased by High Net Worth Individuals only, the criterias of High Net worth Individuals as per stated in Schedules 6 and 7 of Capital Market and Services Act (CMSA) 2007.
Unit Trust investments are not bank deposits and are not obligations of or guaranteed or insured by OCBC Bank (Malaysia) Berhad. Unit Trust investments are not guaranteed and are subject to investment risk unless otherwise specified. The investment risk includes general risks as described in the Information Memorandum/Prospectuses for Unit Trust investment funds (“Information Memorandum/Prospectuses”) and specific risks which may be different for each Unit Trust investment. Description of specific risks and general risks are published in the Information Memorandum/Prospectuses. With respect to Unit Trust investment, past performance is not indicative of future results; the net asset value can go up or down. Investors should also note that the net asset value per unit and distributions payable, if any, may go down as well as up.

Where unit trust loan financing is available, investors are advised to read and understand the contents of the unit trust loan financing risk disclosure statement before deciding to borrow to purchase units. Where a unit split/distribution is declared, investors are advised that following the issue of additional units/distribution, the NAV per unit will be reduced from pre-unit split NAV/cum-distribution NAV to post-unit split NAV/ex-distribution NAV; and where a unit split is declared, investors should be highlighted of the fact that the value of their investment in Malaysian ringgit will remain unchanged after the distribution of the additional units.

The Information Memorandum/Prospectuses have been registered with the Securities Commission Malaysia, which takes no responsibility for its content. A copy of the Information Memorandum/Prospectuses can be obtained at OCBC Bank’s branches. Units will only be issued upon the receipt of application form referred in, and accompanying the Information Memorandum/Prospectuses. Investors are advised to read and understand the contents of the Information Memorandum/Prospectuses, and if necessary consult their adviser(s), as well as consider the fees and charges involved before investing in the Unit Trust.

This document has been prepared without taking account of the objectives, financial situation or needs of any specific person or organisation who may receive this document. Accordingly prior to making an investment decision, you should conduct such investigation and analysis regarding the product described herein as you deem appropriate and to the extent you deem necessary obtain independent advice from competent legal, financial, tax, accounting and other professionals, to enable you to understand and recognise fully the legal, financial, tax and other risks arising in respect of the product and the purchase, holding and sale thereof.

You should obtain and read the Product Highlight Sheet of the product before you make a decision to acquire the product. All information provided in this document is general and does not take into account your individual objectives, financial situation or specific needs.

You are required to read and understand the terms and Product Highlight Sheet of the product carefully before executing any transaction relating to the product with us.You may request for a copy of the Product Highlight Sheet at OCBC Banks’ branches.




Lai Mun Yew (Michael)
  Vice President, Research, Wealth Management, OCBC Bank (Malaysia) Berhad

 

Global Outlook - Recovery Remains On Track

 

The majority of Fed members continue to expect two interest rate increases this year. If this is right, it means the first rate hike in September and then another in December. However, an increasing number of Fed members only want one rate hike this year, which could mean in September, followed by a pause, or it could mean nothing until December.

Key Points:

  • Recent data flow supports the Fed’s positive view on the economic cycle and supports the case for Fed rate hikes this year. Construction-related activity is bouncing after being held back by poor weather in February and March, although manufacturing and exports remain weighed down by the strong U.S. dollar.
  • On the domestic front, an array of consumer and business confidence indicators show a solid domestic recovery in the U.S., and this is confirmed by steady improvement in labour markets. With wage growth starting to pick-up to the fastest pace in five years, the Fed must be increasingly confident that it will be able to deliver its dual mandate of full employment and stable prices.
  • Elsewhere, growth in the EU this year is set to be the fastest in five years despite problems in Greece. The Eurozone has improved cyclical, structurally and systemically in recent years. This should limit contagion from Greece. Cyclically, previously vulnerable economies like Spain, Ireland and Portugal are all recovering, with the OECD projecting growth at 2.9 per cent, 3.5 per cent and 1.6 per cent respectively this year. Even Italy is set to return to growth this year (0.6 per cent), after three years of contraction.
  • Systemically, the institutions of the Eurozone are better placed to deal with any disruption from Greece. The ECB has tools to buy sovereign debt, both through the current quantitative easing programme and through the previously-announced Outright Monetary Transactions (OMT). In addition, the European Stability Mechanism (ESM) can provide temporary funding if necessary. Banking Union has also made the system stronger, especially with the more credible stress tests in late 2014. The healthier banking system is playing a broader role in European recovery, with the assistance of looser policy from the ECB.
  • Greece is only 1.5 per cent of the European Union economy, so in the absence of contagion it is not going to have much impact on the overall recovery of the region. Ultimately, financial markets are rational, so contagion should be limited.
  • Japan appears to be relatively hard hit by the slowdown in China, as exports and industrial production are struggling despite exchange rate weakness. Domestically, the recovery is still on track and the labour market continues to tighten. The Bank of Japan’s view that this will push up wages and inflation seems reasonable, and this should be enough to keep policy on hold, although the 2 per cent inflation target still looks a long way off.
  • In China, policy easing is preventing a serious slide in the economy, but it is a concern to see the manufacturing PMI still stuck below 50, compared to the more positive response to previous stimulus. Encouragingly, policy-makers are being proactive in addressing some areas of credit risk, but at the same time, the credit bubble continues to grow. There is no easy solution to the excessive investment and overcapacity in the economy.



 

Foreign Exchange & Commodities - Strong U.S. Dollar Here to Stay

 

The Fed will need to respond to inflation risks from a tight labour market. When it does, the Fed should be the only central bank hiking rates in 2H2015. As such, the strong U.S. dollar theme is not over; but unlike the strong and rapid U.S. dollar uptrend seen earlier this year, the next phase of U.S. dollar uptrend is likely to be more modest and choppier.

Key Points:

  • The U.S. dollar trend has been choppy over the past 3 months, whip-sawed by volatility stemming from other asset classes, especially a German-led sell-off in global fixed income. At the same time, the Fed emphasised a gradual process to rate hikes and the markets took the message as dovish, undermining the greenback.
  • In our view it is premature to flip to a weak U.S. Dollar theme, even though this Fed hiking cycle will be the most anticipated in at least three decades.
  • Unlike the strong and rapid U.S. dollar uptrend seen earlier this year, the next phase of the greenback’s uptrend is likely to be more modest and choppier. The greenback’s upside may be limited by the Fed’s sensitivity to the U.S. dollar and its impact on the economy and diminished prospects of more QE in Eurozone and Japan as deflationary pressures fade.
  • On the Chinese currency the country’s central bank remains focused on reducing currency volatility during IMF’s SDR review, with a decision on whether to include the currency in the SDR basket likely to be made in 4Q15. However the U.S. dollar uptrend and possible widening of the currency band between the U.S. dollar and the Chinese currency means that the U.S. dollar is likely to appreciate modestly against the Chinese currency in the next 12 months.
  • On Gold, given the current inverse relationship between the U.S. dollar and gold, a rising tide favouring a stronger U.S. dollar has adverse implications for gold price. Any rebound in gold price close to US$1,200 per ounce is likely to provide a selling opportunity in our view. We remain in the bear camp on the medium-term gold outlook, maintaining a 12 month gold price target at US$1,050 per ounce.



 

Bonds - High Yield Bonds Still Favoured

 

We see the Fed tightening pushing U.S. 10-year Treasury yields up to around 2.75 per cent by year end, with further rises in 2016 as policy normalisation continues at a steady pace. Despite the threat of higher interest rates, we still see selective opportunities in bond markets especially in the high yield space. Investors should always have some bonds in their portfolios for diversification.

Key Points:

  • After several years of loose monetary policy and very low interest rates, the U.S. economy is on a clear recovery path and the employment markets have improved significantly. It is therefore no surprise that the Fed is looking to normalise policy and increase interest rates to better reflect the economic reality.
  • In addition to potential headwinds from an expected Fed lift-off in September, markets appear to be overly complacent about the pace of rate hikes. The risk here is that the Fed may end up being more aggressive than expected, as risks of rising wage inflation pressures develop. This suggests that volatility is likely to rise when reality meets expectations.
  • We doubt that U.S. economic data will permit the Fed to go as slowly as the markets currently expect. Only four 0.25 per cent rate hikes are priced in before the end of 2016, which looks vulnerable to wage pressure pushing inflation higher. We see the Fed Funds rate ending next year closer to 2 per cent.
  • Abundant global liquidity should prevent a sharp sell-off in bond markets. Nevertheless, the higher interest rates mean that bond markets may not do as well as equity markets going forward, but still for prudence, investors should have some allocation to bonds in their portfolios. This is because interest rates will still be low by historical standards and the search for yield should provide some support to bond markets.
  • In an environment of rising interest rates, we would recommend that investors buy shorter dated bonds with duration of four years or less. Within the bond space we are negative on investment grade bonds. However we are still positive on U.S. and Emerging Market high yield bonds as risk appetite grows and given the still low interest rates.



 

Equities - Europe Still Our Top Pick

 

Global equities crept higher in June with Europe leading the pack despite Greece’s impasse. Asia ex-Japan equities, not unexpectedly, continued to underperform as the first Fed rate hike draws closer. Markets remain concerned that Fed rate hikes will cause capital outflows from Asia and this is weighing on the region’s bourses.

Key Points:

  • With wages in the U.S. clearly heading higher, the normalisation of U.S. monetary policy seems imminent. With the Fed still much more hawkish than consensus, we see further swings between liquidity and growth focus driving near-term market volatility even as we maintain the view that stronger U.S. economic growth augurs well for the equity market.
  • At this stage of the cycle, U.S. earnings growth would continue to be the main driver of performance on Wall Street. While earnings momentum is likely to stay positive in the near-term, we see increasingly limited upside as corporate earnings and margins are already significantly above pre-crisis levels.
  • In Europe, the corporate earnings outlook remains relatively resilient. Fundamentally, the macroeconomic environment continues to improve, with the combination of easier credit, more relaxed fiscal policies and the ECB’s QE pointing to sustainability in the economic recovery for the region. The depressed earnings outlook following years of downgrades provides a relatively lower base as well. Hence, we remain relatively more positive on Europe.
  • In Japan, we continue to see longer-term potential for Japanese equities as companies work on corporate governance and shareholders’ return. Near-term, we are cautious of a potential slowdown in pension funds purchases, implying weaker near-term support to the now elevated market. The increase in mid-term uncertainty in political powers post the voting of Osaka referendum is worth watching too, as Prime Minister Abe’s plans to reform constitution might see greater challenges next year.
  • Near-term, we continue to see concerns over U.S. monetary policy driving volatility of Emerging Market equities and remain cautious on Asia Ex-Japan. Within the region, we continue to prefer India over China. Nevertheless, significant pullbacks in China will still offer potential buying opportunities for those with a strong risk appetite as Chinese equities could benefit from policy support.



 

Important Information

 

This document is not intended to constitute research analysis or recommendation and should not be treated as such.

Any opinions or views expressed in this material are those of the author and third parties identified, and not those of OCBC Bank (Malaysia) Berhad (“OCBC Bank”, which expression shall include OCBC Bank’s related companies or affiliates).OCBC Bank does not verify or endorse any of the opinions or views expressed in this material.You should beware that all opinions and views expressed are subject to change without notice, and OCBC Bank does not undertake the responsibility to update anyone with any changes to the opinions and views expressed.

This does not constitute an offer or solicitation to buy or sell or subscribe for any security or financial instrument or to enter into a transaction or to participate in any particular trading or investment strategy at any price quoted or indicated herein. The proposed transaction(s) herein (if any) is/are subject to the final expression of the terms set forth in the definitive agreement(s) and/or confirmation(s).

The information provided herein is intended for general circulation and/or discussion purposes only and does not contain a complete analysis of every material fact. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. Without prejudice to the generality of the foregoing, please seek advice from a financial adviser regarding the suitability of any investment product taking into account your specific investment objectives, financial situation or particular needs before you make a commitment to purchase the investment product. In the event that you choose not to seek advice from a financial adviser, you should consider whether the product in question is suitable for you.

OCBC Bank is not acting as your adviser. This material is provided based on OCBC Bank’s understanding that (1) you have sufficient knowledge, experience and access to professional advice to make your own evaluation of the merits and risks of any investment product and (2) you are not relying on OCBC Bank or any of its representatives or affiliates for information, advice or recommendations of any sort except for specific factual information about the terms of the transaction proposed.This does not identify all the risks or material considerations that may be associated with any of the investment products. Prior to purchasing the investment product, you should independently consider and determine, without reliance upon OCBC Bank or its representatives or affiliates, the economic risks and merits, as well as the legal, tax and accounting characterisations and consequences of the investment product and that you are able to assume these risks.

The information provided herein may contain projections or other forward looking statement regarding future events or future performance of countries, assets, markets or companies. Actual events or results may differ materially.Past performance figures are not necessarily indicative of future or likely performance. Any reference to any specific company, financial product or asset class in whatever way is used for illustrative purposes only and does not constitute a recommendation on the same.

No representation or warranty whatsoever (including without limitation any representation or warranty as to accuracy, usefulness, adequacy, timeliness or completeness) in respect of any information (including without limitation any statement, figures, opinion, view or estimate) provided herein is given by OCBC Bank and it should not be relied upon as such. OCBC Bank does not undertake an obligation to update the information or to correct any inaccuracy that may become apparent at a later time. All information presented is subject to change without notice. OCBC Bank shall not be responsible or liable for any loss or damage whatsoever arising directly or indirectly howsoever in connection with or as a result of any person acting on any information provided herein.

OCBC Bank and its respective associated and connected corporations together with their respective directors and officers may have or take positions in any securities mentioned in this report (which positions may change from time to time without notice) and may also perform or seek to perform broking and other investment or securities related services for the corporations whose securities are mentioned in this report as well as other parties generally.

This document has been prepared without taking account of the objectives, financial situation or needs of any specific person or organisation who may receive this document. Accordingly prior to making an investment decision, you should conduct such investigation and analysis regarding the product described herein as you deem appropriate and to the extent you deem necessary obtain independent advice from competent legal, financial, tax, accounting and other professionals, to enable you to understand and recognise fully the legal, financial, tax and other risks arising in respect of the product and the purchase, holding and sale thereof.

You should obtain and read the Product Highlight Sheet of the product before you make a decision to acquire the product. All information provided in this document is general and does not take into account your individual objectives, financial situation or specific needs.

You are required to read and understand the terms and Product Highlight Sheet of the product carefully before executing any transaction relating to the product with us.You may request for a copy of the Product Highlight Sheet at OCBC Banks’ branches.

The contents hereof may not be reproduced or disseminated in whole or in part without OCBC Bank's prior written consent.


 


All eyes on the Federal Reserve

 

Looking ahead, financial markets may face some turbulence as the Federal Reserve prepares to hike rates.Hence, we continue to advocate exposure to mixed asset strategies as it provides a balance of yield and equity market participation.
Among equity markets, we still favour developed markets over emerging markets, and among developed markets, European equities continue to be our favourite with the European Central Bank’s quantitative easing measures providing the tailwind.
For fixed income, emerging market high yield bonds are still attractive. However, we continue to encourage investors to adopt a diversified approach towards these fixed income investments. We also continue to advise investors to hold bonds with shorter tenors as such bonds tend to be less sensitive to increases in interest rates.

Recommendations:

  • Unit Trust: Investors should consider the RHB-OSK Eurozone Index Beta Fund to tap into Europe’s growth potential. European equities remain our top pick with the European Central Bank’s quantitative easing measures providing strong tailwind.
  • Unit Trust: We recommend the RHB Asian High Yield Fund - RM as fundamentals for Asia are mostly stable and valuation is currently attractive. Asian High Yield Bonds offer higher yield and better potential upside yet have a lower default rate and duration compared to other regional high yield markets.
  • Auto-Callable Equity Linked Structured Investment: Chesapeake Energy is one of the largest producers of oil and gas in the US and is poised to benefit from the US’s steadily improving economy which has translated into higher wages and higher household consumption nationwide.
  • Dual Currency Investment: We recommend customers to pair Ringgit Malaysia (MYR) against the U.S. Dollar (USD). The potential interest rate hike is imminent as the U.S. recovery remains on track, this impending hike is likely to boost the greenback later this year.

WARNING
THE RETURNS ON YOUR STRUCTURED PRODUCT INVESTMENT WILL BE AFFECTED BY THE PERFORMANCE OF THE UNDERLYING ASSET/REFERENCE, AND THE RECOVERY OF YOUR PRINCIPAL INVESTMENT MAY BE JEOPARDISED IF YOU MAKE AN EARLY REDEMPTION.
THIS STRUCTURED PRODUCT INVESTMENT IS NOT INSURED BY PERBADANAN INSURANS DEPOSIT MALAYSIA.



This document is not intended to constitute research analysis or recommendation and should not be treated as such.

We recommend that you read and understand the content of the Information Memorandum for RHB-OSK Eurozone Index Beta Fund dated 15 January 2015 by RHB Asset Management Sdn Bhd. Investments in the Fund are exposed to country risk, equity risk, currency risk, management risk, emerging market risk and others as disclosed in the Information Memorandum. This fund is eligible to be purchased by High Net Worth Individuals only, the criterias of High Net worth Individuals as per stated in Schedules 6 and 7 of Capital Market and Services Act (CMSA) 2007.

We recommend that you read and understand the content of the Info Information Memorandum for RHB Asian High Yield Fund - RM dated 8 June 2015 by RHB Asset Management Sdn Bhd. Investments in the Fund are exposed to country risk, default risk, currency risk, management risk, emerging market risk and others as disclosed in the Information Memorandum. This fund is eligible to be purchased by High Net Worth Individuals only, the criterias of High Net worth Individuals as per stated in Schedules 6 and 7 of Capital Market and Services Act (CMSA) 2007.

Unit Trust investments are not bank deposits and are not obligations of or guaranteed or insured by OCBC Bank (Malaysia) Berhad. Unit Trust investments are not guaranteed and are subject to investment risk unless otherwise specified. The investment risk includes general risks as described in the Information Memorandum/Prospectuses for Unit Trust investment funds (“Information Memorandum/Prospectuses”) and specific risks which may be different for each Unit Trust investment. Description of specific risks and general risks are published in the Information Memorandum/Prospectuses. With respect to Unit Trust investment, past performance is not indicative of future results; the net asset value can go up or down. Investors should also note that the net asset value per unit and distributions payable, if any, may go down as well as up.

Where unit trust loan financing is available, investors are advised to read and understand the contents of the unit trust loan financing risk disclosure statement before deciding to borrow to purchase units. Where a unit split/distribution is declared, investors are advised that following the issue of additional units/distribution, the NAV per unit will be reduced from pre-unit split NAV/cum-distribution NAV to post-unit split NAV/ex-distribution NAV; and where a unit split is declared, investors should be highlighted of the fact that the value of their investment in Malaysian ringgit will remain unchanged after the distribution of the additional units.

The Information Memorandum/Prospectuses have been registered with the Securities Commission Malaysia, which takes no responsibility for its content. A copy of the Information Memorandum/Prospectuses can be obtained at OCBC Bank’s branches. Units will only be issued upon the receipt of application form referred in, and accompanying the Information Memorandum/Prospectuses. Investors are advised to read and understand the contents of the Information Memorandum/Prospectuses, and if necessary consult their adviser(s), as well as consider the fees and charges involved before investing in the Unit Trust.

This document has been prepared without taking account of the objectives, financial situation or needs of any specific person or organisation who may receive this document. Accordingly prior to making an investment decision, you should conduct such investigation and analysis regarding the product described herein as you deem appropriate and to the extent you deem necessary obtain independent advice from competent legal, financial, tax, accounting and other professionals, to enable you to understand and recognise fully the legal, financial, tax and other risks arising in respect of the product and the purchase, holding and sale thereof.

You should obtain and read the Product Highlight Sheet of the product before you make a decision to acquire the product. All information provided in this document is general and does not take into account your individual objectives, financial situation or specific needs.

You are required to read and understand the terms and Product Highlight Sheet of the product carefully before executing any transaction relating to the product with us.You may request for a copy of the Product Highlight Sheet at OCBC Banks’ branches.




Lai Mun Yew (Michael)
  Vice President, Research, Wealth Management, OCBC Bank (Malaysia) Berhad

 

Global Outlook - Zero Rates Era Coming To An End

 

The Fed is moving towards policy tightening, seven years after starting its zero interest rate policy. With the Fed already behind the curve, we are concerned that the market seems to be underestimating the potential for the number of rate hikes over the next couple of years.

Key Points:

  • The U.S. started its zero interest rate policy in December 2008 as part of the fight against the global financial crisis. Nearly seven years later, the Fed is signalling that policy tightening will soon begin.
  • The first couple of U.S. interest rate hikes are likely to produce market turbulence, but no major dislocation. Fed tightening simply reflects the economic normalisation over the past few years, and even after a few rate hikes, policy will still remain accommodative.
  • The economy is bordering on full employment and interest rates are about 3.5 per cent below the level that the Fed sees as neutral in the longer term.The Fed says that tightening will be gradual, but there are signs that tight labour markets are boosting wage growth and this could force the Fed to move more quickly than markets expect.
  • In Europe, the lack of contagion from Greece across European markets, reflect the cyclical, structural and systemic improvement in the Eurozone in recent years, and enabled the region to push such a punishing deal with Greece. Even though this might not be the end of the saga there is greater confidence that the broader impact is limited.
  • In Japan, the exit from deflation is frustratingly slow, but there is progress in wages, prices and inflation expectations. This should be enough to persuade the BOJ to leave policy on hold.
  • Emerging markets (EM) will be looking at the approaching U.S. rate hikes with concern. Some of the vulnerable-looking EM currencies have already weakened substantially in anticipation of a move by the Fed. As with the “taper tantrum” two years ago, markets have focused on countries with external deficits that could be exposed to tighter funding conditions.



 

Foreign Exchange & Commodities - Still Positive on U.S. Dollar

 

Our key directional currency view has been broad-based U.S. dollar strength and we see no reason to change this view.If anything, recent developments in Greece and China have further encouraged us to stay the course. Fed rate hikes should also augur well for the greenback.

Key Points:

  • Impending Fed rate hikes and the stronger U.S. economy should augur well for the greenback although the currency will experience pullbacks from time to time. However the greenback’s medium term trend is still positive.
  • That said, the greenback’s upside may be limited in view of the Fed’s sensitivity towards the U.S. Dollar – as a strengthening U.S. Dollar would have the same impact as hiking interest rates – and its impact on the economy and diminished prospects of more quantitative easing in the Eurozone and Japan.
  • It remains hard to find a silver lining for Emerging Market (EM) currencies even though they have held up well to past Fed tightening cycles. We are more worried about mediocre EM growth than about the Fed. The recent U.S. dollar strength versus EM currencies owes more to falling rates elsewhere than to the market pricing in a U.S. rate hike.
  • On the Chinese currency, we doubt a significant Renminbi devaluation will be seriously pursued to boost China’s growth, as it could spark a beggar-thy-neighbour currency war. But we believe a wider trading band will lead to modest currency depreciation and greater two way movement in 6 to 12 months’ time.
  • On Gold, we remain in the bear camp and maintain our 12-month gold price target at US$1,050 per ounce. Further losses are likely as the Fed prepares to raise interest rates.
  • Gold prices have also fallen because the two main risk events, namely the Greek crisis and the Chinese stock rout, have entered a calmer phase, implying limited safe-haven demand. Revelation of lower-than-expected Chinese central bank gold purchases data has also weighed on the precious metal.



 

Bonds - Bond Volatility Set To Rise

 

With the Fed hiking rates and robust U.S. growth, we expect the U.S. 10 year Treasury bond yield to rise to 2.75 per cent by year-end and foresee rising bond volatility ahead. We are cautious on investment grade bonds and prefer emerging market high yield bonds.

Key Points:

  • Although the Fed looks poised to hike rates in the coming months, we have not turned negative on bond markets and still see selective opportunities, especially in the high yield space.
  • Despite higher Fed fund rates, monetary policy will remain accommodative and the search for yield and income will continue, which means that high yield bonds will continue to be sought after.
  • In the high yield space, we prefer Emerging Market (EM) High Yield Bonds over U.S. High Yield Bonds. The former has a higher yield-to-maturity of 8.55 per cent and trades at 112 basis points wider spread to U.S. High Yield bonds. These wider spreads help to cushion against rising rates.
  • While there are a number of fairly easily identifiable impediments to EM High Yield Bonds, such as decade low commodity prices, China growth concerns, problems in Greece and issues in the Middle East, we believe that these are largely recognised and imputed in current valuations.
  • The biggest risks to our overweight high yield calls are the falling commodity prices, due to supply excesses and the stronger U.S. dollar. Because both U.S. and EM High Yield bonds have a significant proportion of their respective indices in the energy sector, falling oil prices may have an adverse impact via widening credit spreads.
  • Finally, in an environment of rising interest rates, investors should buy shorter dated bonds with duration of four years or less as such bonds are typically less susceptible to rising rates.



 

Equities - Favour Eurozone

 

We continue to favour Eurozone over Asia ex-Japan. We believe that Eurozone’s improving fundamentals, weaker Euro and ECB’s QE policy will help to support earnings growth and price-to-earnings multiple expansion. We stay cautious on Asia ex-Japan in the short term and will reassess the situation after the Fed has initiated the first rate hike, possibly in September.

Key Points:

  • Volatility spiked in July as investor concerns shifted from the drama in Greece to the chaos in Chinese domestic equities. Europe outperformed on improving outlook and Asia ex-Japan continued to bear the brunt of the sell-off.
  • European equities outperformed in July as concerns of the risk of Greece leaving the Eurozone faded and the knee-jerked sell-off in early July proving to be a good buying opportunity.
  • Positive earnings reports and a pick-up in M&A activities have buoyed sentiments in Europe. Fundamentally, the macroeconomic environment continues to improve, benefiting from the combination of weaker currency, easier credit and more relaxed fiscal policies. The depressed earnings outlook following years of downgrades provides a relatively lower base as well.
  • Elsewhere, we continue to see longer-term potential for Japan equities as companies work on corporate governance and shareholders’ return. Near-term, we are cautious of a potential slowdown in pension funds purchases, implying weaker near-term support to the now elevated market, as well as the lack of new positive catalysts.
  • On U.S. equities, we continue to be highly selective and prefer names with exposure to the domestic economy. While earnings momentum is likely to stay positive in the near-term, we see wage pressure on corporate earnings and margins accelerating going forward. Following the extended run, valuations are less compelling.
  • In Asia ex-Japan, we continue to see opportunities in China (H-shares) for long-term investors even as the on-going chaos in the retail-driven domestic Chinese equities could continue to rile investor sentiment.



 

Important Information

 

This document is not intended to constitute research analysis or recommendation and should not be treated as such.

Any opinions or views expressed in this material are those of the author and third parties identified, and not those of OCBC Bank (Malaysia) Berhad (“OCBC Bank”, which expression shall include OCBC Bank’s related companies or affiliates).OCBC Bank does not verify or endorse any of the opinions or views expressed in this material.You should beware that all opinions and views expressed are subject to change without notice, and OCBC Bank does not undertake the responsibility to update anyone with any changes to the opinions and views expressed.

This does not constitute an offer or solicitation to buy or sell or subscribe for any security or financial instrument or to enter into a transaction or to participate in any particular trading or investment strategy at any price quoted or indicated herein. The proposed transaction(s) herein (if any) is/are subject to the final expression of the terms set forth in the definitive agreement(s) and/or confirmation(s).

The information provided herein is intended for general circulation and/or discussion purposes only and does not contain a complete analysis of every material fact. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. Without prejudice to the generality of the foregoing, please seek advice from a financial adviser regarding the suitability of any investment product taking into account your specific investment objectives, financial situation or particular needs before you make a commitment to purchase the investment product. In the event that you choose not to seek advice from a financial adviser, you should consider whether the product in question is suitable for you.

OCBC Bank is not acting as your adviser. This material is provided based on OCBC Bank’s understanding that (1) you have sufficient knowledge, experience and access to professional advice to make your own evaluation of the merits and risks of any investment product and (2) you are not relying on OCBC Bank or any of its representatives or affiliates for information, advice or recommendations of any sort except for specific factual information about the terms of the transaction proposed.This does not identify all the risks or material considerations that may be associated with any of the investment products. Prior to purchasing the investment product, you should independently consider and determine, without reliance upon OCBC Bank or its representatives or affiliates, the economic risks and merits, as well as the legal, tax and accounting characterisations and consequences of the investment product and that you are able to assume these risks.

The information provided herein may contain projections or other forward looking statement regarding future events or future performance of countries, assets, markets or companies. Actual events or results may differ materially.Past performance figures are not necessarily indicative of future or likely performance. Any reference to any specific company, financial product or asset class in whatever way is used for illustrative purposes only and does not constitute a recommendation on the same.

No representation or warranty whatsoever (including without limitation any representation or warranty as to accuracy, usefulness, adequacy, timeliness or completeness) in respect of any information (including without limitation any statement, figures, opinion, view or estimate) provided herein is given by OCBC Bank and it should not be relied upon as such. OCBC Bank does not undertake an obligation to update the information or to correct any inaccuracy that may become apparent at a later time. All information presented is subject to change without notice. OCBC Bank shall not be responsible or liable for any loss or damage whatsoever arising directly or indirectly howsoever in connection with or as a result of any person acting on any information provided herein.

OCBC Bank and its respective associated and connected corporations together with their respective directors and officers may have or take positions in any securities mentioned in this report (which positions may change from time to time without notice) and may also perform or seek to perform broking and other investment or securities related services for the corporations whose securities are mentioned in this report as well as other parties generally.

This document has been prepared without taking account of the objectives, financial situation or needs of any specific person or organisation who may receive this document. Accordingly prior to making an investment decision, you should conduct such investigation and analysis regarding the product described herein as you deem appropriate and to the extent you deem necessary obtain independent advice from competent legal, financial, tax, accounting and other professionals, to enable you to understand and recognise fully the legal, financial, tax and other risks arising in respect of the product and the purchase, holding and sale thereof.

You should obtain and read the Product Highlight Sheet of the product before you make a decision to acquire the product. All information provided in this document is general and does not take into account your individual objectives, financial situation or specific needs.

You are required to read and understand the terms and Product Highlight Sheet of the product carefully before executing any transaction relating to the product with us.You may request for a copy of the Product Highlight Sheet at OCBC Banks’ branches.

The contents hereof may not be reproduced or disseminated in whole or in part without OCBC Bank's prior written consent.


 


Navigate Market Volatility with a Mixed-Asset Strategy

 

In the midst of market correction brought on by the Chinese Yuan devaluation and the much anticipated US Fed rate hike; we continue to like developed markets, notably Europe for its solid recovery on the back of loose monetary policy. The other region we like is Japan, positives from record high corporate profits and improving corporate governance have been a boon to equities.

The correction seen in August has not derailed the recovery in these two economies, signalling resilience in recovery.

Investors are also advised to diversify into income generating assets during these volatile times, to supplement investment returns.

Recommendations:

  • Unit Trust: Investors should consider the TA European Equity Fund to tap into Europe’s growth potential. Prospects for European equities are much better now with Quantitative Easing lowers borrowing cost and weaker euro put the exporters in a more advantageous position.
  • Unit Trust: We recommend the CIMB-Principal Global Titan Fund as global equity rout in August was a market correction and NOT the end of the bull cycle, and the correction provide opportunity for one to accumulate some developed market equities.
  • Bonds: Societe Generale 4.30% callable 7 years AUD denominated is a leading European universal bank and benefits from a number of strong franchises and excellent global position in retail banking.
  • Dual Currency Investment: We recommend customers to pair Ringgit Malaysia (MYR) against the U.S. Dollar (USD). The potential interest rate hike is imminent as the U.S. recovery remains on track, this impending hike is likely to boost the greenback further this year albeit this could be choppy uptrend.

WARNING
THE RETURNS ON YOUR STRUCTURED PRODUCT INVESTMENT WILL BE AFFECTED BY THE PERFORMANCE OF THE UNDERLYING ASSET/REFERENCE, AND THE RECOVERY OF YOUR PRINCIPAL INVESTMENT MAY BE JEOPARDISED IF YOU MAKE AN EARLY REDEMPTION.
THIS STRUCTURED PRODUCT INVESTMENT IS NOT INSURED BY PERBADANAN INSURANS DEPOSIT MALAYSIA.



This document is not intended to constitute research analysis or recommendation and should not be treated as such.

We recommend that you read and understand the contents of the Master Prospectus for TA European Equity Fund dated 1 October 2014 and expire on 30 September 2015, by TA INVESTMENT MANAGEMENT BERHAD. Investments in the Fund are exposed to market risk, currency risk, country risk, emerging market risk, interest rate risk and credit/default risk.

We recommend that you read and understand the content of the Master Prospectus for CIMB – Principal Global Titans Fund (“the Fund”) dated 30 June 2015 by CIMB – Principal Asset Management Berhad. Investments in the Fund are exposed to specific risks including stock specific risk, country risk, currency risk, fund manager’s risk, legal and taxation risk, counterparty risk and others as disclosed in Master Prospectus.

Unit Trust investments are not bank deposits and are not obligations of or guaranteed or insured by OCBC Bank (Malaysia) Berhad. Unit Trust investments are not guaranteed and are subject to investment risk unless otherwise specified. The investment risk includes general risks as described in the Information Memorandum/Prospectuses for Unit Trust investment funds (“Information Memorandum/Prospectuses”) and specific risks which may be different for each Unit Trust investment. Description of specific risks and general risks are published in the Information Memorandum/Prospectuses. With respect to Unit Trust investment, past performance is not indicative of future results; the net asset value can go up or down. Investors should also note that the net asset value per unit and distributions payable, if any, may go down as well as up.

Where unit trust loan financing is available, investors are advised to read and understand the contents of the unit trust loan financing risk disclosure statement before deciding to borrow to purchase units. Where a unit split/distribution is declared, investors are advised that following the issue of additional units/distribution, the NAV per unit will be reduced from pre-unit split NAV/cum-distribution NAV to post-unit split NAV/ex-distribution NAV; and where a unit split is declared, investors should be highlighted of the fact that the value of their investment in Malaysian ringgit will remain unchanged after the distribution of the additional units.

The Information Memorandum/Prospectuses have been registered with the Securities Commission Malaysia, which takes no responsibility for its content. A copy of the Information Memorandum/Prospectuses can be obtained at OCBC Bank’s branches. Units will only be issued upon the receipt of application form referred in, and accompanying the Information Memorandum/Prospectuses. Investors are advised to read and understand the contents of the Information Memorandum/Prospectuses, and if necessary consult their adviser(s), as well as consider the fees and charges involved before investing in the Unit Trust.

This document has been prepared without taking account of the objectives, financial situation or needs of any specific person or organisation who may receive this document. Accordingly prior to making an investment decision, you should conduct such investigation and analysis regarding the product described herein as you deem appropriate and to the extent you deem necessary obtain independent advice from competent legal, financial, tax, accounting and other professionals, to enable you to understand and recognise fully the legal, financial, tax and other risks arising in respect of the product and the purchase, holding and sale thereof.

You should obtain and read the Product Highlight Sheet of the product before you make a decision to acquire the product. All information provided in this document is general and does not take into account your individual objectives, financial situation or specific needs.

You are required to read and understand the terms and Product Highlight Sheet of the product carefully before executing any transaction relating to the product with us.You may request for a copy of the Product Highlight Sheet at OCBC Banks’ branches.




Lai Mun Yew (Michael)
  Vice President, Research, Wealth Management, OCBC Bank (Malaysia) Berhad

 

Global Outlook - Global Recovery on Track

 

We have cut our forecasts for world growth in 2015 and 2016 by 0.1 per cent and 0.2 per cent respectively, with most of the adjustment coming from emerging economies. Slower growth in China will be a drag on emerging markets, but recovery in the developed economies should still be resilient.

Key Points:

  • The global economy is set to continue to grow in the 3 to 3.5 per cent range that has characterised recent years – not too impressive, but not a major concern either.
  • We would caution against over-reaction to the slowdown in China. The data coming out of the major developed economies is encouraging and they are not particularly exposed to weaker demand in China, which only represents around 1 per cent of their GDP.
  • China appears to have room to provide policy support to growth, but there are limits. Cutting interest rates makes sense to reduce the costs of debt service, but excessive credit creation is at the heart of the structural problems, so throwing good loans after bad is not part of a lasting solution.
  • Chinese government debt is 40 to 50 per cent of GDP, so there is room to loosen fiscal policy, but policy-makers will need to bear in mind the likely costs of the bad debt problem.
  • Measures to boost consumption in China might be part of the solution. Currency depreciation will also help, but it is hard to see the Chinese currency falling enough to make a big difference.
  • In the U.S., the recovery in the housing market has been uneven in recent years, but seems to have picked up speed in recent months. This sector is more than four times as large a part of the economy compared to exports to China.
  • In Europe, Fading austerity helps to explain the better performance of the Eurozone economy, but a stronger banking system is another important factor. Bank lending is picking up steadily, and now growing at the fastest pace in over three years.
  • In Japan, notwithstanding the volatility of the unreliable GDP data, growth is solid, as shown by an array of business and consumer confidence indicators.
  • Japan is more exposed to a slowdown in China than either Europe or the US, but the reflation of the domestic economy in response to Abenomics means that it is less vulnerable than in the past.



 

Foreign Exchange & Commodities - Mixed Performance by Greenback

 

Despite the apparent stability in the Chinese currency (CNY) versus the greenback following the devaluation in mid-August, markets remain wary of further weakness as a means for China to grab more growth globally. A weaker CNY implies weaker Asia currencies owing to greater competitive currency pressures.

Key Points:

  • The Euro and Yen strengthened slightly against the U.S. dollar in August but it’s too early to pound the table to say that the U.S. dollar story has turned bearish, especially with the Fed rate hikes still ahead of us.
  • This phase of the stronger U.S. dollar is likely to be choppier and gradual compared with the previous phase of strong and rapid dollar strength that ended early this year. The stronger U.S. dollar theme is playing out more forcefully against the commodity and Emerging Market (EM) currencies.
  • The U.S. dollar strength versus EM currencies owes more to falling rates elsewhere than to the market pricing in an early U.S. rate hike.China’s credit bubble trouble and the commodity price downtrend is a big part of the mediocre EM growth story.
  • It remains hard to find a silver lining for EM currencies even though they have held up well to past Fed tightening cycles. We are more worried about mediocre EM growth than about the Fed.
  • On the Chinese currency, further weakness cannot be discounted as part of policy easing by China to cope with slowing Chinese growth. Making the currency more market-driven also implies a higher chance of SDR inclusion although the IMF has confirmed that the SDR basket will remain unchanged until September 2016.
  • Elsewhere, the dovish Bank of England inflation report is a headwind for the Pound. However, we think the U.K. monetary policy cycle remains ahead of the ECB but behind the Fed. As such, we expect Pound to regain relative strength against its crosses such as Euro and Singapore dollar but not versus U.S. dollar.
  • On Gold, the metal was previously bolstered by increased risk aversion. However, it is notable that the turmoil across global markets in August did little to bring people back to gold in a big way as investors ignored the metal’s haven appeal and focused on the prospect of higher US interest rates.



 

Bonds - Bond Markets Not Spared

 

Our concern has not been about the timing of the first Fed rate hike, but the speed and scale of subsequent moves from the Fed. The market is expecting only three 25 basis point rate hikes by the end of 2016, whereas five or six seems more reasonable to us.

Key Points:

  • August was a challenging month for bond markets. Concerns about global growth and Emerging Markets (EM) were exacerbated by the Chinese central bank’s move to devalue its currency.
  • EM High Yield bonds posted the second worst monthly performance in August in the past two years, while U.S. High Yield bonds also suffered significantly. Investment grade (IG) bonds were not spared either although they posted smaller losses compared to high yield bonds.
  • Looking forward, we remain more positive on EM High Yield Bonds compared to other bonds. We believe that in the medium term, our constructive thesis on EM High Yield bonds remains intact. China, which provided the catalyst for the recent EM downturn, still has some levers to pull to support economic growth and stem the recent decline.
  • From a bottom-up perspective, balance sheets for EM High Yield Bonds remain adequate and more importantly, overall liquidity remains good. Year-to-date defaults also suggest a 2015 final number below consensus expectations. Also, EM High Yield Bonds have become more attractive after the August sell-off.
  • As for IG bonds, our view is that the shadow of U.S. monetary tightening continues to hang over this segment of the bond market. We are therefore cautious on IG bonds ahead of Fed policy tightening.
  • We are not convinced that the Fed will move slowly, as it is also saying that policy is data dependent, and the two are not necessarily compatible. The Fed may want to tighten gradually, but it may not be able to if tight labour markets start to push up wages and inflation.
  • In an environment of rising interest rates, investors should buy shorter dated bonds with a duration of four years or less as such bonds are typically less susceptible to rising rates.



 

Equities - Correction or Bear Market?

 

The sharp pullback in equity markets in August was a correction and not the start of bear market. The steadily recovering global economy led by the U.S. and easier macro policies in Japan and Europe remains a stable backdrop for equities.

Key Points:

  • In early August, the Chinese central bank surprised markets when it devalued its currency. This exacerbated concerns about China’s growth and the negative sentiment was compounded when Kazakhstan responded by floating its currency, allowing it to plunge more than 20 per cent.
  • While the broad equity market sell-off in August has been significant, we believe that the market correction is just that - a correction and not the end of the cycle.
  • Slower growth in China will put some pressure on the global economy and translate into slower growth expectations for emerging markets (particularly the commodity suppliers), but it will be offset by the continuing recovery across developed markets.
  • There are also fears of the Fed tightening cycle. A stronger U.S. dollar will likely continue to encourage capital outflows from Asia ex-Japan, while higher real rates would constrain credit conditions and economic growth in the region.
  • Asian corporates’ balance sheets would also become more vulnerable, given their relatively high U.S. dollar debt level, which had built up over the past few years on low rates and easy credit access.
  • Overall, we continue to favour developed markets over Asia ex-Japan. Growth prospects in U.S., Europe, and Japan continue to look bright with PMIs displaying robustness. Trade linkages with China are also limited.
  • Among the developed markets, the Europe and Japan are our favoured regions. Aside the boost for equities that comes with the BOJ’s easy monetary policy, longer-term potential for Japanese equities remains encouraging as companies work on corporate governance and shareholders’ return.
  • In Europe, the depressed earnings outlook following years of downgrades continues to provide sustainable leverage. In particular, we see further margin improvements driven by better economic growth, easier credit and cheaper commodities.



 

Important Information

 

This document is not intended to constitute research analysis or recommendation and should not be treated as such.

Any opinions or views expressed in this material are those of the author and third parties identified, and not those of OCBC Bank (Malaysia) Berhad (“OCBC Bank”, which expression shall include OCBC Bank’s related companies or affiliates).OCBC Bank does not verify or endorse any of the opinions or views expressed in this material.You should beware that all opinions and views expressed are subject to change without notice, and OCBC Bank does not undertake the responsibility to update anyone with any changes to the opinions and views expressed.

This does not constitute an offer or solicitation to buy or sell or subscribe for any security or financial instrument or to enter into a transaction or to participate in any particular trading or investment strategy at any price quoted or indicated herein. The proposed transaction(s) herein (if any) is/are subject to the final expression of the terms set forth in the definitive agreement(s) and/or confirmation(s).

The information provided herein is intended for general circulation and/or discussion purposes only and does not contain a complete analysis of every material fact. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. Without prejudice to the generality of the foregoing, please seek advice from a financial adviser regarding the suitability of any investment product taking into account your specific investment objectives, financial situation or particular needs before you make a commitment to purchase the investment product. In the event that you choose not to seek advice from a financial adviser, you should consider whether the product in question is suitable for you.

OCBC Bank is not acting as your adviser. This material is provided based on OCBC Bank’s understanding that (1) you have sufficient knowledge, experience and access to professional advice to make your own evaluation of the merits and risks of any investment product and (2) you are not relying on OCBC Bank or any of its representatives or affiliates for information, advice or recommendations of any sort except for specific factual information about the terms of the transaction proposed.This does not identify all the risks or material considerations that may be associated with any of the investment products. Prior to purchasing the investment product, you should independently consider and determine, without reliance upon OCBC Bank or its representatives or affiliates, the economic risks and merits, as well as the legal, tax and accounting characterisations and consequences of the investment product and that you are able to assume these risks.

The information provided herein may contain projections or other forward looking statement regarding future events or future performance of countries, assets, markets or companies. Actual events or results may differ materially.Past performance figures are not necessarily indicative of future or likely performance. Any reference to any specific company, financial product or asset class in whatever way is used for illustrative purposes only and does not constitute a recommendation on the same.

No representation or warranty whatsoever (including without limitation any representation or warranty as to accuracy, usefulness, adequacy, timeliness or completeness) in respect of any information (including without limitation any statement, figures, opinion, view or estimate) provided herein is given by OCBC Bank and it should not be relied upon as such. OCBC Bank does not undertake an obligation to update the information or to correct any inaccuracy that may become apparent at a later time. All information presented is subject to change without notice. OCBC Bank shall not be responsible or liable for any loss or damage whatsoever arising directly or indirectly howsoever in connection with or as a result of any person acting on any information provided herein.

OCBC Bank and its respective associated and connected corporations together with their respective directors and officers may have or take positions in any securities mentioned in this report (which positions may change from time to time without notice) and may also perform or seek to perform broking and other investment or securities related services for the corporations whose securities are mentioned in this report as well as other parties generally.

This document has been prepared without taking account of the objectives, financial situation or needs of any specific person or organisation who may receive this document. Accordingly prior to making an investment decision, you should conduct such investigation and analysis regarding the product described herein as you deem appropriate and to the extent you deem necessary obtain independent advice from competent legal, financial, tax, accounting and other professionals, to enable you to understand and recognise fully the legal, financial, tax and other risks arising in respect of the product and the purchase, holding and sale thereof.

You should obtain and read the Product Highlight Sheet of the product before you make a decision to acquire the product. All information provided in this document is general and does not take into account your individual objectives, financial situation or specific needs.

You are required to read and understand the terms and Product Highlight Sheet of the product carefully before executing any transaction relating to the product with us.You may request for a copy of the Product Highlight Sheet at OCBC Banks’ branches.

The contents hereof may not be reproduced or disseminated in whole or in part without OCBC Bank's prior written consent.


 


Expect Greater Volatility Till Year End

 

We continue to advocate exposure to mixed asset strategies, as it provides a balance of yield and equity market participation. It is important to diversify during these volatile times and stay invested, as economic fundamentals continue to improve for our preferred developed markets.

For fixed income, investors should hold bonds with shorter tenures as such bonds tend to be less sensitive to increases in interest rates. Holding alternative income generating assets may be a good addition to a portfolio.

Recommendations:

  • Unit Trust: Investors who are seeking regular income plus potential capital growth in one collective investment scheme could consider CIMB-Principal Global Multi Asset Income Fund , as the Fund invests in a diversified portfolio of global assets and will actively allocate between global equities, bonds and other alternative assets such as ETF.
  • Unit Trust: We recommend the CIMB-Principal Global Titan Fund as global equity rout earlier was a market correction and NOT the end of the bull cycle, and the correction provide opportunity for one to accumulate some developed market equities.
  • Negotiable Instruments of Deposit: 5-year Callable Interest Cumulation Floating Rate Negotiable Instruments of Deposit (FRNID) , the underlying reference is Malaysia 3-month Kuala Lumpur Interbank Offered Rate. Client can receive up to 5.00% p.a. (quarterly distribution) with the tenure of 5 Years if the underlying reference stays within the predefined barrier.
  • Dual Currency Investment: We recommend customers to pair Ringgit Malaysia (MYR) against the U.S. Dollar (USD). The potential interest rate hike is imminent as the U.S. recovery remains on track, any short term weakness on the greenback shall be deemed as an opportunity to pair.

WARNING
THIS PRODUCT IS PRINCIPAL GUARANTEED BY THE ISSUING BANK UPON MATURITY ONLY. IF THE PRODUCT IS REDEEMED OR SOLD PRIOR TO MATURITY, THE CUSTOMER MAY LOSE PART OF THE INITIAL DEPOSIT AMOUNT. THE RETURNS ON THIS PRODUCT ARE UNCERTAIN AND THE CUSTOMER RISKS EARNING NO RETURNS AT ALL. THE CUSTOMER IS REMINDED THAT THIS PRODUCT IS NOT INSURED BY PERBADANAN INSURANS DEPOSIT MALAYSIA.

WARNING
THE RETURNS ON YOUR STRUCTURED PRODUCT INVESTMENT WILL BE AFFECTED BY THE PERFORMANCE OF THE UNDERLYING ASSET/REFERENCE, AND THE RECOVERY OF YOUR PRINCIPAL INVESTMENT MAY BE JEOPARDISED IF YOU MAKE AN EARLY REDEMPTION.
THIS STRUCTURED PRODUCT INVESTMENT IS NOT INSURED BY PERBADANAN INSURANS DEPOSIT MALAYSIA.



This document is not intended to constitute research analysis or recommendation and should not be treated as such.

We recommend that you read and understand the contents of the Information Memorandum for CIMB-Principal Global Multi Asset Income Fund dated 20 March 2014 by CIMB – Principal Asset Management Berhad. Investments in the Fund are exposed to fund manager’s risk, country risk, currency risk, legal and taxation risk and default risk.

We recommend that you read and understand the content of the Master Prospectus for CIMB – Principal Global Titans Fund (“the Fund”) dated 30 June 2015 by CIMB – Principal Asset Management Berhad and expires on 29 June 2016. Investments in the Fund are exposed to specific risks including stock specific risk, country risk, currency risk, fund manager’s risk, legal and taxation risk, counterparty risk and others as disclosed in Master Prospectus.

Unit Trust investments are not bank deposits and are not obligations of or guaranteed or insured by OCBC Bank (Malaysia) Berhad. Unit Trust investments are not guaranteed and are subject to investment risk unless otherwise specified. The investment risk includes general risks as described in the Information Memorandum/Prospectuses for Unit Trust investment funds (“Information Memorandum/Prospectuses”) and specific risks which may be different for each Unit Trust investment. Description of specific risks and general risks are published in the Information Memorandum/Prospectuses. With respect to Unit Trust investment, past performance is not indicative of future results; the net asset value can go up or down. Investors should also note that the net asset value per unit and distributions payable, if any, may go down as well as up.

Where unit trust loan financing is available, investors are advised to read and understand the contents of the unit trust loan financing risk disclosure statement before deciding to borrow to purchase units. Where a unit split/distribution is declared, investors are advised that following the issue of additional units/distribution, the NAV per unit will be reduced from pre-unit split NAV/cum-distribution NAV to post-unit split NAV/ex-distribution NAV; and where a unit split is declared, investors should be highlighted of the fact that the value of their investment in Malaysian ringgit will remain unchanged after the distribution of the additional units.

The Information Memorandum/Prospectuses have been registered with the Securities Commission Malaysia, which takes no responsibility for its content. A copy of the Information Memorandum/Prospectuses can be obtained at OCBC Bank’s branches. Units will only be issued upon the receipt of application form referred in, and accompanying the Information Memorandum/Prospectuses. Investors are advised to read and understand the contents of the Information Memorandum/Prospectuses, and if necessary consult their adviser(s), as well as consider the fees and charges involved before investing in the Unit Trust.

This document has been prepared without taking account of the objectives, financial situation or needs of any specific person or organisation who may receive this document. Accordingly prior to making an investment decision, you should conduct such investigation and analysis regarding the product described herein as you deem appropriate and to the extent you deem necessary obtain independent advice from competent legal, financial, tax, accounting and other professionals, to enable you to understand and recognise fully the legal, financial, tax and other risks arising in respect of the product and the purchase, holding and sale thereof.

You should obtain and read the Product Highlight Sheet of the product before you make a decision to acquire the product. All information provided in this document is general and does not take into account your individual objectives, financial situation or specific needs.

You are required to read and understand the terms and Product Highlight Sheet of the product carefully before executing any transaction relating to the product with us. You may request for a copy of the Product Highlight Sheet at OCBC Banks’ branches.




Lai Mun Yew (Michael)
  Vice President, Research, Wealth Management, OCBC Bank (Malaysia) Berhad

 

Global Outlook - Good Growth in Developed Markets

 

Solid growth momentum in the major developed markets should put them in a position to withstand the struggles of parts of the emerging world. While there is an underlying promise of monetary policy support if necessary in the developed markets, the situation is less comfortable in some emerging markets.

Key Points:

  • Unlike developed markets, policy options are more limited for emerging markets and, in some cases, the economic challenges are more substantial. However, we do not see an emerging market crisis. Many countries are doing fine; others are past the worst; and some are starting to take more decisive policy action.
  • The U.S. economy continues to make steady progress, as shown by the improvement in all areas of private sector demand. Moreover, the headwind from the public sector has died as spending cuts of the previous three years have run their course and the budget deficit is back down to just 2.4 per cent of GDP.
  • With the European economy set to grow around 2 per cent in the second half of 2015 it seems strange that pressure is rising on the European Central Bank for more policy stimulus. The stable and positive PMIs show that the region has been unaffected by events in Greece, while sensitivity to softer growth in China is low.
  • The situation in Japan is similar to Europe, where the recovery is pulling the economy away from the threat of deflation, but there is some chance that the central bank will want to add to its QE scheme in order to reduce downside risks.
  • On balance we do not expect either Europe or Japan to add to their QE, although the chances would increase if Fed tightening is delayed into 2016. The desire to maintain a policy divergence compared to the U.S. is understandable, in order to retain a competitive exchange rate.
  • The economic situation in China has become no clearer over the past month. The PMI data is probably the most timely and reliable short-term guide and early indications are that the September was slightly weaker than August. PMI readings for manufacturing are the worst in six years, although the service sector is slightly firmer, perhaps reflecting the drive to re-balance growth.



 

Foreign Exchange & Commodities – Mixed Outlook For The Greenback

 

Given the on-going risk of slowing growth in China and emerging markets, we continue to see greater U.S. dollar upside against emerging market currencies compared to non-commodity developed market currencies such as the Euro and Japanese Yen.

Key Points:

  • Currencies are still buffeted by twin headwinds from China and Fed rate hike expectations. The former has clearly won out as the market driver after the Fed baulked again on raising rates in September on concerns about the impact from international developments.
  • We believe we that the U.S. dollar could consolidate against non-commodity developed market currencies such as Euro and the Yen into the next few months. Funding currencies such as Euro and Yen tend to strengthen with risk aversion but down for the greenback should be limited. The problems in China and emerging markets that caused the Fed to delay take off would also raise the prospects for further policy easing in Eurozone and Japan.
  • Market pricing for the Bank of England (BOE) rate hike, which has been pushed back to 3Q16, looks excessively dovish. Compared with the likelihood of additional ECB easing, scope for BOE rate hike sooner should still give Pound support against the Euro but not the greenback.
  • Following the mini-CNY devaluation in August, the Chinese authorities have signalled more credibly its commitment to refrain from competitive devaluation through a combination of currency intervention and recent measures that involve a modest administrative tightening of the capital account.
  • But doubts about how long the newfound CNY stability can last are likely to persist. Amid struggling growth prospects, medium-term risks are still tilted towards further weakness in the CNY, which will have negative spill over for its rest of Asian currency peers.
  • We remain bearish on gold on a 6 to 12 month horizon. Any rebound in gold price close to $1,160 per ounce is likely to provide a selling opportunity in our view. Gold rallied after the Fed announced no change in policy rates in September but pared the gains after Fed Chair Yellen reiterated that the Fed take off would occur before year-end.
  • In oil markets, there are signs of more aggressive production cuts and this is again pulling inventories lower. Despite the continued concerns over growth in China and other emerging markets, this has been enough to stabilise prices, albeit at relatively low levels.



 

Bonds - Fed Could Take Off In December

 

The Fed’s policy stance is one of slightly delayed tightening rather than a fundamental shift in policy direction. December remains the best prospect for the first Fed interest rate hike. With the labour market bordering on full employment, and improving by the month, even a temporary delay cannot be an easy decision.

Key Points:

  • The Fed decided not to raise interest rates at its September meeting, citing concern over “global economic and financial developments”. This boosted risk-off sentiment which increased the attraction of investment grade bonds, producing a positive return for the month. We continue to see December as the best candidate for the first Fed move.
  • A shifting schedule for Fed rate hikes does not alter the basic pressure for policy normalisation, now that the economy is back at full employment. Public comments show that many Fed officials recognise the need to push rates higher.
  • Inflation is still muted, so there is not much danger in a short delay, just to be confident that external events are not having much impact on the U.S.. The problem is that effects of external events on the U.S. will be slow to become evident, especially if financial market volatility persists. The Fed may find it hard to justify a rate hike even in December. A delay until 2016 is now a realistic possibility.
  • In this environment we remain underweight investment grade (IG) bonds, as risks are tilted to the downside. We would also recommend being moderately underweight duration at around four years.
  • Our concern is not focused on the timing of the first hike, but on the speed and scale of subsequent moves from the Fed. The market is expecting only three 25 basis point rate hikes by the end of 2016, whereas five or six seems more reasonable to us. This should hurt IG bonds.
  • We have turned more cautious on emerging market (EM) high yield bonds as they are facing macro headwinds from lower global growth prospects, on-going depreciation of EM Currencies and persistent weakness in both oil and commodities that shows few signs of near-term improvement.
  • In an environment of rising interest rates, investors should buy shorter dated bonds with a duration of four years or less as such bonds are typically less susceptible to rising rates.



 

Equities - Too Early To Be Positive On Asia

 

Asia has had poor relative performance and valuations of Asia equities are approaching depressed levels. However, we are only ready to upgrade Asia when we see signs of stabilisation in China’s growth and when we have gone past the impending Fed rate hike. We continue to prefer developed markets especially Europe.

Key Points:

  • Global equities came under further selling pressure in September as weak Chinese date and the Fed’s decision not to kick-off monetary policy normalisation in September spooked investor confidence.
  • Weak macro data out of China and the decision by the Fed to delay rate hikes in September because of its concerns about “recent global economic and financial developments” spooked investors and led to concerns about global growth and its consequences for equity markets.
  • Asian markets were especially hurt given their strong intra-regional trade linkages with China where 25 per cent of Asia ex-Japan’s exports go to China and given the dependencies on commodity prices for countries like Malaysia and Indonesia.
  • Furthermore, there were also fears of the Fed tightening cycle. A stronger U.S. dollar would likely continue to encourage capital outflows from Asia ex-Japan, while higher real rates would constrain credit conditions and economic growth in the region.
  • Although earnings growth expectations have moderated significantly and valuations are now approaching depressed levels, we remain cautious on Asia ex-Japan. Near-term, we see concerns over China’s growth and U.S. monetary policy driving volatility of Emerging Market equities including Asia ex-Japan.
  • Overall, we continue to favour developed markets over Asia ex-Japan. Growth prospects in U.S., Europe, and Japan continue to look better and trade linkages with China are also limited.
  • Among the developed markets, the Europe and Japan are our favoured regions. In Europe, the depressed earnings outlook following years of downgrades continues to provide sustainable leverage. In particular, we see further margin improvements driven by better economic growth, easier credit and cheaper commodities.
  • Japanese equities did poorly in September due to concerns about China. In response to the decline in the Abe administration’s approval rating following the passing of the controversial national security-related bills (and the more sluggish macroeconomic outlook), the government is expected to shift focus towards the economy over the next few months. This could reinvigorate investor interest in Japanese equities as the lack of positive catalysts has capped the market’s performance.



 

Important Information

 

This document is not intended to constitute research analysis or recommendation and should not be treated as such.

Any opinions or views expressed in this material are those of the author and third parties identified, and not those of OCBC Bank (Malaysia) Berhad (“OCBC Bank”, which expression shall include OCBC Bank’s related companies or affiliates). OCBC Bank does not verify or endorse any of the opinions or views expressed in this material. You should beware that all opinions and views expressed are subject to change without notice, and OCBC Bank does not undertake the responsibility to update anyone with any changes to the opinions and views expressed.

This does not constitute an offer or solicitation to buy or sell or subscribe for any security or financial instrument or to enter into a transaction or to participate in any particular trading or investment strategy at any price quoted or indicated herein. The proposed transaction(s) herein (if any) is/are subject to the final expression of the terms set forth in the definitive agreement(s) and/or confirmation(s).

The information provided herein is intended for general circulation and/or discussion purposes only and does not contain a complete analysis of every material fact. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. Without prejudice to the generality of the foregoing, please seek advice from a financial adviser regarding the suitability of any investment product taking into account your specific investment objectives, financial situation or particular needs before you make a commitment to purchase the investment product. In the event that you choose not to seek advice from a financial adviser, you should consider whether the product in question is suitable for you.

OCBC Bank is not acting as your adviser. This material is provided based on OCBC Bank’s understanding that (1) you have sufficient knowledge, experience and access to professional advice to make your own evaluation of the merits and risks of any investment product and (2) you are not relying on OCBC Bank or any of its representatives or affiliates for information, advice or recommendations of any sort except for specific factual information about the terms of the transaction proposed. This does not identify all the risks or material considerations that may be associated with any of the investment products. Prior to purchasing the investment product, you should independently consider and determine, without reliance upon OCBC Bank or its representatives or affiliates, the economic risks and merits, as well as the legal, tax and accounting characterisations and consequences of the investment product and that you are able to assume these risks. The information provided herein may contain projections or other forward looking statement regarding future events or future performance of countries, assets, markets or companies. Actual events or results may differ materially. Past performance figures are not necessarily indicative of future or likely performance. Any reference to any specific company, financial product or asset class in whatever way is used for illustrative purposes only and does not constitute a recommendation on the same.

No representation or warranty whatsoever (including without limitation any representation or warranty as to accuracy, usefulness, adequacy, timeliness or completeness) in respect of any information (including without limitation any statement, figures, opinion, view or estimate) provided herein is given by OCBC Bank and it should not be relied upon as such. OCBC Bank does not undertake an obligation to update the information or to correct any inaccuracy that may become apparent at a later time. All information presented is subject to change without notice. OCBC Bank shall not be responsible or liable for any loss or damage whatsoever arising directly or indirectly howsoever in connection with or as a result of any person acting on any information provided herein.

OCBC Bank and its respective associated and connected corporations together with their respective directors and officers may have or take positions in any securities mentioned in this report (which positions may change from time to time without notice) and may also perform or seek to perform broking and other investment or securities related services for the corporations whose securities are mentioned in this report as well as other parties generally.

This document has been prepared without taking account of the objectives, financial situation or needs of any specific person or organisation who may receive this document. Accordingly prior to making an investment decision, you should conduct such investigation and analysis regarding the product described herein as you deem appropriate and to the extent you deem necessary obtain independent advice from competent legal, financial, tax, accounting and other professionals, to enable you to understand and recognise fully the legal, financial, tax and other risks arising in respect of the product and the purchase, holding and sale thereof.

You should obtain and read the Product Highlight Sheet of the product before you make a decision to acquire the product. All information provided in this document is general and does not take into account your individual objectives, financial situation or specific needs.

You are required to read and understand the terms and Product Highlight Sheet of the product carefully before executing any transaction relating to the product with us. You may request for a copy of the Product Highlight Sheet at OCBC Banks’ branches.

The contents hereof may not be reproduced or disseminated in whole or in part without OCBC Bank's prior written consent.


 


Prolonged accommodative central bank policies support risk assets

 

With the ECB assessing the need for a 2nd round of QE while the US Federal Reserve considers a rate hike, the divergent policy actions are expected to cause market volatility. As such our equity weight remains neutral even though the low interest rate environment supports risk assets. We continue our preference for developed markets, particularly Europe.

For fixed income, investors should hold bonds with shorter tenures as such bonds tend to be less sensitive to increases in interest rates.

Recommendations:

  • Unit Trust: We recommend the CIMB-Principal Global Titans Fund as global equity rout earlier was a market correction and NOT the end of the bull cycle, and the correction provides opportunity for one to accumulate some developed market equities.
  • Unit Trust: We recommend the Affin Hwang Select Income Fund as this income-focused fund, which currently holds short-dated securities and features regular income, should moderate market volatilities impact amidst current market volatilities attributed to policy divergence.
  • Negotiable Instruments of Deposit: 5-year Callable Interest Cumulation Floating Rate Negotiable Instruments of Deposit (FRNID) , the underlying reference is Malaysia 3-month Kuala Lumpur Interbank Offered Rate. Client can receive up to 5.00% p.a. (quarterly distribution) with the tenure of 5 years if the underlying reference stays within the predefined barrier.
  • Dual Currency Investment: We recommend that customers pair the Ringgit Malaysia (MYR) against the U.S. Dollar (USD). The potential interest rate hike is imminent as the U.S. recovery remains on track and any short term weakness on the greenback shall be deemed as an opportunity to pair.

WARNING
THIS PRODUCT IS PRINCIPAL GUARANTEED BY THE ISSUING BANK UPON MATURITY ONLY. IF THE PRODUCT IS REDEEMED OR SOLD PRIOR TO MATURITY, THE CUSTOMER MAY LOSE PART OF THE INITIAL DEPOSIT AMOUNT. THE RETURNS ON THIS PRODUCT ARE UNCERTAIN AND THE CUSTOMER RISKS EARNING NO RETURNS AT ALL. THE CUSTOMER IS REMINDED THAT THIS PRODUCT IS NOT INSURED BY PERBADANAN INSURANS DEPOSIT MALAYSIA.

WARNING
THE RETURNS ON YOUR STRUCTURED PRODUCT INVESTMENT WILL BE AFFECTED BY THE PERFORMANCE OF THE UNDERLYING ASSET/REFERENCE, AND THE RECOVERY OF YOUR PRINCIPAL INVESTMENT MAY BE JEOPARDISED IF YOU MAKE AN EARLY REDEMPTION.
THIS STRUCTURED PRODUCT INVESTMENT IS NOT INSURED BY PERBADANAN INSURANS DEPOSIT MALAYSIA.



This document is not intended to constitute research analysis or recommendation and should not be treated as such.

We recommend that you read and understand the content of the Master Prospectus for CIMB – Principal Global Titans Fund (“the Fund”) dated 30 June 2015 by CIMB – Principal Asset Management Berhad and expires on 29 June 2016. Investments in the Fund are exposed to specific risks including stock specific risk, country risk, currency risk, fund manager’s risk, legal and taxation risk, counterparty risk and others as disclosed in Master Prospectus.

We recommend that you read and understand the Master Prospectus for the Affin Hwang Select Income Fund dated 18 July 2015 and expires on 17 July 2016 by Affin Hwang Asset Management Bhd (formerly known as Hwang Investment Management Berhad). Investments in the Fund are exposed to equity investment risk, country risk, currency risk, political risk, regulatory risk and others as disclosed in the prospectus.

Unit Trust investments are not bank deposits and are not obligations of or guaranteed or insured by OCBC Bank (Malaysia) Berhad. Unit Trust investments are not guaranteed and are subject to investment risk unless otherwise specified. The investment risk includes general risks as described in the Information Memorandum/Prospectuses for Unit Trust investment funds (“Information Memorandum/Prospectuses”) and specific risks which may be different for each Unit Trust investment. Description of specific risks and general risks are published in the Information Memorandum/Prospectuses. With respect to Unit Trust investment, past performance is not indicative of future results; the net asset value can go up or down. Investors should also note that the net asset value per unit and distributions payable, if any, may go down as well as up.

Where unit trust loan financing is available, investors are advised to read and understand the contents of the unit trust loan financing risk disclosure statement before deciding to borrow to purchase units. Where a unit split/distribution is declared, investors are advised that following the issue of additional units/distribution, the NAV per unit will be reduced from pre-unit split NAV/cum-distribution NAV to post-unit split NAV/ex-distribution NAV; and where a unit split is declared, investors should be highlighted of the fact that the value of their investment in Malaysian ringgit will remain unchanged after the distribution of the additional units.

The Information Memorandum/Prospectuses have been registered with the Securities Commission Malaysia, which takes no responsibility for its content. A copy of the Information Memorandum/Prospectuses can be obtained at OCBC Bank’s branches. Units will only be issued upon the receipt of application form referred in, and accompanying the Information Memorandum/Prospectuses. Investors are advised to read and understand the contents of the Information Memorandum/Prospectuses, and if necessary consult their adviser(s), as well as consider the fees and charges involved before investing in the Unit Trust.

This document has been prepared without taking account of the objectives, financial situation or needs of any specific person or organisation who may receive this document. Accordingly prior to making an investment decision, you should conduct such investigation and analysis regarding the product described herein as you deem appropriate and to the extent you deem necessary obtain independent advice from competent legal, financial, tax, accounting and other professionals, to enable you to understand and recognise fully the legal, financial, tax and other risks arising in respect of the product and the purchase, holding and sale thereof.

You should obtain and read the Product Highlight Sheet of the product before you make a decision to acquire the product. All information provided in this document is general and does not take into account your individual objectives, financial situation or specific needs.

You are required to read and understand the terms and Product Highlight Sheet of the product carefully before executing any transaction relating to the product with us. You may request for a copy of the Product Highlight Sheet at OCBC Banks’ branches.

The information provided herein is intended for general circulation and/or discussion purposes only and does not contain a complete analysis of every material fact. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. Without prejudice to the generality of the foregoing, please seek advice from a financial adviser regarding the suitability of any investment product taking into account your specific investment objectives, financial situation or particular needs before you make a commitment to purchase the investment product.

In the event that you choose not to seek advice from a financial adviser, you should consider whether the product in question is suitable for you. This does not constitute an offer or solicitation to buy or sell or subscribe for any security or financial instrument or to enter into a transaction or to participate in any particular trading or investment strategy.

All information presented is subject to change without notice. OCBC Bank shall not be responsible or liable for any loss or damage whatsoever arising directly or indirectly howsoever in connection with or as a result of any person acting on any information provided herein. The information provided herein may contain projections or other forward looking statement regarding future events or future performance of countries, assets, markets or companies. Actual events or results may differ materially. Past performance figures are not necessarily indicative of future or likely performance. Any reference to any specific company, financial product or asset class in whatever way is used for illustrative purposes only and does not constitute a recommendation on the same.

OCBC Bank and its respective associated and connected corporations together with their respective directors and officers may have or take positions in any securities mentioned in this report (which positions may change from time to time without notice) and may also perform or seek to perform broking and other investment or securities related services for the corporations whose securities are mentioned in this report as well as other parties generally.

The contents hereof may not be reproduced or disseminated in whole or in part without OCBC Bank’s written consent.




Lai Mun Yew (Michael)
  Vice President, Research, Wealth Management, OCBC Bank (Malaysia) Berhad

 

Global Outlook - Central Banks Lend Economies a Helping Hand

 

Major developed economies continue to make sound progress on the growth front. In addition, the promise of continued monetary policy support from central banks remains a key source of reassurance for markets and back a positive view on the economic outlook.

Key Points:

  • Recent years have seen repeated policy moves to support economic recovery, with the bulk of assistance coming from central banks, as fiscal positions have been strained. They continue to be the main players heading into 2016.
  • Central banks are more concerned about downside risks and deflation, and are less worried about the consequences of policy being too loose for too long. This is evident with the ECB ready to ease even though growth looks solid and China continuing to loosen policy despite still-rapid credit growth.
  • A solid performance in the U.S. in the third quarter means that 2015 growth is set to be as fast as in any year since the current recovery began in mid-2009. The continued improvement in the labour market is a good indicator of the stronger economy.
  • The Fed appears to be more relaxed about external threats to the economy. It is still a close call, but we expect the Fed to hike rates in their December policy meeting, starting with a 25 basis points increase.
  • In contrast, European Central Bank (ECB) President Draghi is pointing towards further easing at the December policy meeting, probably by extending and/or expanding its quantitative easing scheme, and perhaps even taking interest rates further into negative territory.
  • Further monetary stimulus looks unnecessary in our view, with steadily positive PMIs illustrating the health of the economic recovery, while underlying inflation continues to edge higher.
  • Japan is more exposed than other developed economies to the slowdown in China given its geographical proximity. However, that drag is being offset by a more vibrant domestic economy as seen in the recent Bank of Japan (BOJ) Tankan corporate survey, where the non-manufacturing sector is performing better than manufacturing.
  • Also, its labour markets continue to tighten as the recovering economy meets the demographic challenge. This is contributing to the strongest core inflation in two decades.
  • There are tentative signs of stabilisation in China’s economic data, and even of some rebalancing. This is still far from the rebounds seen in recent years in response to policy measures, but could be a sign that stimulus is starting to gain some traction. At the least, the risk of an imminent crash in growth seems to have faded.
  • Our concern remains the rapid credit growth, that while providing some relief to immediate growth stresses, adds to the costs and pain of the eventual clean-up of bad loans in the system.



 

Foreign Exchange & Commodities – Policy Divergence Theme in U.S. Dollar's Favour

 

The monetary policy divergence theme is back in focus given the European Central Bank’s dovish surprise in October, while the Federal Reserve guides for a potential rate hike in December. This should drive the U.S. Dollar moderately stronger against the Euro and Yen over the next 6 to 12 months.

Key Points:

  • The U.S. Dollar corrected against emerging market (EM) and commodity currencies, in line with a risk rally sparked by the delayed Fed hike and an expectation that fiscal stimulus is stabilizing growth in the Chinese economy.
  • The European Central Bank’s (ECB) possible further easing at its December policy meeting reinforces our conviction that there is enough of policy divergence theme to keep us in the stronger U.S. Dollar camp, even though we are in the mature phase of the bull trend against the majors such as the Euro and Japanese Yen.
  • The People’s Bank of China delivered a combination of further interest rate and Reserve Requirement Ratio cuts recently. With more CNY weakness likely down the line, it is too early to argue that the worst is over for EM Asia FX.
  • The Monetary Authority of Singapore eased its policy stance by ‘slightly’ further reducing the slope of the S$NEER band appreciation.
  • Singapore managed to narrowly avoid a technical recession but odds are still tilted towards further policy easing in Singapore. Use any pullback to position for weaker Singapore Dollar versus not just the U.S. Dollar but also British Pound and Indonesian Rupiah.
  • We remain wary of chasing after the relief rally for EM and commodity currencies. The strong link between several key EM currencies and commodity prices remains in our view a source of vulnerability.
  • We would need to see evidence of a clear stabilization in commodity prices or of strong rebound in domestic EM growth to be convinced of a sustained recovery of EM and commodity currencies.
  • We remain bearish on gold on a 6 to 12 month horizon. We think a Fed rate hike is only a question of when, rather than if, and gold would struggle in a rising U.S. interest rate environment. Any rebound in gold price close to US$1190 is likely to provide a selling opportunity in our view.
  • Oil defied a more positive market tone in October, which points to oversupply being the main factor behind soft prices. Falling inventories and a declining rig count show that supply is responding, but it is perhaps slower than expected.



 

Bonds – Fed Signals Potential Hike in December

 

Concerns over downside risks to the global cycle are pushing for a response from central banks, which is pulling down bond yields. However, this is threatened by the approaching U.S. interest rate hike.

Key Points:

  • The odds of a December rate hike have increased after the Fed dropped the previous reference to “global economic and financial developments” in its October policy statement.
  • This seems reasonable, as markets have calmed down, exchange rates have rebounded and there are tentative signs that policy stimulus in China is gaining some traction.
  • At the same time, the ECB is pointing towards more policy action in December, while the BoJ continues with its quantitative easing programme.
  • In this environment, we remain underweight on investment grade (IG) bonds, as risks are tilted to the downside. We would also recommend being moderately underweight duration at around four years.
  • We remain concerned over the speed and scale of subsequent interest rate increases by the Fed following the first rate hike. The market is expecting only four or five 25 basis points increase by the end of 2017, which would be a remarkably slow pace of tightening for an economy which is already at full employment.
  • Expectations could shift quite rapidly once the Fed starts tightening, especially if it does not change its projections for interest rates at 2.6 per cent by end 2017.
  • We should also pay some attention to the rise in core inflation in Europe and Japan. This has been obscured by the weak headline inflation that comes from lower energy prices, but it could impact policy and bond markets in 2016 as oil prices stabilise or even rebound.
  • We remain cautious on emerging market (EM) high yield bonds given the existing macro and political headwinds and growing deterioration in company fundamentals.
  • In addition, we remain cautious in our exposure to U.S. high yield bonds given its significant exposure to the energy sector and the oil price volatility, which need not bode well for such bond issuers.



 

Equities – Waiting for the Fed Lift-off

 

Global equities recovered strongly in October after the fallout in August and September, buoyed by dovish central bank posturing. The Fed delayed the rate hike decision, the ECB stated it would reconsider quantitative easing policy and China cut rates for the sixth time this year. We advise clients to stay invested in equities through a neutral weighting, and prefer developed markets, particularly Europe over Asia.

Key Points:

  • October turned out a lighter shade of grey as risk markets clawed back into positive territory.
  • While fundamentals remain largely unchanged, investors found cheer in market-friendly policy actions from central banks, against a weak inflationary backdrop and abundant market liquidity.
  • China cut interest rates for the sixth time this year and lowered banks’ reserve requirements, to combat deflation and a slowing economy. The European Central Bank (ECB) also signalled support for further quantitative easing (QE) by potentially expanding its programme beyond next September if needed.
  • Stronger economic growth in the U.S. augurs well for U.S. equities, in our view. However we remain cognizant that valuations are still not cheap despite the market correction in August and September. Also, the uncertainty over the timing of the Fed rate hike remains a key source of volatility.
  • The macro picture in Europe is likely to stay supportive in the medium term with the ECB keen to step in with further stimulus. We also see further corporate margin improvements driven by better economic fundamentals, easier credit and cheaper commodities.
  • The BOJ kept its monetary policy unchanged during their latest policy meeting. This has since pushed back market expectations of further easing into 2016.
  • Consensus earnings expectations in Japan have held up well so far, but in view of the slowdown in emerging market (EM) economies, especially China, Japan Inc. is likely to conservatively revise down their guidance for the next earnings season. On the bright side, valuations for Japanese equities remain at historical lows, likely pricing in such potential earnings revision.
  • Languid growth prospects in view of weak commodity trends and higher vulnerability to U.S. monetary policy, lead us to be more cautious of Asia Ex-Japan equities, even though valuations remain undemanding. We will only seek to upgrade Asia once we are safely past the impending Fed rate hike.
  • Overall, we believe the solid growth momentum in the major developed countries will help to offset the struggles in some parts of the emerging world. Also, given the prevailing macro uncertainties surrounding the timing of the rate hike, we maintain our neutral stance on equities and continue to like developed markets.



 

Important Information

 

Any opinions or views expressed in this material are those of the author and third parties identified, and not those of OCBC Bank (Malaysia) Berhad (“OCBC Bank”, which expression shall include OCBC Bank’s related companies or affiliates).

The information provided herein is intended for general circulation and/or discussion purposes only and does not contain a complete analysis of every material fact. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. Without prejudice to the generality of the foregoing, please seek advice from a financial adviser regarding the suitability of any investment product taking into account your specific investment objectives, financial situation or particular needs before you make a commitment to purchase the investment product.

In the event that you choose not to seek advice from a financial adviser, you should consider whether the product in question is suitable for you. This does not constitute an offer or solicitation to buy or sell or subscribe for any security or financial instrument or to enter into a transaction or to participate in any particular trading or investment strategy.

OCBC Bank, its related companies, their respective directors and/or employees (collectively ‘Related Persons’) may have positions in, and may effect transaction in the products mentioned herein. OCBC Bank may have alliances with the product providers, for which OCBC Bank may receive a fee. Product providers may also be Related Persons, who may be receiving fees from investors. OCBC Bank and the Related Person may also perform or seek to perform broking and other financial services for the product providers.

All information presented is subject to change without notice. OCBC Bank shall not be responsible or liable for any loss or damage whatsoever arising directly or indirectly howsoever in connection with or as a result of any person acting on any information provided herein. The information provided herein may contain projections or other forward-looking statements regarding future events or future performance of countries, assets, markets or companies. Actual events or results may differ materially. Past performance figures are not necessarily indicative of future or likely performance. Any reference to any specific company, financial product or asset class in whatever way is used for illustrative purposes only and does not constitute a recommendation on the same.

The contents hereof may not be reproduced or disseminated in whole or in part without OCBC Bank’s written consent.


 


2016 Outlook More Sanguine

 

We continue to advocate exposure to mixed asset strategies, as it provides a balance of yield and equity market participation.

Among equity markets, our preference is for Europe over the US.

For fixed income, investors should continue to hold bonds with shorter tenors, as such bonds tend to be less sensitive to increases in interest rates.

Recommendations:

  • Unit Trust: We recommend the Aberdeen Islamic World Equity Fund as this Fund invests in an international portfolio of Shariah compliant equities and equity-related securities of companies based on good long term growth prospects, strong balance sheets, steady cash flows and sound corporate governance practices. These qualities will help achieve good long-term returns to investors.
  • Unit Trust: We recommend the RHB-OSK Asian Income Fund as this Fund invests in one target fund, the Schroder Asian Income fund. This fund aims to provide income and capital growth over the medium- to long-term via an active asset allocation strategy. Exposure in Asia is opportunistic as we view Asia being in a relatively strong position with a high level of foreign reserves, limited external debt, undervalued exchange rates and plenty of policy flexibility.
  • Negotiable Instruments of Deposit: 5-year Callable Interest Cumulation Floating Rate Negotiable Instruments of Deposit (FRNID) , the underlying reference is Malaysia 3-month Kuala Lumpur Interbank Offered Rate. Client can receive up to 5.00% p.a. (quarterly distribution) with the tenure of 5 years if the underlying reference stays within the predefined barrier.
  • Negotiable Instruments of Deposit: We recommend the Target Rebate Equity Linked Floating Rate Negotiable Instruments of Deposit (FRNID) , the underlying reference is Wisdom Tree Europe Hedged Equity Fund. This Fund is a Euro Index ETF and moves closely with the Euro Equity Index. The underlying should perform positively in tandem with Eurozone’s resilient economic fundamentals.

WARNING
THIS PRODUCT IS PRINCIPAL GUARANTEED BY THE ISSUING BANK UPON MATURITY ONLY. IF THE PRODUCT IS REDEEMED OR SOLD PRIOR TO MATURITY, THE CUSTOMER MAY LOSE PART OF THE INITIAL DEPOSIT AMOUNT. THE RETURNS ON THIS PRODUCT ARE UNCERTAIN AND THE CUSTOMER RISKS EARNING NO RETURNS AT ALL. THE CUSTOMER IS REMINDED THAT THIS PRODUCT IS NOT INSURED BY PERBADANAN INSURANS DEPOSIT MALAYSIA.

WARNING
THE RETURNS ON YOUR STRUCTURED PRODUCT INVESTMENT WILL BE AFFECTED BY THE PERFORMANCE OF THE UNDERLYING ASSET/REFERENCE, AND THE RECOVERY OF YOUR PRINCIPAL INVESTMENT MAY BE JEOPARDISED IF YOU MAKE AN EARLY REDEMPTION.
THIS STRUCTURED PRODUCT INVESTMENT IS NOT INSURED BY PERBADANAN INSURANS DEPOSIT MALAYSIA.



This document is not intended to constitute research analysis or recommendation and should not be treated as such.

We recommend that you read and understand the contents of the Prospectus for Aberdeen Islamic World Equity Fund dated 17 January 2015 and Supplementary Prospectus(es) (if any) (together the “Prospectus”) by Aberdeen Islamic Asset Management Sdn. Bhd. Investments in the Fund are exposed to market risk, stock specific risk, concentration risk, currency risk, execution and counterparty risk and others as disclosed in the prospectus.

We recommend that you read and understand the contents of the Master Prospectus for the RHB-OSK Asian Income Fund dated 15 March 2015 and its supplementary(ies) (if any) ('the Master Prospectus') by RHB Asset Management Sdn Bhd. Investments in this Fund are exposed to management risk, liquidity risk, foreign investment risks, market risk, credit risk, investment grade, below investment grade and unrated debt securities risk, risks relating to distributions, emerging markets and frontier risk, derivatives risk and others as disclosed in the Master Prospectus.

Unit Trust investments are not bank deposits and are not obligations of or guaranteed or insured by OCBC Bank (Malaysia) Berhad. Unit Trust investments are not guaranteed and are subject to investment risk unless otherwise specified. The investment risk includes general risks as described in the Information Memorandum/Prospectuses for Unit Trust investment funds (“Information Memorandum/Prospectuses”) and specific risks which may be different for each Unit Trust investment. Description of specific risks and general risks are published in the Information Memorandum/Prospectuses. With respect to Unit Trust investment, past performance is not indicative of future results; the net asset value can go up or down. Investors should also note that the net asset value per unit and distributions payable, if any, may go down as well as up.

Where unit trust loan financing is available, investors are advised to read and understand the contents of the unit trust loan financing risk disclosure statement before deciding to borrow to purchase units. Where a unit split/distribution is declared, investors are advised that following the issue of additional units/distribution, the NAV per unit will be reduced from pre-unit split NAV/cum-distribution NAV to post-unit split NAV/ex-distribution NAV; and where a unit split is declared, investors should be highlighted of the fact that the value of their investment in Malaysian ringgit will remain unchanged after the distribution of the additional units.

The Information Memorandum/Prospectuses have been registered with the Securities Commission Malaysia, which takes no responsibility for its content. A copy of the Information Memorandum/Prospectuses can be obtained at OCBC Bank’s branches. Units will only be issued upon the receipt of application form referred in, and accompanying the Information Memorandum/Prospectuses. Investors are advised to read and understand the contents of the Information Memorandum/Prospectuses, and if necessary consult their adviser(s), as well as consider the fees and charges involved before investing in the Unit Trust.

This document has been prepared without taking account of the objectives, financial situation or needs of any specific person or organisation who may receive this document. Accordingly prior to making an investment decision, you should conduct such investigation and analysis regarding the product described herein as you deem appropriate and to the extent you deem necessary obtain independent advice from competent legal, financial, tax, accounting and other professionals, to enable you to understand and recognise fully the legal, financial, tax and other risks arising in respect of the product and the purchase, holding and sale thereof.

You should obtain and read the Product Highlight Sheet of the product before you make a decision to acquire the product. All information provided in this document is general and does not take into account your individual objectives, financial situation or specific needs.

You are required to read and understand the terms and Product Highlight Sheet of the product carefully before executing any transaction relating to the product with us. You may request for a copy of the Product Highlight Sheet at OCBC Banks’ branches.

The information provided herein is intended for general circulation and/or discussion purposes only and does not contain a complete analysis of every material fact. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. Without prejudice to the generality of the foregoing, please seek advice from a financial adviser regarding the suitability of any investment product taking into account your specific investment objectives, financial situation or particular needs before you make a commitment to purchase the investment product.

In the event that you choose not to seek advice from a financial adviser, you should consider whether the product in question is suitable for you. This does not constitute an offer or solicitation to buy or sell or subscribe for any security or financial instrument or to enter into a transaction or to participate in any particular trading or investment strategy.

All information presented is subject to change without notice. OCBC Bank shall not be responsible or liable for any loss or damage whatsoever arising directly or indirectly howsoever in connection with or as a result of any person acting on any information provided herein. The information provided herein may contain projections or other forward looking statement regarding future events or future performance of countries, assets, markets or companies. Actual events or results may differ materially. Past performance figures are not necessarily indicative of future or likely performance. Any reference to any specific company, financial product or asset class in whatever way is used for illustrative purposes only and does not constitute a recommendation on the same.

OCBC Bank and its respective associated and connected corporations together with their respective directors and officers may have or take positions in any securities mentioned in this report (which positions may change from time to time without notice) and may also perform or seek to perform broking and other investment or securities related services for the corporations whose securities are mentioned in this report as well as other parties generally.

The contents hereof may not be reproduced or disseminated in whole or in part without OCBC Bank’s written consent.




Lai Mun Yew (Michael)
  Vice President, Research, Wealth Management, OCBC Bank (Malaysia) Berhad

 

Global Outlook – Global Growth Poised to Pick-up

 

We are sanguine about the global economic outlook for 2016. Growth will probably be a little better than in 2015. In this mid-cycle phase in developed economies, there should be limited room for major growth surprises, with monetary policy remaining supportive. Emerging markets are more uncertain, but should be reasonably resilient.

Key Points:

  • The US is heading is heading into its seventh year of recovery and is the closest to normalisation of any of the major developed economies. Growth in 2016 is set to remain close to the 2.5 per cent average of the past two years, and that has been enough to pull the unemployment rate down from 7.2 per cent to 5 per cent. So the improving labour market is quickly soaking up the excess supply.
  • Despite the problems over export competitiveness in the U.S. and in the energy sector, domestic demand is solid enough to drive the recovery. Consumer spending and business investment are recovering, and housing in particular, is in a sweet spot, well-placed to withstand a moderate rise in borrowing costs.
  • Growth in Europe has benefitted from deficit reduction programmes winding down. Austerity remains a highly-charged issue, but fiscal adjustments have been huge, and it is no longer a major factor for the growth outlook.
  • The debt burden in Europe is stabilising, but it is still too high to leave much policy flexibility in the event of a renewed cyclical downturn. This could help to explain the ECB’s readiness to extend its QE programme despite the solid economic performance in 2015.
  • Core inflation in Japan is admittedly, still well below the Bank of Japan’s (BOJ) 2 per cent target, but it is hard to justify more monetary stimulus when the economy appears to be at full capacity.
  • On emerging markets, if we look at the large economies that are facing external deficits and/or dependence on commodity exports, we can see that exchange rates are already well below the average of the past decade. The implication is that much of the impact of extreme U.S. monetary policy and high commodities prices has already unwound.
  • Within Emerging Markets (EM), Asia is in a relatively strong position with a high level of foreign exchange reserves, limited external debt, undervalued exchange rates and plenty of policy flexibility.



 

Foreign Exchange & Commodities – Greenback May See Modest Gains

 

The U.S. Dollar appreciation cycle is not over but the currency is no longer a buy and hold trade in 2016. The monetary policy divergence between the Fed and both the European Central Bank and BOJ will continue to drive the greenback to a new high against the Euro and Yen in the first half of 2016.

Key Points:

  • The US economy can live with higher U.S. interest rates and a stronger U.S. Dollar. However, we don’t have strong conviction that the greenback can make further substantial gains in 2016 as it did in the past two years.
  • We don’t think the U.S. dollar is a buy and hold trade in 2016. Looking through the past three Fed tightening cycles (1994, 1999, 2004), the U.S. Dollar appreciated in advance but in each case, gave up ground in the months after the first hike.
  • Although the U.S. Dollar may strengthen against the Euro and Yen in the first half of 2016, this could give way to sideways trading in the second half of the year. First, the Fed is unlikely to give a green light to further large and rapid U.S. Dollar appreciation. Second, accelerating Eurozone and Japanese growth is likely to challenge expectations of further easing by ECB and BOJ in 2016. Third, the global risk environment could become more challenging as a stronger greenback heightens fears that China’s currency, which is semi-pegged to the U.S. Dollar, could be devalued again.
  • One big question in 2016 is whether China can live with higher U.S. interest rates and a stronger greenback. The Chinese currency’s quasi-U.S. Dollar peg is likely to worsen China’s export competitiveness and further exacerbate the domestic growth slowdown as the U.S. Dollar strengthens. This could lead to concerns that China may devalue its currency once again.
  • In the U.K., the Pound should continue to find support versus currencies still in easing mode such as the Euro and Swiss Franc in early 2016, but not so versus the U.S. Dollar. Improvements in the U.K. labour market and rising domestic cost pressures will lead the Bank Of England to hike after the Fed. Also, with support and funding for the Brexit camp growing, there is a growing risk that the Pound’s volatility will pick up by late 2016.
  • We remain fairly negative on the commodity sector given the slowdown in China, the supply overhang in some segments of the commodity space and the prospects for Fed rate hikes and a stronger U.S. Dollar.
  • Despite the collapse in prices a year ago, 2015 oil supply is set to increase at the fast pace in a decade. Demand is better, but not by enough to send inventories down. Current prices seem to be well below medium-term equilibrium levels, but supply is responding more slowly than we had expected. As a result we are cutting our 12-month forecast for WTI to US$55 from US$60 and for Brent to US$60 from US$65.



 

Bonds – Challenging Year Ahead For Bonds

 

We expect the Fed to raise interest rates once per quarter in 2016, by 25 basis points each time. This could leave the Fed Funds rate at 1.25 to 1.50 per cent by the end of 2016. The pace of rate hikes is likely to pick up slightly in 2017, with the Fed likely to end the year around 2.5 to 3 per cent.

Key Points:

  • Markets may be too complacent about Fed rate hikes in 2016. The Fed is saying that rate hikes will be “gradual”, but based on history, anything slower than 200 basis points of rate hikes in the first year could meet that definition.
  • The early stages of a Fed tightening cycle may provide a difficult environment for bond investors. Short-term interest rates are set to rise faster than the market expects, and this should send 10-year U.S. Treasury yields higher.
  • While we are more positive on equities, bonds should still be sought after as the search for yield should continue given that global interest rates will remain low by historical standards. Within the bond space, we are most positive on Emerging Market High Yield bonds.
  • For prudence, investors should always have some bonds in their portfolios and not invest all their funds into equities even if they have a strong risk appetite. However, it’s best to invest in shorter dated bonds, with a tenor of up to four years, as longer dated bonds are more susceptible to interest rate hikes.
  • One risk that investors need to be wary of for bond is liquidity risk. Under the new regulatory regime, banks which had been liquidity providers are required to shrink their balance sheets, while limiting the risk they can take on their balance sheets. If there is an exogenous event and investors rush to get out of the door, this may trigger heightened price volatility.
  • To reduce such risks, investors should hold a well-diversified portfolio across all asset classes, including developed and emerging market bonds and equities. For bonds, it is important to have issues with a reasonable issue size and spread across a spectrum of maturities. For investors with a higher risk appetite, portfolio leverage should also be kept at moderate levels.



 

Equities – More Positive Year in 2016

 

We expect equity markets to remain volatile in 2016. Clearly the driver that will create market volatility is the impending Fed rate hike. However by the end of the year, we are confident that markets will be higher than when we started, despite potentially big swings in between. We like European equities because of the tailwinds of negative rates as well as easier monetary policy from the ECB.

Key Points:

  • The steadily recovering global economy led by the U.S. and easier macro policies in Japan and Europe remains a stable backdrop for equities.
  • We are more cautious on U.S. equities because the extended valuations coupled with anaemic corporate earnings growth could cap performance. With the improving labour market, we should start to see wage pressure on corporate margins. Price/earnings valuation at about 18 times, versus the 10-year average of 15 times, means the market is no longer cheap.
  • In Japan despite the weak headline figures, the economy is recovering well with the labour market tightening. However, as the effect of these fade, heading into 2016, the market is likely to be more discerning. On the political front, the Upper House election in July could provide further tailwind to kick off 2016 but the final decision on the consumption tax hike could be a headwind for Japanese equities in 2016.
  • The BOJ is expected to keep the markets guessing but taking the view that it is hard to justify further stimulus with the economy recovering – this may disappoint investors. Nevertheless, BOJ policy is accommodative and valuation at a price/earnings ratio of 15 times remains relatively attractive within the developed market universe.
  • In Europe, the macro picture is likely to be supportive of equities there, especially with the ECB’s easier monetary policy. We see further corporate margin improvements driven by better economic growth, easier credit and cheaper commodities.
  • Near-term, we continue to see U.S. monetary policy driving volatility of Asia Ex-Japan equities. Nevertheless, with the sustained de-rating, earnings growth expectations have moderated and valuations are undemanding. Furthermore, Asia’s macroeconomic growth outlook is stabilising and a pick-up in economic reforms could provide the much needed catalyst for a rebound in Asian equities. Hence, we are now less cautious on the region’s equity markets.



 

Important Information

 

Any opinions or views expressed in this material are those of the author and third parties identified, and not those of OCBC Bank (Malaysia) Berhad (“OCBC Bank”, which expression shall include OCBC Bank’s related companies or affiliates).

The information provided herein is intended for general circulation and/or discussion purposes only and does not contain a complete analysis of every material fact. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. Without prejudice to the generality of the foregoing, please seek advice from a financial adviser regarding the suitability of any investment product taking into account your specific investment objectives, financial situation or particular needs before you make a commitment to purchase the investment product.

In the event that you choose not to seek advice from a financial adviser, you should consider whether the product in question is suitable for you. This does not constitute an offer or solicitation to buy or sell or subscribe for any security or financial instrument or to enter into a transaction or to participate in any particular trading or investment strategy.

OCBC Bank, its related companies, their respective directors and/or employees (collectively ‘Related Persons’) may have positions in, and may effect transaction in the products mentioned herein. OCBC Bank may have alliances with the product providers, for which OCBC Bank may receive a fee. Product providers may also be Related Persons, who may be receiving fees from investors. OCBC Bank and the Related Person may also perform or seek to perform broking and other financial services for the product providers.

All information presented is subject to change without notice. OCBC Bank shall not be responsible or liable for any loss or damage whatsoever arising directly or indirectly howsoever in connection with or as a result of any person acting on any information provided herein. The information provided herein may contain projections or other forward-looking statements regarding future events or future performance of countries, assets, markets or companies. Actual events or results may differ materially. Past performance figures are not necessarily indicative of future or likely performance. Any reference to any specific company, financial product or asset class in whatever way is used for illustrative purposes only and does not constitute a recommendation on the same.

The contents hereof may not be reproduced or disseminated in whole or in part without OCBC Bank’s written consent.


 


Turbulent Markets Bring Opportunities

 

We have raised our equity call to “overweight” and downgraded cash to negative, holding the view that the recent market correction was largely due to investor sentiment and not the result of deteriorating economic fundamentals. Among equity markets, our preference is for Europe over the U.S.

Nevertheless, we continue to advocate exposure to mixed asset strategies, as it provides a balance of yield and equity market participation.

For fixed income, investors should continue to hold bonds with shorter tenors, as such bonds tend to be less sensitive to increases in interest rates.

Recommendations:

  • Unit Trust: We recommend the TA European Equity Fund as this Fund comprises a diversified portfolio of local and/or foreign equity funds, REITs and ETFs that invests in Europe. Returns are expected in the form of consistent capital appreciation of underlying funds and dividend income. Exposure in the European region is consistent with our call, in view of the abundant QE liquidity and diminishing deflation risk which are expected to remain supportive of its economic recovery.
  • Unit Trust: We recommend the CIMB-Principal Asia Pacific Dynamic Income Fund , in line with our view that Asia’s macroeconomic growth outlook is stabilising. The pick-up in economic reforms and headroom for policy flexibility could provide much needed equity market catalysts.
  • Unit Trust: We recommend the RHB Global Equity Stabiliser Fund as this Fund invests 95% of NAV in one target fund, the Schroder Global Equity Stabiliser, a diversified portfolio of global equities with a quality and yield bias. This Fund also incorporates a Stabiliser Mechanism aimed at reducing losses during adverse market conditions while providing the opportunity to tap into the growth potential of global equities.
  • Unit Trust: We recommend the Pacific Emerging Market Bond Fund as this Fund invests a minimum of 95% of its NAV in the MYR Hedged Class of the Target Fund managed by Lion Global Investors Limited. The target Fund is the Lion Capital Funds II – Lion-Bank of Singapore Emerging Market Bond Fund.

WARNING
THIS PRODUCT IS PRINCIPAL GUARANTEED BY THE ISSUING BANK UPON MATURITY ONLY. IF THE PRODUCT IS REDEEMED OR SOLD PRIOR TO MATURITY, THE CUSTOMER MAY LOSE PART OF THE INITIAL DEPOSIT AMOUNT. THE RETURNS ON THIS PRODUCT ARE UNCERTAIN AND THE CUSTOMER RISKS EARNING NO RETURNS AT ALL. THE CUSTOMER IS REMINDED THAT THIS PRODUCT IS NOT INSURED BY PERBADANAN INSURANS DEPOSIT MALAYSIA.

WARNING
THE RETURNS ON YOUR STRUCTURED PRODUCT INVESTMENT WILL BE AFFECTED BY THE PERFORMANCE OF THE UNDERLYING ASSET/REFERENCE, AND THE RECOVERY OF YOUR PRINCIPAL INVESTMENT MAY BE JEOPARDISED IF YOU MAKE AN EARLY REDEMPTION.
THIS STRUCTURED PRODUCT INVESTMENT IS NOT INSURED BY PERBADANAN INSURANS DEPOSIT MALAYSIA.



This document is not intended to constitute research analysis or recommendation and should not be treated as such.

We recommend that you read and understand the contents of the Master Prospectus for the TA European Equity Fund dated 1 October 2015 and expire on 30 September 2016, by TA INVESTMENT MANAGEMENT BERHAD. Investments in the Fund are exposed to market risk, currency risk, country risk, emerging market risk, interest rate risk and credit/default risk.

We recommend that you read and understand the content of the Prospectus Issue No. M1 for the CIMB-Principal Asia Pacific Dynamic Income Fund dated 30 June 2015 and expires on 29 June 2016 by CIMB-Principal Asset Management Berhad. Investments in the Fund are exposed to country risk, credit (default) and counterparty risk, interest rate risk, liquidity risk, risk associated with temporary defensive positions, risk of investing in emerging markets, stock specific risk and others as disclosed in the prospectus.

We recommend that you read and understand the content of the Information Memorandum for RHB Global Equity Stabiliser Fund dated 15 January 2015, which must be read together with the First Supplementary Information Memorandum dated 31 March 2015 and Second Supplementary Information Memorandum dated 5 August 2015 by RHB Asset Management Sdn Bhd. Investments in the Fund are exposed to country risk, equity risk, currency risk, management risk, emerging market risk and others as disclosed in the Information Memorandum. This fund is eligible to be purchased by High Net Worth Individuals only, the criteria of High Net Worth Individuals as per stated in Schedules 6 and 7 of Capital Market and Services Act (CMSA) 2007.

We recommend that you read and understand the content of the Information Memorandum for Pacific Emerging Market Bond Fund dated 26 January 2016 by Pacific Mutual Fund Bhd. Investments in the Fund are exposed to political risk, repatriation risk, global emerging market risk, regulatory risk, concentration risk and others as disclosed in the Information Memorandum. This fund is eligible to be purchased by High Net Worth Individuals only, the criteria of High Net worth Individuals as per stated in Schedules 6 and 7 of Capital Market and Services Act (CMSA) 2007.

Unit Trust investments are not bank deposits and are not obligations of or guaranteed or insured by OCBC Bank (Malaysia) Berhad. Unit Trust investments are not guaranteed and are subject to investment risk unless otherwise specified. The investment risk includes general risks as described in the Information Memorandum/Prospectuses for Unit Trust investment funds (“Information Memorandum/Prospectuses”) and specific risks which may be different for each Unit Trust investment. Description of specific risks and general risks are published in the Information Memorandum/Prospectuses. With respect to Unit Trust investment, past performance is not indicative of future results; the net asset value can go up or down. Investors should also note that the net asset value per unit and distributions payable, if any, may go down as well as up.

Where unit trust loan financing is available, investors are advised to read and understand the contents of the unit trust loan financing risk disclosure statement before deciding to borrow to purchase units. Where a unit split/distribution is declared, investors are advised that following the issue of additional units/distribution, the NAV per unit will be reduced from pre-unit split NAV/cum-distribution NAV to post-unit split NAV/ex-distribution NAV; and where a unit split is declared, investors should be highlighted of the fact that the value of their investment in Malaysian ringgit will remain unchanged after the distribution of the additional units.

The Information Memorandum/Prospectuses have been registered with the Securities Commission Malaysia, which takes no responsibility for its content. A copy of the Information Memorandum/Prospectuses can be obtained at OCBC Bank’s branches. Units will only be issued upon the receipt of application form referred in, and accompanying the Information Memorandum/Prospectuses. Investors are advised to read and understand the contents of the Information Memorandum/Prospectuses, and if necessary consult their adviser(s), as well as consider the fees and charges involved before investing in the Unit Trust.

This document has been prepared without taking account of the objectives, financial situation or needs of any specific person or organisation who may receive this document. Accordingly prior to making an investment decision, you should conduct such investigation and analysis regarding the product described herein as you deem appropriate and to the extent you deem necessary obtain independent advice from competent legal, financial, tax, accounting and other professionals, to enable you to understand and recognise fully the legal, financial, tax and other risks arising in respect of the product and the purchase, holding and sale thereof.

You should obtain and read the Product Highlight Sheet of the product before you make a decision to acquire the product. All information provided in this document is general and does not take into account your individual objectives, financial situation or specific needs.

You are required to read and understand the terms and Product Highlight Sheet of the product carefully before executing any transaction relating to the product with us. You may request for a copy of the Product Highlight Sheet at OCBC Banks’ branches.

The information provided herein is intended for general circulation and/or discussion purposes only and does not contain a complete analysis of every material fact. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. Without prejudice to the generality of the foregoing, please seek advice from a financial adviser regarding the suitability of any investment product taking into account your specific investment objectives, financial situation or particular needs before you make a commitment to purchase the investment product.

In the event that you choose not to seek advice from a financial adviser, you should consider whether the product in question is suitable for you. This does not constitute an offer or solicitation to buy or sell or subscribe for any security or financial instrument or to enter into a transaction or to participate in any particular trading or investment strategy.

All information presented is subject to change without notice. OCBC Bank shall not be responsible or liable for any loss or damage whatsoever arising directly or indirectly howsoever in connection with or as a result of any person acting on any information provided herein. The information provided herein may contain projections or other forward looking statement regarding future events or future performance of countries, assets, markets or companies. Actual events or results may differ materially. Past performance figures are not necessarily indicative of future or likely performance. Any reference to any specific company, financial product or asset class in whatever way is used for illustrative purposes only and does not constitute a recommendation on the same.

OCBC Bank and its respective associated and connected corporations together with their respective directors and officers may have or take positions in any securities mentioned in this report (which positions may change from time to time without notice) and may also perform or seek to perform broking and other investment or securities related services for the corporations whose securities are mentioned in this report as well as other parties generally.

The contents hereof may not be reproduced or disseminated in whole or in part without OCBC Bank’s written consent.




Lai Mun Yew (Michael)
  Vice President, Research, Wealth Management, OCBC Bank (Malaysia) Berhad

 

Global Outlook - Stable Global Growth

 

The volatility in financial markets contrasts with a stable and healthy growth outlook for developed markets, although central banks will be watchful of any collateral damage. Elsewhere, China should avoid a hard landing and Asia looks relatively stable.

Key Points:

  • We see world growth at 3.3 per cent this year, nowhere near the recession that some bears are predicting. Growth is set to remain in the 3 to 3.5 per cent range for the fifth successive year in 2016, a pace that is neither impressive nor troublesome.
  • China is the main risk due to the scale of its credit bubble. While policy-makers have proved inept at permitting market solutions, resolving the bad loans problem will require directing government-related bodies to act, which is more familiar territory.
  • The U.S. economy created 851,000 new jobs in the fourth quarter of 2015, in a sign that the slowdown in exports or oil-related sectors is not enough to make much of a dent in the domestic recovery. In fact, low oil prices should have a positive effect on the U.S. economy, as the initial hit from weaker investment fades.
  • The European economy has been untroubled by events inside or outside its borders over the past year. Stable PMI readings, comfortably above 50, illustrate the lack of impact from the Greek crisis or emerging market troubles.
  • Japan continues to prosper with the tightest labour markets in a generation and the strongest corporate profitability on record. Core inflation has pushed up to the fastest pace in two decades. Price rises of 0.9 per cent are still half of the Bank of Japan’s target, but the exit from deflation is convincing.
  • Some emerging markets continue to struggle, but Asia looks relatively stable. The region is a beneficiary of lower commodity prices and most countries in the region have a solid external surplus which provides some insulation from the worst of the currency turmoil.



 

Foreign Exchange & Commodities - Greenback Could Post More Gains

 

The greenback may post further gains on the back of the next two Fed rate hikes. However, periods of Fed tightening are not necessarily associated with U.S. Dollar strength once the direction of policy is discounted – so upside for the greenback may be limited.

Key Points:

  • Currency markets seem to be overreacting to global growth fears. The outperformance of funding currencies such as the Japanese Yen and the Euro, underperformance of commodity currencies, and the Pound’s significant underperformance are typically observed during heightened fears of global recession.
  • As investor sentiment stabilises, depreciation pressures on Pound and commodity currencies should wane while appreciation pressures on the Yen and Euro should ease.
  • Also, Fed tightening coupled with policy easing by the European Central Bank and Bank of Japan (BOJ) should benefit the greenback at least in the short term. However, the greenback may not post substantial gains against the major currencies having already appreciated significantly against them.
  • Despite the BOJ’s move to negative interest rates, the Japanese Yen may not weaken substantially over the medium-term as the currency is seen as a hedge against another possible flare-up of market turmoil as experienced at the start of 2016.
  • Possible delay of the Bank of England’s rate hike, uncertainty around Brexit and negative risk sentiment have been key drivers of recent outsized Pound weakness. However, Brexit risks are exaggerated as polls underestimate the strength of status quo. But if the U.K. votes to stay in the EU as we expect, the Pound should moderately recover over the medium term.
  • China has preferred to keep its currency’s fixings to the U.S. Dollar stable in recent weeks after sparking fears of devaluation with higher fixings in the very first few days of 2016. Nevertheless with the slowing Chinese economy, we expect the Renminbi to depreciate further.
  • On the commodities front, gold posted gains in recent weeks due to the market turbulence at the onset of the year. We caution that the recent rise in gold prices is likely to prove temporary as the focus will soon switch back to further rises in U.S. interest rates.
  • Oil prices are expected to stay weak at least in the first half of this year given the global oversupply situation and prospects for fresh supply from Iran now that sanctions have been lifted.



 

Bonds - Fed Could Delay March Rate Hike

 

The Fed will not want to be overly sensitive to market volatility, but delaying the next rate hike from March to June is not much of a risk. Three 25 basis point rate hikes this year now look more likely than our previous expectation of four.

Key Points:

  • Central banks are responding to financial market weakness. The Fed is set to slow the pace of tightening, but it is still likely to be much more rapid than what the market expects.
  • It looks like central banks in Europe and Japan are being panicked into further policy loosening by weak financial markets. The policy moves have marginal direct economic impact, but are useful in offering reassurance to jittery markets.
  • The Bank of Japan surprised markets with a move to negative interest rates at its end-January meeting, while leaving its quantitative easing targets unchanged. This was a double surprise.
  • In contrast, Draghi hinted in January at more easing to come at the European Central Bank’s March policy meeting. We suspect that this is part of a strategy to back the German bloc into a corner so they are unable to prevent a pre-announced policy easing.
  • The U.S. Federal Reserve is being more circumspect, but it appears to be prepared to delay the March rate hike if financial conditions do not improve.
  • The Fed is in an easier position as it has already waited until the economic recovery is much more developed than usual before raising interest rates, with labour markets around full employment. This allows U.S. central bank to tilt the pace of tightening without having to think about reversing policy.
  • Although U.S. interest rates are headed higher, this is unlikely to dampen bond markets. Interest rates are rising but will likely stay low by historical standards. As such, the search for yield will continue and this should augur well for high yield bonds, especially those in the emerging markets.
  • Emerging market high yield bonds are attractively valued – they currently trade about 680 basis points wider than their investment grade counterparts and are also around 200 basis points wide of the three-year average spread differential of 478 basis points.
  • Lower yielding investment grade bonds performed well in January, which is unsurprising in a risk-averse environment. However, we view this as short-term volatility rather than a fundamental change in direction. As a result, we remain cautious on investment grade bonds.



 

Equities - Volatility Expected to Persist

 

The recent market panic is due to sentiment, and not a result of deteriorating economic fundamentals. Consequently after the January sell-off, we have turned more positive on equities. Europe remains our favourite region.

Key Points:

  • China has been at the epicentre of the recent turbulence in financial markets since the start of this year as investors worry about its slowdown as it transitions from a credit-fuelled investment-led economy to one that’s driven by consumption and services.
  • Market reforms in China have also caused sharp falls in its stock and currency markets, resulting in some clumsy and disappointing policy moves which have shaken confidence in the ability of Chinese policy makers.
  • It will take time for China to restore confidence in its stock markets, currency and economy – the interim uncertainty could cause significant volatility in global markets in the coming months.
  • China aside, oil has also been on a roller coaster ride as well, hurting the oil & gas industry and resulting in job losses. It has also caused investors to worry about deflation and whether the fall in oil prices is due to slower-than-expected global growth.
  • Monetary policy in the U.S. is also going through a major transition as the era of zero interest rates comes to an end. Investors are concerned and uncertain about how quickly the Fed will hike rates.
  • Although markets are volatile, fundamentals seem reasonable. Major economies like the U.S., Europe and Japan are improving. We also believe that the probability of a hard landing in China is relatively low given the significant resources and policy tools at the government’s disposal.
  • The steadily recovering global economy led by the U.S. and easier macro policies in Japan and Europe remain a stable backdrop for equities – even as volatility is expected to persist.
  • Despite the reasonable macro outlook, equity markets have seen a sharp sell-off in recent months and value is starting to emerge in global stock markets. We have therefore turned more positive on equities.
  • Our top pick remains European equities as the region is at an early stage of recovery after its debt crisis, with the potential for positive surprises on the earnings and policy fronts. We are cautious on the U.S. as its equity markets have done very well and valuations are less compelling.
  • Stock markets in Asia ex-Japan are also starting to look interesting after a sharp sell-off from the peak last year. Japan is another region worth keeping an eye on as easy monetary policy and improvements in corporate governance should augur well for stock prices in the medium term.



 

Important Information

 

Any opinions or views expressed in this material are those of the author and third parties identified, and not those of OCBC Bank (Malaysia) Berhad (“OCBC Bank”, which expression shall include OCBC Bank’s related companies or affiliates).

The information provided herein is intended for general circulation and/or discussion purposes only and does not contain a complete analysis of every material fact. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. Without prejudice to the generality of the foregoing, please seek advice from a financial adviser regarding the suitability of any investment product taking into account your specific investment objectives, financial situation or particular needs before you make a commitment to purchase the investment product.

In the event that you choose not to seek advice from a financial adviser, you should consider whether the product in question is suitable for you. This does not constitute an offer or solicitation to buy or sell or subscribe for any security or financial instrument or to enter into a transaction or to participate in any particular trading or investment strategy.

OCBC Bank, its related companies, their respective directors and/or employees (collectively ‘Related Persons’) may have positions in, and may effect transaction in the products mentioned herein. OCBC Bank may have alliances with the product providers, for which OCBC Bank may receive a fee. Product providers may also be Related Persons, who may be receiving fees from investors. OCBC Bank and the Related Person may also perform or seek to perform broking and other financial services for the product providers.

All information presented is subject to change without notice. OCBC Bank shall not be responsible or liable for any loss or damage whatsoever arising directly or indirectly howsoever in connection with or as a result of any person acting on any information provided herein. The information provided herein may contain projections or other forward-looking statements regarding future events or future performance of countries, assets, markets or companies. Actual events or results may differ materially. Past performance figures are not necessarily indicative of future or likely performance. Any reference to any specific company, financial product or asset class in whatever way is used for illustrative purposes only and does not constitute a recommendation on the same.

The contents hereof may not be reproduced or disseminated in whole or in part without OCBC Bank’s written consent.


 


We See Recent Weakness As A Buying Opportunity

 

We continue to advocate exposure to mixed asset strategies, as it provides a balance of yield and equity market participation in addition to managing the volatility in the markets.

Among equity markets, our preference is for Europe over the US.

We remain overweight equities and negative cash.

For fixed income, investors should continue to hold bonds with shorter tenors, as such bonds tend to be less sensitive to increases in interest rates.

Recommendations:

  • Unit Trust: We recommend the TA European Equity Fund as this Fund comprises a diversified portfolio of local and/or foreign equity funds, REITs and ETFs that invests in Europe. Returns are expected in the form of consistent capital appreciation of underlying funds and dividend income. Exposure in the European region is consistent with our call, in view of the abundant QE liquidity and diminishing deflation risk which are expected to remain supportive of its economic recovery.
  • Unit Trust: We recommend the CIMB-Principal Asia Pacific Dynamic Income Fund , in line with our view that Asia’s macroeconomic growth outlook is stabilising. The pick-up in economic reforms and headroom for policy flexibility could provide much needed equity market catalysts.
  • Unit Trust: We recommend the Affin Hwang Select Income Fund as this income-focused fund, which currently holds short-dated securities features regular income, should moderate market volatilities impact amidst current market volatilities attributed to policy divergence.
  • Unit Trust: We recommend the Pacific Emerging Market Bond Fund as this Fund invests a minimum of 95% of its NAV in the MYR Hedged Class of the Target Fund managed by Lion Global Investors Limited. The target Fund is the Lion Capital Funds II – Lion-Bank of Singapore Emerging Market Bond Fund.


This document is not intended to constitute research analysis or recommendation and should not be treated as such.

We recommend that you read and understand the contents of the Master Prospectus for the TA European Equity Fund dated 1 October 2015 and expire on 30 September 2016, by TA INVESTMENT MANAGEMENT BERHAD. Investments in the Fund are exposed to market risk, currency risk, country risk, emerging market risk, interest rate risk and credit/default risk.

We recommend that you read and understand the contents of the Prospectus Issue No. M1 for the CIMB-Principal Asia Pacific Dynamic Income Fund dated 30 June 2015 and expires on 29 June 2016 by CIMB-Principal Asset Management Berhad. Investments in the Fund are exposed to country risk, credit (default) and counterparty risk, interest rate risk, liquidity risk, risk associated with temporary defensive positions, risk of investing in emerging markets, stock specific risk and others as disclosed in the prospectus.

We recommend that you read and understand the contents of the Master Prospectus for the Affin Hwang Select Income Fund dated 18 July 2015 and expire on 17 July 2016 by Affin Hwang Asset Management Bhd (formerly known as Hwang Investment Management Berhad). Investments in the Fund are exposed to equity investment risk, country risk, currency risk, political risk, regulatory risk and others as disclosed in the prospectus.

We recommend that you read and understand the contents of the Information Memorandum for Pacific Emerging Market Bond Fund dated 26 January 2016 by Pacific Mutual Fund Bhd. Investments in the Fund are exposed to political risk, repatriation risk, global emerging market risk, regulatory risk, concentration risk and others as disclosed in the Information Memorandum. This fund is eligible to be purchased by High Net Worth Individuals only, the criteria of High Net Worth Individuals as per stated in Schedules 6 and 7 of Capital Market and Services Act (CMSA) 2007.

Unit Trust investments are not bank deposits and are not obligations of or guaranteed or insured by OCBC Bank (Malaysia) Berhad. Unit Trust investments are not guaranteed and are subject to investment risk unless otherwise specified. The investment risk includes general risks as described in the Information Memorandum/Prospectuses for Unit Trust investment funds (“Information Memorandum/Prospectuses”) and specific risks which may be different for each Unit Trust investment. Description of specific risks and general risks are published in the Information Memorandum/Prospectuses. With respect to Unit Trust investment, past performance is not indicative of future results; the net asset value can go up or down. Investors should also note that the net asset value per unit and distributions payable, if any, may go down as well as up.

Where unit trust loan financing is available, investors are advised to read and understand the contents of the unit trust loan financing risk disclosure statement before deciding to borrow to purchase units. Where a unit split/distribution is declared, investors are advised that following the issue of additional units/distribution, the NAV per unit will be reduced from pre-unit split NAV/cum-distribution NAV to post-unit split NAV/ex-distribution NAV; and where a unit split is declared, investors should be highlighted of the fact that the value of their investment in Malaysian ringgit will remain unchanged after the distribution of the additional units.

The Information Memorandum/Prospectuses have been registered with the Securities Commission Malaysia, which takes no responsibility for its content. A copy of the Information Memorandum/Prospectuses can be obtained at OCBC Bank’s branches. Units will only be issued upon the receipt of application form referred in, and accompanying the Information Memorandum/Prospectuses. Investors are advised to read and understand the contents of the Information Memorandum/Prospectuses, and if necessary consult their adviser(s), as well as consider the fees and charges involved before investing in the Unit Trust.

This document has been prepared without taking account of the objectives, financial situation or needs of any specific person or organisation who may receive this document. Accordingly prior to making an investment decision, you should conduct such investigation and analysis regarding the product described herein as you deem appropriate and to the extent you deem necessary obtain independent advice from competent legal, financial, tax, accounting and other professionals, to enable you to understand and recognise fully the legal, financial, tax and other risks arising in respect of the product and the purchase, holding and sale thereof.

You should obtain and read the Product Highlight Sheet of the product before you make a decision to acquire the product. All information provided in this document is general and does not take into account your individual objectives, financial situation or specific needs.

You are required to read and understand the terms and Product Highlight Sheet of the product carefully before executing any transaction relating to the product with us. You may request for a copy of the Product Highlight Sheet at OCBC Banks’ branches.

The information provided herein is intended for general circulation and/or discussion purposes only and does not contain a complete analysis of every material fact. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. Without prejudice to the generality of the foregoing, please seek advice from a financial adviser regarding the suitability of any investment product taking into account your specific investment objectives, financial situation or particular needs before you make a commitment to purchase the investment product.

In the event that you choose not to seek advice from a financial adviser, you should consider whether the product in question is suitable for you. This does not constitute an offer or solicitation to buy or sell or subscribe for any security or financial instrument or to enter into a transaction or to participate in any particular trading or investment strategy.

All information presented is subject to change without notice. OCBC Bank shall not be responsible or liable for any loss or damage whatsoever arising directly or indirectly howsoever in connection with or as a result of any person acting on any information provided herein. The information provided herein may contain projections or other forward looking statement regarding future events or future performance of countries, assets, markets or companies. Actual events or results may differ materially. Past performance figures are not necessarily indicative of future or likely performance. Any reference to any specific company, financial product or asset class in whatever way is used for illustrative purposes only and does not constitute a recommendation on the same.

OCBC Bank and its respective associated and connected corporations together with their respective directors and officers may have or take positions in any securities mentioned in this report (which positions may change from time to time without notice) and may also perform or seek to perform broking and other investment or securities related services for the corporations whose securities are mentioned in this report as well as other parties generally.

The contents hereof may not be reproduced or disseminated in whole or in part without OCBC Bank’s written consent.




Lai Mun Yew (Michael)
  Vice President, Research, Wealth Management, OCBC Bank (Malaysia) Berhad

 

Global Outlook – Growth Worries are Unfounded

 

Market weakness results in tighter financial conditions which will be a drag on growth, but this should be short-lived and does not threaten to cause renewed recession in the developed markets.

Key Points:

  • The economy can drive financial markets, but not vice-versa. There could be some damage from the turbulence of the past two months, but this will be more like the soft patches we have seen at various times during the current expansion, rather than a cyclical downturn. Overall we remain optimistic about the global economic outlook.
  • A large part of confidence in the durability of U.S. growth rests on the consumer. Spending accounts for nearly 70 per cent of the economy, so signs of a healthy consumer could give reassurance to turbulent financial markets. Spending growth in 2015 was the fastest in a decade.
  • In China decades of domestic financial repression means that there is a large pool of domestic savings looking to exit. Offering better returns through domestic deregulation and managing the outflow through capital controls should allow the authorities to avoid a large-scale devaluation.
  • In Europe, political risk will be high running up to the U.K. referendum on June 23. Prediction (betting) markets are still confident that the U.K. will remain part of the European Union, although opinion polls are more mixed. Brexit would damage the broader European economy, as well as the U.K., and could be very de-stabilising for markets.
  • In Japan, the Bank of Japan (BOJ) surprised markets with a move to negative interest rates. In our view, there seems to be little reason for the BOJ to act, as core inflation is trending higher and temporary factors (like weak oil prices) may be depressing headline inflation. Nevertheless more BOJ action cannot be discounted if markets run into more turbulence and the Yen strengthens.



 

Foreign Exchange & Commodities – Greenback Awaits Calmer Markets

 

Expectations for Fed tightening this year and the next have been significantly scaled back, undercutting the U.S. Dollar. However, don’t write off the greenback’s recovery, as fears of policy exhaustion and Fed inaction seem overdone.

Key Points:

  • Expectations for Fed tightening this year and the next have been significantly scaled back, undercutting the U.S. Dollar. The market continues to doubt the Fed’s ability to normalise monetary policy any further, having de-priced all but an estimated 30 basis point of hikes through 2017.
  • Given that the decline in Fed pricing seems excessive, we are reluctant to write-off an eventual modest U.S. Dollar recovery against major funding currencies such as the Euro and Yen. We also think that a U.S. recession is unlikely, even after considering the recent tightening in financial conditions.
  • Brexit risks could keep the Pound volatile in the run up to the U.K. referendum on June 23. However, the betting market put the odds of Brexit at roughly 35 per cent, perhaps taking comfort that U.K. voters will eventually vote to stay in the European Union (EU) as the media starts to draw their attention to the huge economic costs of Brexit. The Pound should recover over the medium-term if the U.K. votes to stay in the EU as we expect.
  • We believe the relief for emerging market currencies from a stable-to-firmer CNY fixing and reduced Fed rate hike expectations is merely temporary. The Renminbi (RMB) is not out of the woods yet. Stable-to-lower fixing of the RMB may be tolerated only as long as the U.S. Dollar remains broadly weak.
  • The macro outlook for China remains challenging. As the U.S. Dollar firms up, resumption of RMB weakness and FX reserve losses is likely. We still anticipate RMB depreciation driving Asian currencies weaker over the medium-term.
  • Gold’s impressive gains this year have taken us by surprise. Gold is acting as a safe haven against market turmoil, concerns over global growth and heightened systemic fears. Gold price could rise further if the global risk-off sentiment persists in the near-term. However, we continue to remain bearish on gold in the medium-term as any stabilisation in financial markets is likely to cause gold price to weaken.
  • Oil prices are expected to stay weak given the global oversupply situation and prospects for fresh supply from Iran now that sanctions have been lifted.



 

Bonds – Bonds have Outperformed Equities

 

Global uncertainties and risk aversion have helped bonds to outperform equities so far this year. Given the prospects for more volatility in equities and the low interest rate environment, we see continued opportunities in bond markets.

Key Points:

  • Global uncertainties and financial market turbulence have benefited bonds so far this year as investors look for relatively more stable assets to protect their wealth while seeking yield.
  • A sharp downward adjustment to market expectations about future Fed rate hikes following the January Fed policy meeting and indications of ever more accommodative monetary policy from the other major central banks have also supported bond markets.
  • Going forward, the outlook for U.S. interest rates will affect how bond markets perform. We think that financial markets have over-reacted in predicting no further U.S. rate hikes in 2016. Unless the Fed sees something more than a temporary soft patch, it will need to resume the gradual normalisation of interest rates by the middle of the year in view of tightening labour markets and potential inflationary pressures.
  • Leaving interest rates unchanged in March looks like an easy call for the U.S. central bank, but the policy decision could become harder in coming months if inflationary pressure continues to build. Rate hikes in June, September and December are still realistic.
  • If markets remain volatile, but inflation continues to tick higher, then the Fed is going to be facing a very uncomfortable dilemma. The tightening of labour markets is leading to faster wage growth as unemployment falls below 5 per cent. In turn, core measures of inflation are beginning to edge higher, even though the headline rate is being held down by low oil prices.
  • The Fed should be aware of the risk of excessive response to financial market weakness, as it interrupted a tightening cycle in 1998 in the wake of the Asian Financial Crisis. The three 25 basis point rate cuts helped to stoke the flames of the dot.com bubble which led to an overshoot in inflation. In turn, that required a switch to more aggressive rate hikes, which helped to trigger the 2000-01 recession.
  • Among bond markets, we are most positive on emerging market high yield bonds. They are attractively valued – they currently trade about 679 basis points wider than their investment grade counterparts. It is still well off the 52-week lows of around 455 basis points achieved in May 2015 and around 200 basis points wider than the three-year average spread differential of 480 basis points.
  • The higher spread component of emerging market high yield bonds should provide a buffer against rising interest rates. Given that we see modest spread tightening, we expect that the “carry” will be an increasingly important component of returns in 2016.



 

Equities – Anticipate a Volatile Year

 

We are optimistic about equities from a medium-term perspective. However, there is still considerable uncertainty in the near-term, and the recent calm in financial markets is by no means a given.

Key Points:

  • Last month, we turned more positive on equities, to reinforce our view that the recent market correction was overdone, and asset prices will soon adjust to reflect its intrinsic value. We continue to hold that view as we see no big fundamental change in the global economic outlook.
  • Global equities got off to a shaky start in February but ended the month slightly lower as sentiments recovered. Even as we continue to anticipate a volatile year, we see the recent weakness as a buying opportunity and maintain a positive stance on equities.
  • Financial markets are discounting a sharp slowdown in global growth. Unless the world is breaking down, whether triggered by a recession in the U.S. or hard landing in China, markets seem too bearish and this provides investors with a good buying opportunity.
  • On a relative basis, we are cautious on U.S. equities because valuations are more demanding than global peers. Nevertheless among U.S. stocks, we like companies with exposure to U.S. consumers who stand to benefit from rising wages and lower commodity prices.
  • Recovery of the Eurozone remains intact despite the recent market turbulence but the market seems to be discounting much slower growth. Overall, we remain positive on Europe but political uncertainties due to Brexit could continue to weigh on the markets in the near term.
  • Japanese equities have underperformed as the sharp appreciation of the Yen triggered a further sell-off. Nevertheless, valuations are now more attractive and a reversal of the currency’s recent strength as risk appetite returns should provide a tactical lift for the market. To ensure a sustained re-rating of Japanese equities, investors would need to see more impactful government policy actions.
  • Turbulence in oil prices and China’s growth outlook could continue to drive volatility in Asia ex-Japan markets in the near term. Nevertheless, with the sustained de-rating, earnings growth expectations have moderated and valuations remain undemanding. Within the region, we prefer North Asia and Singapore over Southeast Asia and India.



 

Important Information

 

Any opinions or views expressed in this material are those of the author and third parties identified, and not those of OCBC Bank (Malaysia) Berhad (“OCBC Bank”, which expression shall include OCBC Bank’s related companies or affiliates).

The information provided herein is intended for general circulation and/or discussion purposes only and does not contain a complete analysis of every material fact. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. Without prejudice to the generality of the foregoing, please seek advice from a financial adviser regarding the suitability of any investment product taking into account your specific investment objectives, financial situation or particular needs before you make a commitment to purchase the investment product.

In the event that you choose not to seek advice from a financial adviser, you should consider whether the product in question is suitable for you. This does not constitute an offer or solicitation to buy or sell or subscribe for any security or financial instrument or to enter into a transaction or to participate in any particular trading or investment strategy.

OCBC Bank, its related companies, their respective directors and/or employees (collectively ‘Related Persons’) may have positions in, and may effect transaction in the products mentioned herein. OCBC Bank may have alliances with the product providers, for which OCBC Bank may receive a fee. Product providers may also be Related Persons, who may be receiving fees from investors. OCBC Bank and the Related Person may also perform or seek to perform broking and other financial services for the product providers.

All information presented is subject to change without notice. OCBC Bank shall not be responsible or liable for any loss or damage whatsoever arising directly or indirectly howsoever in connection with or as a result of any person acting on any information provided herein. The information provided herein may contain projections or other forward-looking statements regarding future events or future performance of countries, assets, markets or companies. Actual events or results may differ materially. Past performance figures are not necessarily indicative of future or likely performance. Any reference to any specific company, financial product or asset class in whatever way is used for illustrative purposes only and does not constitute a recommendation on the same.

The contents hereof may not be reproduced or disseminated in whole or in part without OCBC Bank’s written consent.


 


Asia, A Winner In The Region

 

Asia ex-Japan equities performed well in the first quarter, in spite of the shaky start at the beginning of this year.

The region has coped well with the slowdown in China. One of the reasons is that Asia is less dependent on Chinese demand than the raw trade figures suggest, as many exports are processed and then re-exported to developed markets. Another reason is that economic reform and a rising middle class have helped to generate domestic demand.

Corporate earnings growth expectations appear to have bottomed and valuations remain depressed despite the recent outperformance. Further, Asia’s macroeconomic growth outlook is stabilising and a pick-up in economic reforms and policy support has started to provide the much needed equity market catalysts.

For fixed income, investors should continue to hold bonds with shorter tenors, as such bonds are less sensitive to increases in interest rates.

Recommendations:

  • Unit Trust: Investors seeking long term capital appreciation through global equity markets but with desire to gain exposure to a specific segment of the global economy could consider the TA Global Technology Fund , a diversified portfolio of 60-80 stocks across the different sub-sectors of global technology companies. The technology sector presents an attractive opportunity given that: a) technology stocks are poised to do well in a recovery market; b) valuation remains attractive; c) technology stocks are in good shape, supported by positive earnings growth and strong cash balance; and d) technology demand to underpin long-term driver of technology stocks.
  • Unit Trust: We recommend the Pacific Emerging Market Bond Fund as this Fund invests a minimum of 95% of its NAV in the MYR Hedged Class of the Target Fund managed by Lion Global Investors Limited. The target Fund is the Lion Capital Funds II – Lion-Bank of Singapore Emerging Market Bond Fund.
  • Unit Trust: We recommend the RHB Asian Income Fund as this Fund invests in one target fund, the Schroder Asian Income fund. This fund aims to provide income and capital growth over the medium- to long-term via an active asset allocation strategy. Exposure in Asia is opportunistic as we view Asia being in a relatively strong position with a high level of foreign reserves, limited external debt, undervalued exchange rates and plenty of policy flexibility.
  • Unit Trust: Investors who are seeking regular income plus potential capital growth in one collective investment scheme could consider the CIMB-Principal Global Multi Asset Income Fund , as the Fund invests in a diversified portfolio of global assets and will actively allocate between global equities, bonds and other alternative assets such as ETF.


This document is not intended to constitute research analysis or recommendation and should not be treated as such.

We recommend that you read and understand the contents of the Master Prospectus for the TA Global Technology Fund dated 1 October 2015 and expire on 30 September 2016, by TA INVESTMENT MANAGEMENT BERHAD. Investments in the Fund are exposed to market risk, country risk, currency risk, sector investment risk, regulatory risk, external fund manager’s risk and others as disclosed in the Master Prospectus.

We recommend that you read and understand the contents of the Information Memorandum for Pacific Emerging Market Bond Fund dated 26 January 2016 by Pacific Mutual Fund Bhd. Investments in the Fund are exposed to political risk, repatriation risk, global emerging market risk, regulatory risk, concentration risk and others as disclosed in the Information Memorandum. This fund is eligible to be purchased by High Net Worth Individuals only, the criteria of High Net Worth Individuals as per stated in Schedules 6 and 7 of Capital Market and Services Act (CMSA) 2007.

We recommend that you read and understand the contents of the Master Prospectus for the RHB Asian Income Fund dated 6 October 2015 and expire on 5 October 2016, by RHB Asset Management Sdn Bhd. Investments in the Fund are exposed to management risk, liquidity risk, foreign investment risks such as currency risk and country risk and others as disclosed in the prospectus.

We recommend that you read and understand the contents of the Information Memorandum for CIMB-Principal Global Multi Asset Income Fund dated 20 March 2014 and First Supplemental Information Memorandum dated 19 March 2015. Investments in the Fund are exposed to fund manager’s risk, country risk, currency risk, legal and taxation risk and default risk. This fund is eligible to be purchased by High Net Worth Individuals only, the criteria of High Net Worth Individuals as per stated in Schedules 6 and 7 of Capital Market and Services Act (CMSA) 2007.

Unit Trust investments are not bank deposits and are not obligations of or guaranteed or insured by OCBC Bank (Malaysia) Berhad. Unit Trust investments are not guaranteed and are subject to investment risk unless otherwise specified. The investment risk includes general risks as described in the Information Memorandum/Prospectuses for Unit Trust investment funds (“Information Memorandum/Prospectuses”) and specific risks which may be different for each Unit Trust investment. Description of specific risks and general risks are published in the Information Memorandum/Prospectuses. With respect to Unit Trust investment, past performance is not indicative of future results; the net asset value can go up or down. Investors should also note that the net asset value per unit and distributions payable, if any, may go down as well as up.

Where unit trust loan financing is available, investors are advised to read and understand the contents of the unit trust loan financing risk disclosure statement before deciding to borrow to purchase units. Where a unit split/distribution is declared, investors are advised that following the issue of additional units/distribution, the NAV per unit will be reduced from pre-unit split NAV/cum-distribution NAV to post-unit split NAV/ex-distribution NAV; and where a unit split is declared, investors should be highlighted of the fact that the value of their investment in Malaysian ringgit will remain unchanged after the distribution of the additional units.

The Information Memorandum/Prospectuses have been registered with the Securities Commission Malaysia, which takes no responsibility for its content. A copy of the Information Memorandum/Prospectuses can be obtained at OCBC Bank’s branches. Units will only be issued upon the receipt of application form referred in, and accompanying the Information Memorandum/Prospectuses. Investors are advised to read and understand the contents of the Information Memorandum/Prospectuses, and if necessary consult their adviser(s), as well as consider the fees and charges involved before investing in the Unit Trust.

This document has been prepared without taking account of the objectives, financial situation or needs of any specific person or organisation who may receive this document. Accordingly prior to making an investment decision, you should conduct such investigation and analysis regarding the product described herein as you deem appropriate and to the extent you deem necessary obtain independent advice from competent legal, financial, tax, accounting and other professionals, to enable you to understand and recognise fully the legal, financial, tax and other risks arising in respect of the product and the purchase, holding and sale thereof.

You should obtain and read the Product Highlight Sheet of the product before you make a decision to acquire the product. All information provided in this document is general and does not take into account your individual objectives, financial situation or specific needs.

You are required to read and understand the terms and Product Highlight Sheet of the product carefully before executing any transaction relating to the product with us. You may request for a copy of the Product Highlight Sheet at OCBC Banks’ branches.

The information provided herein is intended for general circulation and/or discussion purposes only and does not contain a complete analysis of every material fact. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. Without prejudice to the generality of the foregoing, please seek advice from a financial adviser regarding the suitability of any investment product taking into account your specific investment objectives, financial situation or particular needs before you make a commitment to purchase the investment product.

In the event that you choose not to seek advice from a financial adviser, you should consider whether the product in question is suitable for you. This does not constitute an offer or solicitation to buy or sell or subscribe for any security or financial instrument or to enter into a transaction or to participate in any particular trading or investment strategy.

All information presented is subject to change without notice. OCBC Bank shall not be responsible or liable for any loss or damage whatsoever arising directly or indirectly howsoever in connection with or as a result of any person acting on any information provided herein. The information provided herein may contain projections or other forward looking statement regarding future events or future performance of countries, assets, markets or companies. Actual events or results may differ materially. Past performance figures are not necessarily indicative of future or likely performance. Any reference to any specific company, financial product or asset class in whatever way is used for illustrative purposes only and does not constitute a recommendation on the same.

OCBC Bank and its respective associated and connected corporations together with their respective directors and officers may have or take positions in any securities mentioned in this report (which positions may change from time to time without notice) and may also perform or seek to perform broking and other investment or securities related services for the corporations whose securities are mentioned in this report as well as other parties generally.

The contents hereof may not be reproduced or disseminated in whole or in part without OCBC Bank’s written consent.




Lai Mun Yew (Michael)
  Vice President, Research, Wealth Management, OCBC Bank (Malaysia) Berhad

 

Global Outlook – Global Recovery Remains on Track

 

The dull but steady global expansion remains on track, and this was behind our upgrade of equities in early February. Economic releases suggest recent market turmoil was noise, rather than a signal of deeper problems.

Key Points:

  • The outlook for the global economy seems reasonably sanguine. Aside from China – where we think the imbalances are self-contained – it is hard to find cycle-threatening strains.
  • In the U.S., the labour market remains solid. The recent financial market turmoil has not had much impact on firms’ hiring plans. Now that the unemployment rate is below 5 per cent, the bargaining power of workers has improved, with wages starting to edge up.
  • U.S. elections is a source of concern. If Donald Trump secures the Republican nomination, then markets would worry about his views on trade protectionism (particularly relevant for Asia), the fiscal deficit and the labour market.
  • In Europe, the unemployment rate in the region is down to 8.9 per cent from the peak of 10.9 per cent three years ago, with a striking six-point decline in Spain. However, political risk is a serious concern in Europe. The risk of Brexit, the survival of Chancellor Merkel, extremism in France and, to some extent, weak government in Spain, are all concerns.
  • The European Central Bank (ECB) eased policy again, but the economic impact is likely to be limited. The policy change was telegraphed when financial markets were under stress in January and seemed to be aimed at stabilising sentiment more than delivering a direct boost to growth.
  • In Japan, consensus expectations are for further easing of monetary policy in coming months. It is hard to see how the BOJ might contribute much to the recovery as Japan no longer appears to be suffering from excess capacity or deflation. The main problem is the low potential growth rate, where solutions rest with structural reform and not monetary policy.
  • Concerns about a hard landing in China have eased as the government appears intent on doing what it takes to ensure that growth comes in this year at 6.5 to 7 per cent. Avoiding a collapse in the credit bubble and a hard landing for the economy would be an admirable achievement, but it would come at the cost of poor productivity growth and a continued multi-year structural economic slowdown.
  • Asia looks relatively well-placed among emerging markets, having demonstrated over the past few years that it is capable of coping with a slowdown in China. This is because the region is less dependent on Chinese demand than the raw trade figures suggest, as many exports are processed and then re-exported to developed markets. Another reason is that economic reform and a rising middle class has helped to generate domestic demand.



 

Foreign Exchange & Commodities – Greenback Takes a Breather

 

The U.S. Dollar took a breather as the likelihood of Fed interest-rate increases fell sharply after the Fed meeting in March. However, the greenback’s weakness may be temporary because better U.S. data will push the Fed back into the tightening cycle again.

Key Points:

  • The U.S. Dollar stopped strengthening as the likelihood of future Fed interest-rate increases fell sharply after the Fed meeting in March. However, we think that the current U.S. Dollar weakness will be temporary because either other major central banks will ease in response, or better U.S. data will push the Fed back into the tightening cycle again. Once the Fed restarts its rate hike policy in June, the Dollar rally will likely resume.
  • We may see a flattish and broad range for Euro versus the U.S. Dollar of 1.05-1.15 and the U.S. Dollar versus the Japanese Yen of 110-120 for most part of 2016. Japanese policymakers will likely announce more accommodative economic policies in 2Q16, both fiscal and monetary policies, which should improve risk sentiment among domestic investors and limit the risk of sustained Yen strength.
  • The Belgium blasts could continue to fuel Brexit concerns and weigh on Pound. The downward pressure on the currency is likely to intensify as we get closer to the referendum date on 23 June. This is likely to be followed by the Pound’s recovery if U.K. voters choose to remain as a member of the European Union (EU) as we expect.
  • If Brexit does occur, the Pound is likely to depreciate significantly against the U.S. Dollar but it is less clear if the Euro will rally against the Pound as Brexit would not be good news for the rest of Europe either. Markets would begin to question whether a referendum to leave the EU or the Euro area could be called in another member state.
  • We are wary that the market may have to re-price back a more hawkish Fed by mid-year, which will limit the ‘sweet spot’ for RMB policy. It remains our base case that a large, one-off RMB devaluation is unlikely. Expect managed RMB depreciation, not dramatic weakness.
  • In Singapore, the slew of targeted fiscal measures, announced during Budget 2016, will be supportive of the Singapore economy. This effectively removes the near-term catalyst for monetary easing by the Monetary Authority of Singapore (MAS) in mid-April, although Singapore’s disappointing growth outlook will likely keep MAS easing hope alive.
  • The weaker U.S. Dollar has boosted safe haven flows and spurred the strongest year-to-date performance in gold since the financial crisis. We have increased our 12-month gold price forecast to US$1,100 per ounce from US$1,000 previously in part because of gold’s stellar start to 2016. However, the revised forecast is still consistent with our belief that gold will come under continued downside pressure in a rising interest rate environment over the medium-term.



 

Bonds – EM bonds look attractive

 

Emerging Market bonds look interesting given their attractive yield in a world of low or negative yields. Local-currency EM government bonds yield nearly 7 per cent while hard-currency bonds yield just over 6 per cent.

Key Points:

  • Bonds continue to be sought after by investors due to continued global uncertainties and relatively low interest rates which have led investors to look for stable assets to protect their wealth while seeking yield.
  • Mid-March policy meetings by both the European Central Bank and the U.S. Federal Reserve produced more dovish outcomes than expected. Although the Bank of Japan left policy unchanged, its end-January move had already pushed Japanese 10-year yields into negative territory.
  • Central bank support looks like an over-reaction to market turmoil at the start of the year, reflecting the intention of adding insurance against the downside risks. Necessary or not, it pulls in credit spreads and supports risk assets like high yield bonds.
  • We can understand the Fed’s intention to proceed with extreme caution, but it is worth noting that they are already well behind the curve, with labour markets much stronger than when tightening cycles normally begin, and inflation close to the Fed’s target. The pick-up in wages and core inflation in recent months will limit the Fed’s room for manoeuvre and we continue to expect three more rate hikes this year (in June, September and December).
  • Among bond markets, Emerging Market bonds look interesting: Given that our views on long-term rates remain fairly stable, Emerging Market bonds look interesting given its attractive carry. If the dollar rally is on a pause, there is a short window of opportunity to tactically long EM bonds. Even when the dollar rally returns, a relatively minor retracement in beaten-up emerging-market currencies could still deliver double-digit returns.
  • We are most positive on Emerging Market high yield bonds which currently trade 611 basis points wider than EM High Grade bonds, roughly 55 basis points tighter than a month ago. However, with a 3-year average spread differential of 493 basis points, the current spread differential does underscore the relative value of high yield bonds.



 

Equities – Asian Equities in a Sweet Spot

 

We are broadly positive on Asian markets, as the weaker U.S. Dollar as a result of a dovish Fed will give reprieve for Asian markets to bounce back from their historically low valuations.

Key Points:

  • The steadily recovering global economy led by the U.S. remains a stable backdrop for equities. With the corporate earnings growth outlook bottoming and valuations still depressed, we are raising Asia Ex-Japan from neutral to positive.
  • Fundamentally, Asia is running strong current account surpluses, a beneficial response to low commodity prices. The terms of trade (export prices divided by import prices) have risen sharply for commodity importers and boosting profit margins. As profit margins filter into earnings, we suspect Asian earnings growth might be in the nascent stage of bottoming out.
  • Looking ahead, corporate earnings growth expectations in Asia appear to have bottomed and valuations remain depressed despite the recent outperformance among Asian markets. Asia’s macroeconomic growth outlook is stabilising and pick-up in economic reforms and policy support has started to provide much needed equity market catalysts. Key risks include renewed turbulence in oil prices and concerns with China’s growth outlook and RMB devaluation.
  • In Europe, the macro picture is likely to stay supportive of equities, especially with the ECB’s stimulus to avoid downside risks. Also, we see corporate margin improvements ahead, driven by better economic growth, easier credit and cheaper commodities. Equity valuations are no longer cheap but neither are they expensive.
  • Key risks for European equities include greater political uncertainties. In particular, Brexit concerns running up to the U.K. referendum in late June could continue to weigh on the markets.
  • With the benefits of weaker yen and commodity prices on earnings growth already fading, the strengthening yen clearly is not helping. On the other hand, growing expectations of further postponement of the consumption tax hike has provided a boost to retail names. Nevertheless, valuations are not demanding. As such, a reversal of the yen as risk appetite returns should provide a tactical lift for the market. For a more sustained re-rating of Japanese equities, investors would need to see more impactful government policy actions.
  • Among global equity markets we are the most cautious on U.S. equities which have outperformed other major regions in recent years and valuations remain relatively demanding. Also, we expect the U.S. Federal Reserve to hike rates in June and this could weigh on U.S. equities in the short term.
  • Higher market volatility will remain a feature of financial markets in 2016. We witnessed in the first two months of the year how unpredictable markets can become and the recent calm should not be taken for granted. The delay in the Fed hiking cycle will give risky assets some breathing space, but this calm is unlikely to last for the remainder of 2016. Market volatility will return, especially with the U.K. referendum slated for 23 June, and the Fed restarting its hiking cycle towards the end of Q2.



 

Important Information

 

Any opinions or views expressed in this material are those of the author and third parties identified, and not those of OCBC Bank (Malaysia) Berhad (“OCBC Bank”, which expression shall include OCBC Bank’s related companies or affiliates).

The information provided herein is intended for general circulation and/or discussion purposes only and does not contain a complete analysis of every material fact. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. Without prejudice to the generality of the foregoing, please seek advice from a financial adviser regarding the suitability of any investment product taking into account your specific investment objectives, financial situation or particular needs before you make a commitment to purchase the investment product.

In the event that you choose not to seek advice from a financial adviser, you should consider whether the product in question is suitable for you. This does not constitute an offer or solicitation to buy or sell or subscribe for any security or financial instrument or to enter into a transaction or to participate in any particular trading or investment strategy.

OCBC Bank, its related companies, their respective directors and/or employees (collectively ‘Related Persons’) may have positions in, and may effect transaction in the products mentioned herein. OCBC Bank may have alliances with the product providers, for which OCBC Bank may receive a fee. Product providers may also be Related Persons, who may be receiving fees from investors. OCBC Bank and the Related Person may also perform or seek to perform broking and other financial services for the product providers.

All information presented is subject to change without notice. OCBC Bank shall not be responsible or liable for any loss or damage whatsoever arising directly or indirectly howsoever in connection with or as a result of any person acting on any information provided herein. The information provided herein may contain projections or other forward-looking statements regarding future events or future performance of countries, assets, markets or companies. Actual events or results may differ materially. Past performance figures are not necessarily indicative of future or likely performance. Any reference to any specific company, financial product or asset class in whatever way is used for illustrative purposes only and does not constitute a recommendation on the same.

The contents hereof may not be reproduced or disseminated in whole or in part without OCBC Bank’s written consent.


 


Global economy recovers, led by the U.S.

 

We continue to be positive on Asia ex Japan equities. U.S. earnings so far had been positive mainly due to beaten-down expectations.

We also prefer emerging market high yields and are negative on investment grade bonds.

For fixed income, investors should continue to hold bonds with shorter tenures, as such bonds are less sensitive to increases in interest rates.

Recommendations:

  • Unit Trust: Investors seeking long term capital appreciation through global equity markets but with desire to gain exposure to a specific segment of the global economy could consider the TA Global Technology Fund , a diversified portfolio of 60-80 stocks across the different sub-sectors of global technology companies. The technology sector presents an attractive opportunity given that: a) technology stocks are poised to do well in a recovery market; b) valuation remains attractive; c) technology stocks are in good shape, supported by positive earnings growth and strong cash balance; and d) technology demand to underpin long-term driver of technology stocks.
  • Unit Trust: We recommend the Pacific Emerging Market Bond Fund as this Fund invests a minimum of 95% of its NAV in the MYR Hedged Class of the Target Fund managed by Lion Global Investors Limited. The target Fund is the Lion Capital Funds II – Lion-Bank of Singapore Emerging Market Bond Fund.
  • Unit Trust: We recommend the RHB Asian Income Fund as this Fund invests in one target fund, the Schroder Asian Income fund. This fund aims to provide income and capital growth over the medium- to long-term via an active asset allocation strategy. Exposure in Asia is opportunistic as we view Asia being in a relatively strong position with a high level of foreign reserves, limited external debt, undervalued exchange rates and plenty of policy flexibility.
  • Unit Trust: We recommend the Aberdeen Islamic World Equity Fund as this Fund invests in an international portfolio of Shariah compliant equities and equity-related securities of companies based on good long term growth prospects, strong balance sheets, steady cash flows and sound corporate governance practices. These qualities will help achieve good long-term returns to investors.


This document is not intended to constitute research analysis or recommendation and should not be treated as such.

We recommend that you read and understand the contents of the Master Prospectus for the TA Global Technology Fund dated 1 October 2015 and expire on 30 September 2016, by TA INVESTMENT MANAGEMENT BERHAD. Investments in the Fund are exposed to market risk, country risk, currency risk, sector investment risk, regulatory risk, external fund manager’s risk and others as disclosed in the Master Prospectus.

We recommend that you read and understand the contents of the Information Memorandum for Pacific Emerging Market Bond Fund dated 26 January 2016 by Pacific Mutual Fund Bhd. Investments in the Fund are exposed to political risk, repatriation risk, global emerging market risk, regulatory risk, concentration risk and others as disclosed in the Information Memorandum. This fund is eligible to be purchased by High Net Worth Individuals only, the criteria of High Net Worth Individuals as per stated in Schedules 6 and 7 of Capital Market and Services Act (CMSA) 2007.

We recommend that you read and understand the contents of the Master Prospectus for the RHB Asian Income Fund dated 6 October 2015 and expire on 5 October 2016, by RHB Asset Management Sdn Bhd. Investments in the Fund are exposed to management risk, liquidity risk, foreign investment risks such as currency risk and country risk and others as disclosed in the prospectus.

We recommend that you read and understand the contents of the Prospectus for Aberdeen Islamic World Equity Fund dated 17 January 2016 and Supplementary Prospectus(es) (if any) (together with the “Prospectus”) by Aberdeen Islamic Asset Management Sdn. Bhd. Investments in the Fund are exposed to market risk, stock specific risk, concentration risk, reclassification of Shariah status risk, currency risk, Shariah-compliant warrant risk, emerging countries and developing market risk and others as disclosed in the prospectus.

Unit Trust investments are not bank deposits and are not obligations of or guaranteed or insured by OCBC Bank (Malaysia) Berhad. Unit Trust investments are not guaranteed and are subject to investment risk unless otherwise specified. The investment risk includes general risks as described in the Information Memorandum/Prospectuses for Unit Trust investment funds (“Information Memorandum/Prospectuses”) and specific risks which may be different for each Unit Trust investment. Description of specific risks and general risks are published in the Information Memorandum/Prospectuses. With respect to Unit Trust investment, past performance is not indicative of future results; the net asset value can go up or down. Investors should also note that the net asset value per unit and distributions payable, if any, may go down as well as up.

Where unit trust loan financing is available, investors are advised to read and understand the contents of the unit trust loan financing risk disclosure statement before deciding to borrow to purchase units. Where a unit split/distribution is declared, investors are advised that following the issue of additional units/distribution, the NAV per unit will be reduced from pre-unit split NAV/cum-distribution NAV to post-unit split NAV/ex-distribution NAV; and where a unit split is declared, investors should be highlighted of the fact that the value of their investment in Malaysian ringgit will remain unchanged after the distribution of the additional units.

The Information Memorandum/Prospectuses have been registered with the Securities Commission Malaysia, which takes no responsibility for its content. A copy of the Information Memorandum/Prospectuses can be obtained at OCBC Bank’s branches. Units will only be issued upon the receipt of application form referred in, and accompanying the Information Memorandum/Prospectuses. Investors are advised to read and understand the contents of the Information Memorandum/Prospectuses, and if necessary consult their adviser(s), as well as consider the fees and charges involved before investing in the Unit Trust.

This document has been prepared without taking account of the objectives, financial situation or needs of any specific person or organisation who may receive this document. Accordingly prior to making an investment decision, you should conduct such investigation and analysis regarding the product described herein as you deem appropriate and to the extent you deem necessary obtain independent advice from competent legal, financial, tax, accounting and other professionals, to enable you to understand and recognise fully the legal, financial, tax and other risks arising in respect of the product and the purchase, holding and sale thereof.

You should obtain and read the Product Highlight Sheet of the product before you make a decision to acquire the product. All information provided in this document is general and does not take into account your individual objectives, financial situation or specific needs.

You are required to read and understand the terms and Product Highlight Sheet of the product carefully before executing any transaction relating to the product with us. You may request for a copy of the Product Highlight Sheet at OCBC Banks’ branches.

The information provided herein is intended for general circulation and/or discussion purposes only and does not contain a complete analysis of every material fact. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. Without prejudice to the generality of the foregoing, please seek advice from a financial adviser regarding the suitability of any investment product taking into account your specific investment objectives, financial situation or particular needs before you make a commitment to purchase the investment product.

In the event that you choose not to seek advice from a financial adviser, you should consider whether the product in question is suitable for you. This does not constitute an offer or solicitation to buy or sell or subscribe for any security or financial instrument or to enter into a transaction or to participate in any particular trading or investment strategy.

All information presented is subject to change without notice. OCBC Bank shall not be responsible or liable for any loss or damage whatsoever arising directly or indirectly howsoever in connection with or as a result of any person acting on any information provided herein. The information provided herein may contain projections or other forward looking statement regarding future events or future performance of countries, assets, markets or companies. Actual events or results may differ materially. Past performance figures are not necessarily indicative of future or likely performance. Any reference to any specific company, financial product or asset class in whatever way is used for illustrative purposes only and does not constitute a recommendation on the same.

OCBC Bank and its respective associated and connected corporations together with their respective directors and officers may have or take positions in any securities mentioned in this report (which positions may change from time to time without notice) and may also perform or seek to perform broking and other investment or securities related services for the corporations whose securities are mentioned in this report as well as other parties generally.

The contents hereof may not be reproduced or disseminated in whole or in part without OCBC Bank’s written consent.




Lai Mun Yew (Michael)
  Vice President, Research, Wealth Management, OCBC Bank (Malaysia) Berhad

 

Global Outlook – No Global Recession

 

Economic data out of the G3 still looks fine. Confidence readings have surprisingly been unaffected by market turmoil. The Chinese economy is also showing signs of responding to stimulus, which should allay fears of an imminent hard landing.

Key Points:

  • The U.S. remains on its 2 per cent to 2.5 per cent growth path of recent years, held back at the moment by the delayed effects of the strong U.S. Dollar on trade flows. The bounce in the oil price will also be a drag on consumer spending, after the best growth in a decade in 2015. The general impression is a steady mid-cycle expansion, with limited fears of recession, but no particular reason to hope for acceleration.
  • In Europe, policy remains supportive for growth, with bank lending picking up even before the latest easing from the European Central Bank. This complements the shift to a neutral fiscal policy now that years of austerity have brought government finances under control. Public deficit is now below the Maastricht requirement of 3 per cent of GDP (although not in all countries) and debt levels actually fell slightly in 2015.
  • In Japan, the government seems to be edging towards another short-term fiscal stimulus. Even though the public deficit is still around 5 per cent of GDP and net debt 128 per cent of GDP, the debt markets are not constraining policy, now that the Bank of Japan has sent yields on 10-year debt into negative territory.
  • Even though inflation is still below the 2 per cent target in Japan, labour markets are tight and there does not seem to be much excess capacity in the system. In this case, the merits of short-term demand stimulus through fiscal or monetary policy are dubious. It would be more productive to push structural reform more aggressively in order to raise the potential growth rate.
  • Asia has been less troubled than other regions in the past few years, with most countries being commodity importers, while a current account surplus and healthy foreign exchange reserves provide a barrier against external risks.
  • The Chinese economy is showing signs of responding to stimulus, which should help to allay fears of an imminent hard landing. Unfortunately, the rebound is being “bought” by continued rapid credit growth, which is not sustainable in the longer term. Policy-makers have little choice, but this is a dangerous game. If the transition is too slow, or growth slows too much, then government will be facing a huge bill to protect the financial system. This could also raise existential questions related to political stability.



 

Foreign Exchange & Commodities – Greenback Poised for Rebound

 

The weak U.S. Dollar phase is likely over as the Fed’s outlook has shifted to more neutral from dovish. U.S. Dollar upside against selected Asian currencies remains a compelling medium-term proposition.

Key Points:

  • A dovish Fed, stable China and higher commodity prices have kept the U.S. Dollar firmly depressed over the past three months, especially against the commodity/high yield currencies. However, the Fed seems to have become less dovish recently, given receding external risks and easing of financial conditions, which could signal the end of the weak U.S. Dollar phase.
  • The U.S. Dollar should bottom out soon against Asian currencies before pushing higher again in the second half of 2016. The greenback’s upside against selected Asian currencies remains a compelling medium-term proposition.
  • In Singapore, the Monetary Authority of Singapore surprised markets by reducing the slope of the nominal effective exchange rate (S$NEER) band to 0 per cent in mid-April. This effectively removes the appreciation bias. Spillover from slowing global trade on the small and open Singapore economy and weak inflation are concerns for policymakers.
  • Despite more signs of macro stability in China, credit-fueled growth increases medium-term risk. Medium term, China fundamentals are not out of the woods yet, and that means the renminbi should still weaken.
  • Given that China gains greater competitiveness against regional partners with EM stability than EM instability, it remains an ongoing challenge for China on how to weaken the renminbi without igniting EM instability.
  • Despite the short-term price support, we still find it hard to get excited on gold’s upside potential over the medium-term. We think gold’s resilience may prove fleeting in the second half of this year, as Fed resumes rate hike in June or July depending on Brexit risk.
  • Oil prices continue to rebound even though talks among major producers in Doha failed to lead to an agreement to limit output. The implicit prospect of cooperation, if necessary, has put a floor under prices.
  • Low prices boost demand – up 1.5 per cent in 1Q 2016 – and cut supply, so in the end will restore the market to equilibrium. Increased confidence over the global economic cycle has reduced concern over the outlook for demand.
  • From a supply perspective, the U.S. rig count is down by nearly 80 per cent since late 2014, so this will soon start cutting into potential output. Inventories are still high, but are showing clear signs of a decline, although the pace remains fairly moderate.
  • It is hard to see sustained upside for oil prices from current levels, as it will threaten the underlying supply–demand adjustment. We should expect a more moderate pace of rebound in coming months, and we remain comfortable with a forecast for prices to rebound in the medium-term. As a result we are holding our 12-month forecast to US$50 for both WTI and Brent.



 

Bonds – EM bonds look attractive

 

We remain positive on Emerging Market High Yield bonds even though the asset class has posted gains of nearly 8 per cent this year. Stability in commodity and currency prices, accommodative monetary policy and the better outlook for China augur well for these bonds.

Key Points:

  • The policy statement from the Fed’s end-April meeting reduced the focus on external risks but showed a continued dovish bias, although less so than before. The Fed left its options open to raise rates in June or July and still seems to favour two rate hikes this year. As a result, we have cut our forecast from three to two rate hikes this year but the market is not even fully pricing in a single rate hike.
  • Fed Chair Yellen seems to have been frightened by the early year financial market turmoil and has become even more sensitive to downside risks. Yellen’s view seems to dominate for the time being, but the result is contradictory communication from various Fed speakers, and less predictability to policy decisions.
  • A rate hike in June (or perhaps July, depending on Brexit risk) is still our base case, but with diminished conviction. The Fed’s claim that policy is “data dependent” does not give much guidance, as based on the data they should have raised rates already this year.
  • Investment grade bonds are likely to suffer as pessimism on the U.S. economic outlook continues to fade and Fed tightening resumes. This is behind our pro-risk investment stance, including remaining cautious on investment grade bonds. We see Fed tightening pushing 10-year Treasury yields up towards 2.50 per cent by the end of 2016.
  • Emerging Market High Yield Bonds are modestly attractive versus equivalent investment grade bonds. The former currently trades 546 basis points wider than the latter, about 70 basis points tighter year-to-date. It is still well off the three-year lows of around 340 bps in July 2014. However, it is also around 50 basis points wider than the three-year average spread differential of 499 basis points.
  • From a valuation perspective, Emerging Market High Yield Bonds appear more attractive vis-à-vis High Grade Bonds. Moreover, the higher spread component of High Yield Bonds should provide a buffer against rising interest rates. Given that we see modest spread tightening, we expect that carry will be an increasingly important component of returns in 2016.
  • Inflows into Emerging Market High Yield bonds also reflect improving investor sentiment. As such, we believe that the recent rally could have further room to run. For the week ending 22 April, Emerging Market Bond received around US$1.3 billion in inflows. It was the ninth consecutive week of inflows and during this time more than US$9 billion had flown into the asset class. Year-to-date flows into Emerging Market Bond are up 0.3 per cent after being down substantially in 2015.



 

Equities – Remain Positive on Equities

 

We are sanguine on the global economic outlook, and thus remain positive on equities which will benefit from the benign macro environment. However, gains going forward will be more modest than the past two months, with periodic setbacks and heightened volatility.

Key Points:

  • The rebound from mid-February extended into April and brought global equities into positive territory year-to-date for the first time in 2016. In addition to more encouraging macroeconomic data, the global earnings outlook has also continued to improve. The steadily recovering global economy, led by the U.S., remains a stable backdrop for equities.
  • However, we suspect that the current risk rally will be at a more modest pace than in the two past months, with periodic setbacks and heightened volatility. In particular, the upturn in U.S. inflation and the view that the Fed rate cycle will be steeper than is currently discounted are not yet on investors’ radar screens. Furthermore, political risk appears to be growing with “Brexit” and the U.S. presidential elections.
  • It’s hard to predict markets, but when it comes to May, there is the familiar adage of "sell in May and go away." Looking at how the S&P 500 has performed between the period of May and September each year since 1985, the S&P 500 delivered positive returns in 20 out of the past 31 years. Therefore, from the observation of data over the past three decades, there is not a convincing case for investors to “sell in May and go away”, especially if 2016 is not a recession year.
  • A month ago, we upgraded Asian equities and turned positive on the region due to a more favourable external environment and also because the Fed delayed its hiking cycle. The good news is that global economy is still improving. When the year started, markets were afraid of China, oil and a U.S. recession. In the past month, we are encouraged to see improvements in these areas.
  • Fundamentals for Asia, ranging from China’s economic activities to corporate earnings growth expectations, have been recovering. Valuations, on the other hand, remain undemanding. Hence, we are maintaining our positive stance on Asia. Key risks include a more hawkish Fed, a stronger U.S. Dollar and a fading of the commodities rally.
  • Elsewhere, we are cautious on U.S. equities. Valuations remain demanding. Also, we should start to see wage pressure on record-high corporate margins, given the tightening labour market. Over the next few months, politics is a potential risk factor if Donald Trump secures the Republican nomination.
  • In Europe, the macro picture is likely to stay supportive especially with the ECB keen to step in with further stimulus to avoid downside risks. However, we remain near-term cautious given the political backdrop. In particular, concerns over the outcome of the U.K. referendum on EU membership will cause volatility until the vote on June 23.
  • We are also neutral on Japan because of the strong yen. However, a reversal of the yen as risk appetite returns should provide further lift for the market. Near-term, expectations of further policy easing should also underpin the market. For a more sustained re-rating of Japanese equities, investors would need to see more impactful government policy actions.



 

Important Information

 

Any opinions or views expressed in this material are those of the author and third parties identified, and not those of OCBC Bank (Malaysia) Berhad (“OCBC Bank”, which expression shall include OCBC Bank’s related companies or affiliates).

The information provided herein is intended for general circulation and/or discussion purposes only and does not contain a complete analysis of every material fact. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. Without prejudice to the generality of the foregoing, please seek advice from a financial adviser regarding the suitability of any investment product taking into account your specific investment objectives, financial situation or particular needs before you make a commitment to purchase the investment product.

In the event that you choose not to seek advice from a financial adviser, you should consider whether the product in question is suitable for you. This does not constitute an offer or solicitation to buy or sell or subscribe for any security or financial instrument or to enter into a transaction or to participate in any particular trading or investment strategy.

OCBC Bank, its related companies, their respective directors and/or employees (collectively ‘Related Persons’) may have positions in, and may effect transaction in the products mentioned herein. OCBC Bank may have alliances with the product providers, for which OCBC Bank may receive a fee. Product providers may also be Related Persons, who may be receiving fees from investors. OCBC Bank and the Related Person may also perform or seek to perform broking and other financial services for the product providers.

All information presented is subject to change without notice. OCBC Bank shall not be responsible or liable for any loss or damage whatsoever arising directly or indirectly howsoever in connection with or as a result of any person acting on any information provided herein. The information provided herein may contain projections or other forward-looking statements regarding future events or future performance of countries, assets, markets or companies. Actual events or results may differ materially. Past performance figures are not necessarily indicative of future or likely performance. Any reference to any specific company, financial product or asset class in whatever way is used for illustrative purposes only and does not constitute a recommendation on the same.

The contents hereof may not be reproduced or disseminated in whole or in part without OCBC Bank’s written consent.


 


Volatility returns

 

We see volatility returning, especially as the Fed is likely to be increasingly hawkish. Hence, we are lowering equities to Neutral.

We prefer emerging market high yields and continue to be negative on investment grade bonds.

For fixed income, investors should continue to hold bonds with shorter tenors, as such bonds are less sensitive to increases in interest rates.

Recommendations:

  • Unit Trust: Investors seeking long term capital appreciation through global equity markets but with desire to gain exposure to a specific segment of the global economy could consider the TA Global Technology Fund, a diversified portfolio of 60-80 stocks across the different sub-sectors of global technology companies. The technology sector presents an attractive opportunity given that: a) technology stocks are poised to do well in a recovery market; b) valuation remains attractive; c) technology stocks are in good shape, supported by positive earnings growth and strong cash balance; and d) technology demand to underpin long-term driver of technology stocks.
  • Unit Trust: We recommend the Pacific Emerging Market Bond Fund as this Fund invests a minimum of 95% of its NAV in the MYR Hedged Class of the Target Fund managed by Lion Global Investors Limited. The target Fund is the Lion Capital Funds II – Lion-Bank of Singapore Emerging Market Bond Fund.
  • Unit Trust: We recommend the RHB Asian Income Fund as this Fund invests in one target fund, the Schroder Asian Income fund. This fund aims to provide income and capital growth over the medium- to long-term via an active asset allocation strategy. Exposure in Asia is opportunistic as we view Asia being in a relatively strong position with a high level of foreign reserves, limited external debt, undervalued exchange rates and plenty of policy flexibility.
  • Unit Trust: We recommend the CIMB-Principal Global Titans Fund as this Fund invests at least 50% of its NAV into 3 PGI Funds and 3 Schroder Funds with exposure and investment opportunities in the developed markets, i.e US, Europe and Japan. The steadily recovering global economy led by the US remains a stable backdrop for equities.


This document is not intended to constitute research analysis or recommendation and should not be treated as such.

We recommend that you read and understand the contents of the Master Prospectus for the TA Global Technology Fund dated 1 October 2015 and expire on 30 September 2016, by TA INVESTMENT MANAGEMENT BERHAD. Investments in the Fund are exposed to market risk, country risk, currency risk, sector investment risk, regulatory risk, external fund manager’s risk and others as disclosed in the Master Prospectus.

We recommend that you read and understand the contents of the revised Information Memorandum (issued to replace the Information Memorandum dated 26 January 2016) for Pacific Emerging Market Bond Fund dated 31 May 2016 by Pacific Mutual Fund Bhd. Investments in the Fund are exposed to political risk, repatriation risk, global emerging market risk, regulatory risk, concentration risk and others as disclosed in the Information Memorandum. This fund is eligible to be purchased by High Net Worth Individuals only, the criteria of High Net Worth Individuals as per stated in Schedules 6 and 7 of Capital Market and Services Act (CMSA) 2007.

We recommend that you read and understand the contents of the Master Prospectus for the RHB Asian Income Fund dated 6 October 2015 and expire on 5 October 2016, by RHB Asset Management Sdn Bhd. Investments in the Fund are exposed to management risk, liquidity risk, foreign investment risks such as currency risk and country risk and others as disclosed in the prospectus.

We recommend that you read and understand the contents of the Master Prospectus for CIMB-Principal Global Titans Fund Issue No. 19 dated 30 June 2015 and expire on 29 June 2016 by CIMB-Principal Asset Management Berhad. Investments in the Fund are exposed to stock specific risk, country risk, currency risk, fund manager’s risk, legal and taxation risk, counterparty risk and others as disclosed in the Prospectus.

Unit Trust investments are not bank deposits and are not obligations of or guaranteed or insured by OCBC Bank (Malaysia) Berhad. Unit Trust investments are not guaranteed and are subject to investment risk unless otherwise specified. The investment risk includes general risks as described in the Information Memorandum/Prospectuses for Unit Trust investment funds (“Information Memorandum/Prospectuses”) and specific risks which may be different for each Unit Trust investment. Description of specific risks and general risks are published in the Information Memorandum/Prospectuses. With respect to Unit Trust investment, past performance is not indicative of future results; the net asset value can go up or down. Investors should also note that the net asset value per unit and distributions payable, if any, may go down as well as up.

Where unit trust loan financing is available, investors are advised to read and understand the contents of the unit trust loan financing risk disclosure statement before deciding to borrow to purchase units. Where a unit split/distribution is declared, investors are advised that following the issue of additional units/distribution, the NAV per unit will be reduced from pre-unit split NAV/cum-distribution NAV to post-unit split NAV/ex-distribution NAV; and where a unit split is declared, investors should be highlighted of the fact that the value of their investment in Malaysian ringgit will remain unchanged after the distribution of the additional units.

The Information Memorandum/Prospectuses have been registered with the Securities Commission Malaysia, which takes no responsibility for its content. A copy of the Information Memorandum/Prospectuses can be obtained at OCBC Bank’s branches. Units will only be issued upon the receipt of application form referred in, and accompanying the Information Memorandum/Prospectuses. Investors are advised to read and understand the contents of the Information Memorandum/Prospectuses, and if necessary consult their adviser(s), as well as consider the fees and charges involved before investing in the Unit Trust.

This document has been prepared without taking account of the objectives, financial situation or needs of any specific person or organisation who may receive this document. Accordingly prior to making an investment decision, you should conduct such investigation and analysis regarding the product described herein as you deem appropriate and to the extent you deem necessary obtain independent advice from competent legal, financial, tax, accounting and other professionals, to enable you to understand and recognise fully the legal, financial, tax and other risks arising in respect of the product and the purchase, holding and sale thereof.

You should obtain and read the Product Highlight Sheet of the product before you make a decision to acquire the product. All information provided in this document is general and does not take into account your individual objectives, financial situation or specific needs.

You are required to read and understand the terms and Product Highlight Sheet of the product carefully before executing any transaction relating to the product with us. You may request for a copy of the Product Highlight Sheet at OCBC Banks’ branches.

The information provided herein is intended for general circulation and/or discussion purposes only and does not contain a complete analysis of every material fact. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. Without prejudice to the generality of the foregoing, please seek advice from a financial adviser regarding the suitability of any investment product taking into account your specific investment objectives, financial situation or particular needs before you make a commitment to purchase the investment product.

In the event that you choose not to seek advice from a financial adviser, you should consider whether the product in question is suitable for you. This does not constitute an offer or solicitation to buy or sell or subscribe for any security or financial instrument or to enter into a transaction or to participate in any particular trading or investment strategy.

All information presented is subject to change without notice. OCBC Bank shall not be responsible or liable for any loss or damage whatsoever arising directly or indirectly howsoever in connection with or as a result of any person acting on any information provided herein. The information provided herein may contain projections or other forward looking statement regarding future events or future performance of countries, assets, markets or companies. Actual events or results may differ materially. Past performance figures are not necessarily indicative of future or likely performance. Any reference to any specific company, financial product or asset class in whatever way is used for illustrative purposes only and does not constitute a recommendation on the same.

OCBC Bank and its respective associated and connected corporations together with their respective directors and officers may have or take positions in any securities mentioned in this report (which positions may change from time to time without notice) and may also perform or seek to perform broking and other investment or securities related services for the corporations whose securities are mentioned in this report as well as other parties generally.

The contents hereof may not be reproduced or disseminated in whole or in part without OCBC Bank’s written consent.




Lai Mun Yew (Michael)
  Vice President, Research, Wealth Management, OCBC Bank (Malaysia) Berhad

 

Global Outlook – Adequate but Uneven Growth

 

Overall global growth will remain solid albeit unimpressive, as in recent years. "Stop & go" policies help to limit downside risks but also prevent material acceleration in growth. We should expect periods of calm followed by bursts of worry; no booms but no crisis either.

Key Points:

  • Global growth is adequate but uneven as policy swings between “Stop” and “Go”. Such policies help to limit downside risks but also prevent material acceleration in growth. We should expect periods of calm followed by bursts of worry; no booms but no crisis either.
  • In the U.S., a roughly neutral fiscal policy combines with low real interest rates to produce above trend growth. This pulls down unemployment, tightens capacity and leads to incipient inflationary pressure. It would take an external shock to disrupt this positive cyclical momentum.
  • U.S. growth seems likely to pick up in coming months as the drag from market turbulence at the start of the year reverses, in line with the rebound in financial market conditions. This could increase the inflationary pressures that are already starting to emerge in wages and in core inflation readings.
  • In Japan, the government seems to be edging towards another short-term fiscal stimulus. However, the merits of short-term demand stimulus through fiscal or monetary policy are dubious. It would be more productive to push structural reform aggressively in order to raise the potential growth rate.
  • In Europe, the Eurozone growth has held up well in 2016, untroubled by political or financial market concerns. Brexit would threaten the recovery in the UK, and probably damage the rest of the European Union, although at the moment it does not appear likely.
  • The Brexit vote will not resolve political uncertainty in Europe, with renewed elections in Spain, followed by the presidential election in France and the possible retirement of Chancellor Merkel in 2017.
  • Chinese economy is another example of “stop & go”. Recent years have shown that attempts to deregulate, tackle over-investment, and cut leverage, quickly led to a worrying deceleration in economic activity. In response, fiscal and monetary stimulus has been effective in lifting growth, but at the price of exacerbating structural imbalances. In particular, the credit bubble continues to expand at a frightening pace.



 

Foreign Exchange & Commodities – Greenback Poised to Rise in 2H2016

 

U.S. Dollar strength could resume in 2H2016 but the stronger Dollar and higher U.S. rates could affect risk sentiment as well and result in a choppy Yen and Euro which are safe haven currencies. There is more scope for a sustained upside in the greenback against Asian currencies.

Key Points:

  • The unexpectedly hawkish message from the April Fed policy minutes, hawkish comments from Fed members in recent weeks and the fading likelihood of the U.K leaving the EU all augur well for the U.S. Dollar’s outlook. Our view is that it is hard to see potential for any further dovish surprises, which seems to imply that the U.S. Dollar is close to a bottom and could stage a rebound in the second half.
  • We remain positive on the U.S. Dollar, particularly against Asian currencies and the Renminbi over the medium-term. Once the Renminbi becomes, operationally speaking, part of the IMF SDR basket in September, China will move towards greater forex flexibility. Recent Chinese data are showing signs of growth slowing once again. We remain cautious on the further build up in leverage amidst falling returns. As policy support ebbs, we are keeping a close watch over Chinese data to assess if the mini-cycle recovery has tapered off.
  • Turning to commodities, some of the factors that have sent prices higher seem temporary, such as the hit to production from fires in Canada and upheaval in Nigeria. Others are more durable, such as the rise in demand due to steady global growth and the response to lower fuel prices. For example, road miles travelled in the U.S. have been rising at the fastest pace in nearly two decades.
  • Similarly, the extended period of low prices has cut into supply. For example, the U.S. rig count is down 80 per cent from the late 2014 peak and output is starting to fall. More broadly, OPEC supply is still rising, but non-OPEC production is down.
  • The temporary factors have sent prices up to our US$50 per barrel target faster-than-expected, but it is hard to see prices pushing much higher in 2H2016. We would expect prices to track roughly sideways, as the temporary positives fade, while the more fundamental factors continue to argue for higher prices.
  • The equilibrium price where long-term supply and demand is in balance is an unknowable number, but most specialists put it in the US$60-70 per barrel range. This is a reasonable medium-term target, which implies a moderate upward bias to prices. Feedback loops should mean that if prices push much higher, supply and demand adjustment will stall, which is a barrier to having an overly positive view.
  • We have become less negative on gold, but still find it hard to get excited on gold’s upside potential over the medium-term. We are not rushing to buy gold given that there is still potential for markets to re-price a more hawkish Fed. We project gold prices to trend mostly sideways in 2016, within a broad range of US$1,170 per ounce to US$1,320, a change from our significantly more bearish view previously.



 

Bonds – EM High Yields Look Attractive

 

We remain positive on Emerging Market High Yield bonds. From a valuation perspective, they appear more attractive vis-à-vis High Grade bonds. Moreover, the higher spread component of High Yield bonds should provide a buffer against rising interest rates.

Key Points:

  • We continue to expect two rate hikes this year (in June or July and again in December). Comments from various Fed officials, together with the minutes from the most recent policy meeting, show a willingness to raise rates as soon as the economic data is firmer. The mid-June meeting comes shortly before the Brexit vote, so the Fed might find it advisable to wait until July, when it should also have more evidence of solid data, but the next rate hike is not far away.
  • The big gap between U.S. bond yields and those in Europe and Japan is already creating a positive force driving demand for high quality U.S. debt. The rebound in the oil price might also help from a supply and demand perspective, as it reduces the risk that sovereign wealth funds will need to sell their US Treasury holdings.
  • These factors should limit the rise in yields in the U.S., but not prevent some increase. We see yields pushing up towards 2.25 per cent by year-end on the back of two Fed rate hikes, with further moderate increases in 2017. As a result, we retain an underweight position in U.S. investment grade bonds, balanced by being overweight Emerging Market High Yield bonds, which should be less sensitive to the impact from Fed tightening.
  • Emerging Market High Yield bonds are modestly attractive versus corresponding High Grade (HG) bonds. EM High Yields currently trade 486 basis points wider than EM HG. It is still well off the three-year lows of around 340 basis points in July 2014 but it is also now inside the three-year average spread differential of 503 basis points.
  • Emerging Market bonds have rallied significantly, with High Yield up 8.7 per cent and High Grade up 4.6 per cent year-to-date. However, while we think upside to the asset class exists, tighter valuations due to the rapid run up in prices over the past few months will result in slower price appreciation versus recent experience. Over the next several months, returns are likely to be more dominated by yield than capital appreciation.



 

Equities – Volatility Looks Set to Return

 

The steadily recovering global economy led by the U.S. remains a stable backdrop for equities. However, we see volatility returning, especially with an increasingly hawkish Fed. Coupled with the strong rebound in global equities from the lows in February, we are lowering our call on equities from a positive to a neutral stance.

Key Points:

  • Profit-taking extended into May as investors start to refocus on the Fed. The pullback from late April follows the 15 per cent rebound in global equities from the lows in mid-February. Reflecting growing concerns of a potential Fed rate hike in June or July, Asia Ex-Japan again bore the brunt of the pullback since equities peaked on 20 April.
  • Given the potential Fed rate hike in June or July, we are raising our stance on U.S. equities to a neutral one as the U.S. market remains relatively low beta amid volatility. However, we foresee headwinds with the demanding valuations for U.S. equities and wage pressure hurting corporate profits. Near-term, politics is also a potential risk if Donald Trump secures the Republican nomination.
  • In Europe, the macro backdrop remains conducive for growth and is likely to stay supportive, especially with the ECB keen to step in with further stimulus to limit downside risks. However, we remain near-term cautious given the political agenda over the next few weeks. The outcome of the U.K. referendum on Brexit in late-June and the Spanish elections are events on the geopolitical watch list.
  • In Japan, the near-term economic and corporate earnings growth outlook remains uninspiring. The somewhat confusing BOJ stance has added further uncertainties for investors. A weaker yen, driven by impending Fed rate hikes, could provide some short-term reprieve, especially given that valuations are not demanding. Also, expectations for more short-term stimulus are growing.
  • Fundamentals for the Asia ex-Japan region, especially China’s economic activities and the regional corporate earnings growth outlook, have started to soften again. Valuations, on the other hand, remain undemanding. As we anticipate more hawkish Fed manoeuvres in the coming weeks, we are reducing our call on the region to a neutral stance.



 

Important Information

 

Any opinions or views expressed in this material are those of the author and third parties identified, and not those of OCBC Bank (Malaysia) Berhad (“OCBC Bank”, which expression shall include OCBC Bank’s related companies or affiliates).

The information provided herein is intended for general circulation and/or discussion purposes only and does not contain a complete analysis of every material fact. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. Without prejudice to the generality of the foregoing, please seek advice from a financial adviser regarding the suitability of any investment product taking into account your specific investment objectives, financial situation or particular needs before you make a commitment to purchase the investment product.

In the event that you choose not to seek advice from a financial adviser, you should consider whether the product in question is suitable for you. This does not constitute an offer or solicitation to buy or sell or subscribe for any security or financial instrument or to enter into a transaction or to participate in any particular trading or investment strategy.

OCBC Bank, its related companies, their respective directors and/or employees (collectively ‘Related Persons’) may have positions in, and may effect transaction in the products mentioned herein. OCBC Bank may have alliances with the product providers, for which OCBC Bank may receive a fee. Product providers may also be Related Persons, who may be receiving fees from investors. OCBC Bank and the Related Person may also perform or seek to perform broking and other financial services for the product providers.

All information presented is subject to change without notice. OCBC Bank shall not be responsible or liable for any loss or damage whatsoever arising directly or indirectly howsoever in connection with or as a result of any person acting on any information provided herein. The information provided herein may contain projections or other forward-looking statements regarding future events or future performance of countries, assets, markets or companies. Actual events or results may differ materially. Past performance figures are not necessarily indicative of future or likely performance. Any reference to any specific company, financial product or asset class in whatever way is used for illustrative purposes only and does not constitute a recommendation on the same.

The contents hereof may not be reproduced or disseminated in whole or in part without OCBC Bank’s written consent.


 


Volatility Continues

 

The UK voted to leave the EU and triggered a risk-off phase in the short term. We have since downgraded European equities to underweight and upgraded US equities to overweight.

We prefer emerging market high yields and are neutral on investment grade bonds.

For fixed income, investors should continue to hold bonds with shorter tenors, as such bonds are less sensitive to increases in interest rates.

Asset allocation should be the key consideration in managing and building your core portfolio.

Recommendations:

  • Unit Trust: Investors seeking long term capital appreciation through global equity markets but with desire to gain exposure to a specific segment of the global economy could consider the TA Global Technology Fund, a diversified portfolio of 60-80 stocks across the different sub-sectors of global technology companies. The technology sector presents an attractive opportunity given that: a) technology stocks are poised to do well in a recovery market; b) valuation remains attractive; c) technology stocks are in good shape, supported by positive earnings growth and strong cash balance; and d) technology demand to underpin long-term driver of technology stocks.
  • Unit Trust: We recommend the Pacific Emerging Market Bond Fund as this Fund invests a minimum of 95% of its NAV in the MYR Hedged Class of the Target Fund managed by Lion Global Investors Limited. The target Fund is the Lion Capital Funds II – Lion-Bank of Singapore Emerging Market Bond Fund.
  • Unit Trust: We recommend the RHB Asian Income Fund as this Fund invests in one target fund, the Schroder Asian Income fund. This fund aims to provide income and capital growth over the medium- to long-term via an active asset allocation strategy. Exposure in Asia is opportunistic as we view Asia being in a relatively strong position with a high level of foreign reserves, limited external debt, undervalued exchange rates and plenty of policy flexibility.
  • Unit Trust: We recommend the Affin Hwang Select Income Fund as this income-focused fund, which currently holds short-dated securities and features regular income, should moderate market volatilities impact amidst current market volatilities attributed to policy divergence.


This document is not intended to constitute research analysis or recommendation and should not be treated as such.

We recommend that you read and understand the contents of the Master Prospectus for the TA Global Technology Fund dated 1 October 2015 and expire on 30 September 2016, by TA INVESTMENT MANAGEMENT BERHAD. Investments in the Fund are exposed to market risk, country risk, currency risk, sector investment risk, regulatory risk, external fund manager’s risk and others as disclosed in the Master Prospectus.

We recommend that you read and understand the contents of the revised Information Memorandum (issued to replace the Information Memorandum dated 26 January 2016) for Pacific Emerging Market Bond Fund dated 31 May 2016 by Pacific Mutual Fund Bhd. Investments in the Fund are exposed to political risk, repatriation risk, global emerging market risk, regulatory risk, concentration risk and others as disclosed in the Information Memorandum. This fund is eligible to be purchased by High Net Worth Individuals only, the criteria of High Net Worth Individuals as per stated in Schedules 6 and 7 of Capital Market and Services Act (CMSA) 2007.

We recommend that you read and understand the contents of the Master Prospectus for the RHB Asian Income Fund dated 6 October 2015 and expire on 5 October 2016, by RHB Asset Management Sdn Bhd. Investments in the Fund are exposed to management risk, liquidity risk, foreign investment risks such as currency risk and country risk and others as disclosed in the prospectus.

We recommend that you read and understand the Master Prospectus for the Affin Hwang Select Income Fund dated 18 July 2016 and expires on 17 July 2017 by Affin Hwang Asset Management Bhd (formerly known as Hwang Investment Management Berhad). Investments in the Fund are exposed to specific risks including equity investment risk, equity-linked securities investment risk, credit/default risk, interest rate/price risk, structured products risk, country risk, currency risk, regulatory risk and others as disclosed in the prospectus.

Unit Trust investments are not bank deposits and are not obligations of or guaranteed or insured by OCBC Bank (Malaysia) Berhad. Unit Trust investments are not guaranteed and are subject to investment risk unless otherwise specified. The investment risk includes general risks as described in the Information Memorandum/Prospectuses for Unit Trust investment funds (“Information Memorandum/Prospectuses”) and specific risks which may be different for each Unit Trust investment. Description of specific risks and general risks are published in the Information Memorandum/Prospectuses. With respect to Unit Trust investment, past performance is not indicative of future results; the net asset value can go up or down. Investors should also note that the net asset value per unit and distributions payable, if any, may go down as well as up.

Where unit trust loan financing is available, investors are advised to read and understand the contents of the unit trust loan financing risk disclosure statement before deciding to borrow to purchase units. Where a unit split/distribution is declared, investors are advised that following the issue of additional units/distribution, the NAV per unit will be reduced from pre-unit split NAV/cum-distribution NAV to post-unit split NAV/ex-distribution NAV; and where a unit split is declared, investors should be highlighted of the fact that the value of their investment in Malaysian ringgit will remain unchanged after the distribution of the additional units.

The Information Memorandum/Prospectuses have been registered with the Securities Commission Malaysia, which takes no responsibility for its content. A copy of the Information Memorandum/Prospectuses can be obtained at OCBC Bank’s branches. Units will only be issued upon the receipt of application form referred in, and accompanying the Information Memorandum/Prospectuses. Investors are advised to read and understand the contents of the Information Memorandum/Prospectuses, and if necessary consult their adviser(s), as well as consider the fees and charges involved before investing in the Unit Trust.

This document has been prepared without taking account of the objectives, financial situation or needs of any specific person or organisation who may receive this document. Accordingly prior to making an investment decision, you should conduct such investigation and analysis regarding the product described herein as you deem appropriate and to the extent you deem necessary obtain independent advice from competent legal, financial, tax, accounting and other professionals, to enable you to understand and recognise fully the legal, financial, tax and other risks arising in respect of the product and the purchase, holding and sale thereof.

You should obtain and read the Product Highlight Sheet of the product before you make a decision to acquire the product. All information provided in this document is general and does not take into account your individual objectives, financial situation or specific needs.

You are required to read and understand the terms and Product Highlight Sheet of the product carefully before executing any transaction relating to the product with us. You may request for a copy of the Product Highlight Sheet at OCBC Banks’ branches.

The information provided herein is intended for general circulation and/or discussion purposes only and does not contain a complete analysis of every material fact. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. Without prejudice to the generality of the foregoing, please seek advice from a financial adviser regarding the suitability of any investment product taking into account your specific investment objectives, financial situation or particular needs before you make a commitment to purchase the investment product.

In the event that you choose not to seek advice from a financial adviser, you should consider whether the product in question is suitable for you. This does not constitute an offer or solicitation to buy or sell or subscribe for any security or financial instrument or to enter into a transaction or to participate in any particular trading or investment strategy.

All information presented is subject to change without notice. OCBC Bank shall not be responsible or liable for any loss or damage whatsoever arising directly or indirectly howsoever in connection with or as a result of any person acting on any information provided herein. The information provided herein may contain projections or other forward looking statement regarding future events or future performance of countries, assets, markets or companies. Actual events or results may differ materially. Past performance figures are not necessarily indicative of future or likely performance. Any reference to any specific company, financial product or asset class in whatever way is used for illustrative purposes only and does not constitute a recommendation on the same.

OCBC Bank and its respective associated and connected corporations together with their respective directors and officers may have or take positions in any securities mentioned in this report (which positions may change from time to time without notice) and may also perform or seek to perform broking and other investment or securities related services for the corporations whose securities are mentioned in this report as well as other parties generally.

The contents hereof may not be reproduced or disseminated in whole or in part without OCBC Bank’s written consent.




Lai Mun Yew (Michael)
  Vice President, Research, Wealth Management, OCBC Bank (Malaysia) Berhad

 

Global Outlook – No Global Downturn Due to Brexit

 

Our view is that Brexit has an adverse economic impact but it will be largely contained within the U.K. and, to some extent, Europe. Financial and economic contagion risks remain small, but political contagion – the unity of the EU – is of a greater concern.

Key Points:

  • The UK’s surprising decision to leave the European Union (EU) introduces several uncertainties into the economic outlook. There is unavoidable damage to the UK and, to a lesser degree, the EU, but the rest of the world should not be badly affected. We expect a G3 policy response to limit the disruption, including delays to Federal Reserve tightening. Our base case now is for the U.S. to hike rates in December.
  • Similar to the Black Wednesday of 1992, the plunge in the GBP will help reduce the hit to the UK economy. So far, the exchange rate drop has been on a similar scale; in 1992, it quickly brought the economy out of recession.
  • The UK is 2.3 per cent of the world economy, which makes it the ninth largest, between Indonesia and France. The Eurozone is 12.1 per cent. Any changes to the global forecast are highly provisional, but we have shaved 0.2 percentage points off developed economy growth in 2016 and 2017 due to the damage to Europe, which takes global growth down by 0.1 percentage points, but keeps us in the 3.0-3.5 per cent range of recent years.
  • The existential threat to the project of European integration is probably the biggest risk posed by Brexit. Unlike the UK, there is no process for a Eurozone member to exit and this could be hugely disruptive. Elections in France, the Netherlands and Germany in 2017 will be a focus for market concern, especially since the UK has illustrated the unpredictability of events and the poor reliability of opinion polls.
  • The direct impact of Brexit on the U.S. economy is limited. Exports to the EU are just 1.6 per cent of US output, about one-fifth of which is trade with the UK. However, financial market turbulence and the stronger U.S. Dollar will be a mild drag.
  • The Fed is likely to continue to err on the side of caution when it comes to deciding on the next interest rate hike. A move in 3Q 2016 now looks very unlikely. If markets calm reasonably quickly, then a 0.25 per cent rise in December looks feasible and this is our base case.
  • By postponing the next round of sales tax increase, Japan’s government has shown that short-term growth is still the main priority. A broader fiscal stimulus package is also expected, with the likely size increasing in the wake of Brexit. We can also expect more action from the Bank of Japan, as well as aggressive intervention to defend the USD/JPY ¥100 level if necessary.
  • The Chinese economy has responded to monetary and fiscal stimulus, but the growth pick-up has faded in a way that is consistent with an “L-shaped” rather than “V-shape” recovery. Policy-makers are suggesting that this is acceptable if it is the price to pay for containing the credit bubble, although there is no evidence that growth in the credit bubble is slowing down.
  • Asia ex-Japan still looks resilient in the face of sluggish growth in the developed world and troubles in China. The internally-driven dynamism that has been the feature of the past few years should continue to deliver growth of around 5 per cent in ASEAN. Current account surpluses, large foreign exchange reserves and floating exchange rates should be an adequate buffer against short-term turbulence from Brexit.



 

Foreign Exchange & Commodities – Pound May Not Have Bottomed Yet

 

The Pound has been the biggest loser from Brexit, reflecting vulnerabilities in the UK’s double fiscal and current account deficit and deterioration in the growth outlook. It’s unclear if it’s seen a bottom given the lack of clarity regarding the final consequences of the political and economic separation from the EU.

Key Points:

  • Brexit caused a sharp sell-off of the Pound and it could weaken further. We doubt that the Bank of England (BoE) will intervene to support the currency. The BoE will likely tolerate a weaker Pound and possibly ease further, as concerns over the sharp loss of economic momentum will trump the short-term inflationary impact from the currency’s weakness. The weaker Pound is a vital economic shock absorber. Concerns over a break-up of the Euro area have also taken a toll on European currencies such as the Euro.
  • The traditional risk aversion in currency markets has seen the U.S. dollar gaining ground against EM and commodity currencies and falling against safe haven assets such as the Yen and gold. Central banks around the world will likely respond decisively to restore calm although the hurdles facing coordinated currency markets intervention is high.
  • The low direct trade links between Asian countries and the UK has limited the fallout on Asian currencies. The biggest Brexit casualties within EM are the currencies of countries such as Poland and Hungary, which have stronger trade ties with the UK. However, elevated market volatility could trigger more portfolio outflows in Asia. On the flipside, the market could further push back Fed rate hike expectation to December or beyond, which is a U.S. Dollar negative. On balance, this leaves Asian exchange rates with a moderate bias for depreciating against the US dollar, in our view.
  • It is also important to watch the reaction of policymakers in China to the U.S. Dollar strength amid recent indications that the Chinese economy may once again be losing momentum. International investors and global policymakers alike are likely to prefer that Chinese policy plays a stabilising role by restraining the U.S. Dollar’s advance against the CNY. If China does not do so, the risk headwinds could get stronger for Asian currencies.
  • With Brexit, we expect gold to trade in a new higher range of US$1,250 per ounce to US$1,400 (old range: US$1,170 per ounce to US$1,320). Investors flocked to safe-haven assets and currencies in the wake of Brexit, a theme that could support gold in 2H2016.
  • With a contraction in supply, due to pressure on high-price producers combined with evidence of resilient global demand, it seems that the oil market is moving closer to equilibrium. Inventories are still at high levels but are showing some early signs of correcting. Moreover, the absence of large speculative positions in the futures market is another factor supporting price stability around the US$50 per barrel level.



 

Bonds – Positive on EM High Yields

 

In the near-term post-Brexit world, Emerging Markets Fixed Income should be well-placed to outperform other risk asset classes. Concerns surrounding global growth should elicit accommodative monetary policy, which should be salutary for fixed income.

Key Points:

  • Brexit is bad for the UK’s economy and, to a lesser degree, for that of the Eurozone, but there is no clarity on the scale of the damage. Broader concern about financial system stability looks misplaced, but this is understandable after events in recent years. Uncertainty is set to persist in 2H2016 as the UK chooses a new prime minister, and begins to negotiate the terms of its exit.
  • Demand for low risk assets increases in this environment, especially as the policy response of central banks is likely to involve an expansion of quantitative easing and lower than previously expected interest rates. This is a more favourable world for investment grade bonds than we have been expecting. As a result, we have upgraded our asset allocation stance to neutral from underweight.
  • In terms of Fed policy, it is hard to envisage a rate hike in 3Q2016 even if U.S. jobs data improves. The Fed is likely to be cautious in the face of volatile markets and uncertainty in Europe. The past year has shown that the Fed is still very responsive to downside risks and will err on the side of being too loose for too long when deciding on policy.
  • Our base case is now a Fed rate hike in December, when markets have calmed down and the U.S. has edged closer to fulfilling the Fed’s dual mandate of full employment and 2 per cent inflation. Looking further, the Fed is unlikely to be in a hurry in 2017, unless inflation picks up fast than has been the case recently. We have pencilled in two or three more Fed rate hikes in 2017.
  • The expectation of further policy easing from Europe and Japan has pushed more bond yields into the negative territory, which implies steady foreign demand for U.S. Treasuries. This should limit the rise in U.S. yields, even when the Fed resumes rate hikes.
  • Emerging Market (EM) bonds experiences its best six month return since 2012 during 1H2016. The JPMorgan Corporate Emerging Markets Bond Index rose 7.5 per cent, driven mainly by a 10.3 per cent increase in EM High Yield Bonds. These spectacular results occurred as the stars aligned for EM Bonds in the guise of dovish Fed monetary policy, rising commodity prices, growing confidence in the Chinese government’s ability to deal with its economic challenges and the successful impeachment of Brazilian President Dilma Rousseff.
  • We remain sanguine on EM Bonds in 2H2016. But the upside may be capped by headwinds. Our positive view on EM Bonds is underpinned by supportive top-down and bottom-up fundamentals as well as reasonable solid technical factors. However, valuations for both High Yield and High Grade are somewhat challenging.
  • Furthermore, while we believe that the impact from Brexit should be modest and short-lived, the negative sentiment and volatility may limit the asset class’s performance, particularly over the coming weeks. Ultimately, we believe that the 2H2016 will be more about yield rather than capital appreciation. In such an environment, we maintain our preference for EM High Yield Bonds.



 

Equities – Cautious on Global Equities

 

Given the heightened concerns with political risks, especially in the EU following the unexpected Brexit, we have lowered global equities further to underweight, in line with a more defensive asset allocation stance. On the back of these risk-off posture and the near-term uncertainties in the EU, we have also raised U.S. equities to overweight and downgraded EU equities to underweight.

Key Points:

  • Global equities sold off in June as the unexpected Brexit outcome spooked investor confidence. Japan and Europe, which had held up relatively well, underperformed. In the near-term, we see rising uncertainties as UK embarks on the process of unprecedented withdrawal from the European Union. While economic and financial contagion risks are likely to be limited, heightened political contagion risks have led us to lower our overall stance on equities to negative, from neutral.
  • Since our equities downgrade to neutral in June on valuation concerns, the MSCI World Index corrected only 2.3 per cent in June. Valuations at a forward PE of 15.6 times remain above the 5-year average of 13.9 times, while earnings could be revised down.
  • Regionally, we have lowered Europe to negative in favour of the U.S., which is likely to be relatively more defensive. We stay Neutral on Japan and Asia ex-Japan.
  • In Europe, consensus earnings estimates which were relatively stable in the past three months could see renewed downward pressure as analysts revise their outlook. The prospective PE of 15.4 times, above the long-term average of 12.9 times, offers further justification for our downgrade of Europe.
  • Uncertainties are likely to dominate in the months ahead, as the UK kickstarts the process of an unprecedented withdrawal from the EU. We expect the UK to head into a short-term recession. While the European Central Bank (ECB) is likely to act to limit downside risks to growth, risk of political contagion is a potential overhang as governments confront rising pro-independence voices in a busy political calendar over the next 18 months.
  • In the U.S., the recovery and domestic consumption growth is likely to remain intact. However, Fed rate hikes are likely to be delayed as the Fed assesses the implications of Brexit. Near-term, we see rising political risk if Donald Trump secures the Republican nomination. With the U.S. likely to outperform in times of uncertainty, we favour the U.S. despite premium valuations, and prefer U.S. consumer exposure.
  • In Japan, the Yen’s spike as a safe haven asset post-Brexit drove the market even lower. The rising possibility of the Bank of Japan (BoJ) easing to stem currency strength could lift the market tactically, but a sustained re-rating of Japanese equities would require more meaningful structural reforms, possibility after the Upper House election. Valuations, at a price earnings ratio of 12.3 times and price-to-book ratio of 1.5 times, are not demanding.
  • Asia ex-Japan remained resilient amid the recent volatility, with less perceived trade linkages to Europe. With U.S. rate hikes likely delayed, this potentially cushions the growth outlook for the region, which was started to soften again. On the other hand, with valuations undemanding, we maintain our Neutral stance on the region.



 

Important Information

 

Any opinions or views expressed in this material are those of the author and third parties identified, and not those of OCBC Bank (Malaysia) Berhad (“OCBC Bank”, which expression shall include OCBC Bank’s related companies or affiliates).

The information provided herein is intended for general circulation and/or discussion purposes only and does not contain a complete analysis of every material fact. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. Without prejudice to the generality of the foregoing, please seek advice from a financial adviser regarding the suitability of any investment product taking into account your specific investment objectives, financial situation or particular needs before you make a commitment to purchase the investment product.

In the event that you choose not to seek advice from a financial adviser, you should consider whether the product in question is suitable for you. This does not constitute an offer or solicitation to buy or sell or subscribe for any security or financial instrument or to enter into a transaction or to participate in any particular trading or investment strategy.

OCBC Bank, its related companies, their respective directors and/or employees (collectively ‘Related Persons’) may have positions in, and may effect transaction in the products mentioned herein. OCBC Bank may have alliances with the product providers, for which OCBC Bank may receive a fee. Product providers may also be Related Persons, who may be receiving fees from investors. OCBC Bank and the Related Person may also perform or seek to perform broking and other financial services for the product providers.

All information presented is subject to change without notice. OCBC Bank shall not be responsible or liable for any loss or damage whatsoever arising directly or indirectly howsoever in connection with or as a result of any person acting on any information provided herein. The information provided herein may contain projections or other forward-looking statements regarding future events or future performance of countries, assets, markets or companies. Actual events or results may differ materially. Past performance figures are not necessarily indicative of future or likely performance. Any reference to any specific company, financial product or asset class in whatever way is used for illustrative purposes only and does not constitute a recommendation on the same.

The contents hereof may not be reproduced or disseminated in whole or in part without OCBC Bank’s written consent.


 


Don’t Chase the Rally

 

Buoyant markets in the face of weak fundamentals and political uncertainties need to be validated by actual economic performance. Otherwise, the rise of stock markets cannot be sustained. We have since downgraded European equities to underweight and upgraded U.S. equities to overweight.

We prefer emerging market high yields and are neutral on investment grade bonds.

For fixed income, investors should continue to hold bonds with shorter tenors, as such bonds are less sensitive to increases in interest rates.

Asset allocation should be the key consideration in managing and building your core portfolio.

Recommendations:

  • Unit Trust: Investors seeking long term capital appreciation through global equity markets but with desire to gain exposure to a specific segment of the global economy could consider the TA Global Technology Fund, a diversified portfolio of 60-80 stocks across the different sub-sectors of global technology companies. The technology sector presents an attractive opportunity given that: a) technology stocks are poised to do well in a recovery market; b) valuation remains attractive; c) technology stocks are in good shape, supported by positive earnings growth and strong cash balance; and d) technology demand to underpin long-term driver of technology stocks.
  • Unit Trust: We recommend the Pacific Emerging Market Bond Fund as this Fund invests a minimum of 95% of its NAV in the MYR Hedged Class of the Target Fund managed by Lion Global Investors Limited. The target Fund is the Lion Capital Funds II – Lion-Bank of Singapore Emerging Market Bond Fund.
  • Unit Trust: We recommend the RHB Asian Income Fund as this Fund invests in one target fund, the Schroder Asian Income fund. This fund aims to provide income and capital growth over the medium- to long-term via an active asset allocation strategy. Exposure in Asia is opportunistic as we view Asia being in a relatively strong position with a high level of foreign reserves, limited external debt, undervalued exchange rates and plenty of policy flexibility.
  • Unit Trust: We recommend the CIMB-Principal Asia Pacific Dynamic Income Fund as this fund focuses on high dividend yielding equities in Asia ex-Japan. Dividend stocks tend to outperform the overall market in the current low interest rate environment as investors search for yields. With uneven global growth, uncertainties from policy divergence theme and political changes in the backdrop, we advocate some portfolio allocation into dividend-paying companies amidst lingering market volatilities.


This document is not intended to constitute research analysis or recommendation and should not be treated as such.

We recommend that you read and understand the contents of the Master Prospectus for the TA Global Technology Fund dated 1 October 2015 and expire on 30 September 2016, by TA INVESTMENT MANAGEMENT BERHAD. Investments in the Fund are exposed to market risk, country risk, currency risk, sector investment risk, regulatory risk, external fund manager’s risk and others as disclosed in the Master Prospectus.

We recommend that you read and understand the contents of the revised Information Memorandum (issued to replace the Information Memorandum dated 26 January 2016) for Pacific Emerging Market Bond Fund dated 31 May 2016 by Pacific Mutual Fund Bhd. Investments in the Fund are exposed to political risk, repatriation risk, global emerging market risk, regulatory risk, concentration risk and others as disclosed in the Information Memorandum. This fund is eligible to be purchased by High Net Worth Individuals only, the criteria of High Net Worth Individuals as per stated in Schedules 6 and 7 of Capital Market and Services Act (CMSA) 2007.

We recommend that you read and understand the contents of the Master Prospectus for the RHB Asian Income Fund dated 6 October 2015 and expire on 5 October 2016, by RHB Asset Management Sdn Bhd. Investments in the Fund are exposed to management risk, liquidity risk, foreign investment risks such as currency risk and country risk and others as disclosed in the prospectus.

We recommend that you read and understand the content of the Prospectus Issue No. M2 for the CIMB-Principal Asia Pacific Dynamic Income Fund dated 31 May 2016 and expires on 30 May 2017 by CIMB-Principal Asset Management Berhad. Investments in the Fund are exposed to country risk, credit (default) and counterparty risk, interest rate risk, liquidity risk, risk associated with temporary defensive positions, risk of investing in emerging markets , stock specific risk and others as disclosed in the prospectus.

Unit Trust investments are not bank deposits and are not obligations of or guaranteed or insured by OCBC Bank (Malaysia) Berhad. Unit Trust investments are not guaranteed and are subject to investment risk unless otherwise specified. The investment risk includes general risks as described in the Information Memorandum/Prospectuses for Unit Trust investment funds (“Information Memorandum/Prospectuses”) and specific risks which may be different for each Unit Trust investment. Description of specific risks and general risks are published in the Information Memorandum/Prospectuses. With respect to Unit Trust investment, past performance is not indicative of future results; the net asset value can go up or down. Investors should also note that the net asset value per unit and distributions payable, if any, may go down as well as up.

Where unit trust loan financing is available, investors are advised to read and understand the contents of the unit trust loan financing risk disclosure statement before deciding to borrow to purchase units. Where a unit split/distribution is declared, investors are advised that following the issue of additional units/distribution, the NAV per unit will be reduced from pre-unit split NAV/cum-distribution NAV to post-unit split NAV/ex-distribution NAV; and where a unit split is declared, investors should be highlighted of the fact that the value of their investment in Malaysian ringgit will remain unchanged after the distribution of the additional units.

The Information Memorandum/Prospectuses have been registered with the Securities Commission Malaysia, which takes no responsibility for its content. A copy of the Information Memorandum/Prospectuses can be obtained at OCBC Bank’s branches. Units will only be issued upon the receipt of application form referred in, and accompanying the Information Memorandum/Prospectuses. Investors are advised to read and understand the contents of the Information Memorandum/Prospectuses, and if necessary consult their adviser(s), as well as consider the fees and charges involved before investing in the Unit Trust.

This document has been prepared without taking account of the objectives, financial situation or needs of any specific person or organisation who may receive this document. Accordingly prior to making an investment decision, you should conduct such investigation and analysis regarding the product described herein as you deem appropriate and to the extent you deem necessary obtain independent advice from competent legal, financial, tax, accounting and other professionals, to enable you to understand and recognise fully the legal, financial, tax and other risks arising in respect of the product and the purchase, holding and sale thereof.

You should obtain and read the Product Highlight Sheet of the product before you make a decision to acquire the product. All information provided in this document is general and does not take into account your individual objectives, financial situation or specific needs.

You are required to read and understand the terms and Product Highlight Sheet of the product carefully before executing any transaction relating to the product with us. You may request for a copy of the Product Highlight Sheet at OCBC Banks’ branches.

The information provided herein is intended for general circulation and/or discussion purposes only and does not contain a complete analysis of every material fact. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. Without prejudice to the generality of the foregoing, please seek advice from a financial adviser regarding the suitability of any investment product taking into account your specific investment objectives, financial situation or particular needs before you make a commitment to purchase the investment product.

In the event that you choose not to seek advice from a financial adviser, you should consider whether the product in question is suitable for you. This does not constitute an offer or solicitation to buy or sell or subscribe for any security or financial instrument or to enter into a transaction or to participate in any particular trading or investment strategy.

All information presented is subject to change without notice. OCBC Bank shall not be responsible or liable for any loss or damage whatsoever arising directly or indirectly howsoever in connection with or as a result of any person acting on any information provided herein. The information provided herein may contain projections or other forward looking statement regarding future events or future performance of countries, assets, markets or companies. Actual events or results may differ materially. Past performance figures are not necessarily indicative of future or likely performance. Any reference to any specific company, financial product or asset class in whatever way is used for illustrative purposes only and does not constitute a recommendation on the same.

OCBC Bank and its respective associated and connected corporations together with their respective directors and officers may have or take positions in any securities mentioned in this report (which positions may change from time to time without notice) and may also perform or seek to perform broking and other investment or securities related services for the corporations whose securities are mentioned in this report as well as other parties generally.

The contents hereof may not be reproduced or disseminated in whole or in part without OCBC Bank’s written consent.




Lai Mun Yew (Michael)
  Vice President, Research, Wealth Management, OCBC Bank (Malaysia) Berhad

 

Global Outlook – Central Banks to the Rescue

 

Central banks are again responding to heightened risks by pouring oil on troubled waters, which has limited Brexit risks to the UK so far. The Fed seems to be in no hurry, but we expect a hike in December as the U.S. recovery continues.

Key Points:

  • In the UK, early signs are that the Brexit vote has caused a shock to business and consumer confidence, reflecting the expected damage from impaired transactions with the rest of the European Union (EU). A likely recession should be reversed in 2017 as a result of the competitive benefits from the weaker exchange rate.
  • The remainder of the EU seems relatively relaxed about the economic hit from Brexit. Growth has been comfortably above trend, so the main concern might be that Brexit will prolong the EU’s escape from the risk of deflation. This is likely to spur the ECB to expand and extend its quantitative easing programme.
  • A deeper risk is that the stability of monetary union ultimately requires a move towards fiscal union. This appears highly problematic after the public’s dissatisfaction with the EU that has been highlighted by Brexit.
  • Any hints of referendum (let alone an exit) by a Eurozone member could be hugely disruptive. Elections in France, the Netherlands and Germany in 2017 will be a focus for market concern, especially as the UK has illustrated the unpredictability of events and the poor reliability of opinion polls.
  • Strong job growth in June eased concerns over the health of the domestic U.S. economy. Growth is bumpy but it looks like 2016 as a whole should see the economy expand by something close to the 2.0 per cent average of the previous five years.
  • In Japan, the early promise of Abenomics seems to have had little impact on the factors behind slow growth, which will make it hard to fix the fiscal problems.
  • The Bank of Japan has been under pressure to complement the government’s move by loosening policy further. However, the announcement of a near-doubling in ETF purchases to ¥6tr is a long way from the concept of “helicopter money” that has been receiving attention lately.
  • Immediate concern over the Chinese economy has faded as growth has responded to monetary and fiscal stimulus. The steady expansion of the credit bubble and the need for regular bursts of policy stimulus are two signs that, so far, reform has not been effective in producing an acceptable pace of growth. Adjustment will be a multi-year process, but at the moment progress seems slow.
  • Asia still looks solid in the face of sluggish growth in the developed world and troubles in China. The internally-driven dynamism that has been the feature of the past few years should continue to deliver growth of around 5 per cent in Asean.
  • Current account surpluses, large foreign exchange reserves and floating exchange rates should be an adequate buffer against short-term turbulence from Brexit.



 

Foreign Exchange & Commodities – U.S. Dollar to Remain Range-bound

 

The return of the policy divergence theme should support the U.S. dollar amid better U.S. data. This contrasts with expectations of policy easing from the other three developed market central banks. However, we expect broad U.S. dollar strength to merely retrace recent range highs, rather than breaking significantly new ones for the rest of 2016.

Key Points:

  • The return of the policy divergence theme should support the U.S. Dollar amid better data and some hawkishness out of Fed speakers.
  • Expect the U.S. Dollar to merely retrace recent range highs, rather than break new ones for the rest of 2016 as global conditions do not seem weak enough to promote such a safe haven demand for U.S. Dollar.
  • Prospects for coordinated monetary/fiscal stimulus have triggered renewed Yen weakness. A genuinely radical policy departure such as helicopter money could have a significant impact but we are not counting on helicopter money to revive the weak Yen trend. Yen has proven to be an attractive portfolio diversifier and will likely remain so.
  • GBP weakness has more to run given the ongoing implications and fallout from Brexit. This includes uncertainties surrounding trade deals, passporting of financial services and financing of the UK’s huge current account deficit. We expect further weakening of GBP/USD to 1.26 in 3 months’ time.
  • Asian currencies, supported by yield-seeking foreign bond and equity inflows, seems unconcerned about the recent Yuan weakening. But the resilience of Asian currencies seems a bit tired as markets begin to move towards pricing a greater chance of a Fed tightening in 2H2016 and with the People’s Bank of China likely to resume its Yuan depreciation after a pause going into the recent G20 meeting.
  • The recent decline in gold prices suggests that investors are less convinced of the Fed staying dovish to support risk assets.
  • Gold is vulnerable to profit-taking especially considering the near record high positioning. However, gold will continue to trade in a new higher range of US$1250-1400 (old range: US$1170-1320) in 2H16 with the Italian Senate referendum and the U.S. elections in November being two potential “risk off” events, which will be supportive for gold.
  • Temporary supply disruption boosted oil prices in 2Q2016, but this has reversed as the impact faded. The rebound in U.S. drilling is a side-show as activity is still at low levels. The exit of unprofitable producers points to a firmer medium-term price trend.
  • The equilibrium price where long-term supply and demand is in balance is an unknowable number, but most specialists put it in the US$60-70 range. This is a reasonable medium-term target, which implies a moderate upwards bias to prices. Feedback loops should mean that if prices push much higher, then the supply and demand adjustment will stall, which is a barrier to having an overly positive view.



 

Bonds – Fabulous Month for Bonds Globally

 

Emerging Market bonds have rallied significantly thus far this year. High Yield bonds have gained about 14 per cent and High Grades are up about 8 per cent. The market appears poised for its best year since 2012 with a reasonable shot at the second best year ever behind 2009.

Key Points:

  • Emerging Market produced its fourth excellent month in the past five (the other month was a gain as well, albeit a modest one) as it rose consistently throughout the month. Developed Market Credit also had a tremendous month with U.S. High Yield and Global High Grade up an incredible 2.9 per cent and 1.1 per cent respectively.
  • The market appears poised for its best year since 2012 with a reasonable shot at the second best year ever behind 2009. However, we view the potential upside as capped by challenging valuations in both EM High Yield and EM High Grade.
  • In the near-term post-Brexit world, Emerging Markets fixed income should be well-placed to outperform other risk asset classes. Concerns surrounding global growth should elicit accommodative monetary policy which in turn should be salutary for fixed income.
  • Moreover, while equity performance is highly influenced by earning momentum, fixed income is dependent on earnings adequacy. We believe that ongoing cash flows are supportive of credit quality. Hence, we would maintain our EM HY overweight and market weight EM HG.
  • We have witnessed a massive spike this year in High Yield issuance. In the search for yield in the “lower for longer” low interest rate environment, issuers have found a receptive audience.
  • While we remain constructive on the Emerging Market High Yield asset class in general, we advise investors to be both circumspect and selective as this risk-on environment tends to result in increasingly lower quality issuers.
  • Abundant central bank liquidity together with various economic and political uncertainties provides a supportive backdrop for investment grade bonds, even in a world where the Fed is (gradually) raising interest rates. As a result, we maintain our neutral asset allocation stance.
  • In terms of Fed policy, a September rate hike is possible, as there are two more jobs releases to come, while financial conditions have normalised after the initial turmoil from Brexit. However, its recent history suggests that the Fed is likely to err on the side of caution and delay until December.
  • Barring a surprising pick-up of inflation, we can see two or three more hikes in 2017, which implies sustained upward pressure on U.S. bond yields, without being likely to cause an aggressive sell-off.



 

Equities – Good Recovery in Global Equities

 

Global equities recovered well in July from the unexpected Brexit driven sell-off in June, benefiting from growing expectations of further stimulus. We expect volatility to remain high in the near term amid the political and global growth uncertainties, even as central banks are ready to act further to support growth.

Key Points:

  • Given the risk of political contagion, Europe not surprisingly, underperformed. On the other hand, Asia outperformed.
  • US equities extended further into all-time high territory, boosted by better than expected earnings so far. Both sales and earnings surprised positively, albeit still early days in the current season and versus beaten-down expectations.
  • For European equities, we see uncertainties re-emerging in the months ahead as UK kick-starts the process of unprecedented withdrawal from the EU. UK may head into a short-term recession from less investment and difficult negotiations with EU.
  • Consensus earnings estimates seem too optimistic and could see renewed downgrade pressure. While the ECB is likely to act to limit downside risks to growth, risk of political contagion is a potential overhang in anticipation of a busy political calendar over the next 6-12 months.
  • We expect volatility to remain high in the near term amid the political and global growth uncertainties, even as central banks are ready to act further to support growth. Valuations continue to extend although overall downside risks have increased. We maintain our Negative stance on equities. Regionally, we remain Negative on Europe in favour of the U.S.
  • Japanese equities rebounded strongly in July on growing expectations of fresh fiscal and monetary stimulus.
  • We maintain the view that sustained re-rating of Japanese equities would require more meaningful structural reforms. Valuations, at a PE of 13.7 times, are not demanding. We stay Neutral here and prefer companies with high earnings visibility.
  • Boosted by speculation of central banks easing and growing risk appetite, Asia Ex-Japan continued to outperform in July.
  • Taiwan and Hong Kong were the best performing markets and Malaysia and Singapore underperformed. The low expectations of a U.S. rate hike this year suggests that the market could be easily spooked by any hawkish Fed commentary.
  • Also, the growth outlook for the region has started to soften again. Nevertheless, with valuations undemanding, we maintain our Neutral stance.



 

Important Information

 

Any opinions or views expressed in this material are those of the author and third parties identified, and not those of OCBC Bank (Malaysia) Berhad (“OCBC Bank”, which expression shall include OCBC Bank’s related companies or affiliates).

The information provided herein is intended for general circulation and/or discussion purposes only and does not contain a complete analysis of every material fact. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. Without prejudice to the generality of the foregoing, please seek advice from a financial adviser regarding the suitability of any investment product taking into account your specific investment objectives, financial situation or particular needs before you make a commitment to purchase the investment product.

In the event that you choose not to seek advice from a financial adviser, you should consider whether the product in question is suitable for you. This does not constitute an offer or solicitation to buy or sell or subscribe for any security or financial instrument or to enter into a transaction or to participate in any particular trading or investment strategy.

OCBC Bank, its related companies, their respective directors and/or employees (collectively ‘Related Persons’) may have positions in, and may effect transaction in the products mentioned herein. OCBC Bank may have alliances with the product providers, for which OCBC Bank may receive a fee. Product providers may also be Related Persons, who may be receiving fees from investors. OCBC Bank and the Related Person may also perform or seek to perform broking and other financial services for the product providers.

All information presented is subject to change without notice. OCBC Bank shall not be responsible or liable for any loss or damage whatsoever arising directly or indirectly howsoever in connection with or as a result of any person acting on any information provided herein. The information provided herein may contain projections or other forward-looking statements regarding future events or future performance of countries, assets, markets or companies. Actual events or results may differ materially. Past performance figures are not necessarily indicative of future or likely performance. Any reference to any specific company, financial product or asset class in whatever way is used for illustrative purposes only and does not constitute a recommendation on the same.

The contents hereof may not be reproduced or disseminated in whole or in part without OCBC Bank’s written consent.


 


Good Yield Hunting

 

Financial markets remain in a tentative risk-on mode, encouraged by good enough economic data to take recession risks off the table for now, but enough economic uncertainty to keep central banks in easing mode.

We prefer emerging market high yields and are neutral on investment grade bonds.

For fixed income, investors should continue to hold bonds with shorter tenors, as such bonds are less sensitive to increases in interest rates.

Asset allocation should be the key consideration in managing and building your core portfolio.

Recommendations:

  • Unit Trust: Investors seeking long term capital appreciation through global equity markets but with desire to gain exposure to a specific segment of the global economy could consider the TA Global Technology Fund, a diversified portfolio of 60-80 stocks across the different sub-sectors of global technology companies. The technology sector presents an attractive opportunity given that: a) technology stocks are poised to do well in a recovery market; b) valuation remains attractive; c) technology stocks are in good shape, supported by positive earnings growth and strong cash balance; and d) technology demand to underpin long-term driver of technology stocks.
  • Unit Trust: We recommend the Pacific Emerging Market Bond Fund as this Fund invests a minimum of 95% of its NAV in the MYR Hedged Class of the Target Fund managed by Lion Global Investors Limited. The target Fund is the Lion Capital Funds II – Lion-Bank of Singapore Emerging Market Bond Fund.
  • Unit Trust: We recommend the RHB Asian Income Fund as this Fund invests in one target fund, the Schroder Asian Income fund. This fund aims to provide income and capital growth over the medium- to long-term via an active asset allocation strategy. Exposure in Asia is opportunistic as we view Asia being in a relatively strong position with a high level of foreign reserves, limited external debt, undervalued exchange rates and plenty of policy flexibility.
  • Unit Trust: We recommend the RHB Global Macro Opportunities Fund as this Fund aims to achieve capital appreciation above its benchmark by investing at least 95% of NAV in one target fund, the JPMorgan Investment Funds – Global Macro Opportunities Fund. The fund can diversify an overall portfolio by investing primarily in securities, globally, using Global Macro Approach and Dynamic Portfolio Implementation, which aim to deliver positive returns regardless of the market environment.


This document is not intended to constitute research analysis or recommendation and should not be treated as such.

We recommend that you read and understand the contents of the Master Prospectus for the TA Global Technology Fund dated 1 October 2015 and expire on 30 September 2016, by TA INVESTMENT MANAGEMENT BERHAD. Investments in the Fund are exposed to market risk, country risk, currency risk, sector investment risk, regulatory risk, external fund manager’s risk and others as disclosed in the Master Prospectus.

We recommend that you read and understand the contents of the revised Information Memorandum (issued to replace the Information Memorandum dated 26 January 2016) for Pacific Emerging Market Bond Fund dated 31 May 2016 by Pacific Mutual Fund Bhd. Investments in the Fund are exposed to political risk, repatriation risk, global emerging market risk, regulatory risk, concentration risk and others as disclosed in the Information Memorandum. This fund is eligible to be purchased by High Net Worth Individuals only, the criteria of High Net Worth Individuals as per stated in Schedules 6 and 7 of Capital Market and Services Act (CMSA) 2007.

We recommend that you read and understand the contents of the Master Prospectus for the RHB Asian Income Fund dated 6 October 2015 and expire on 5 October 2016, by RHB Asset Management Sdn Bhd. Investments in the Fund are exposed to management risk, liquidity risk, foreign investment risks such as currency risk and country risk and others as disclosed in the prospectus.

We recommend that you read and understand the content of the Information Memorandum for RHB Global Macro Opportunities Fund dated 1 June 2016 by RHB Asset Management Sdn Bhd. Investments in the Fund are exposed to country risk, equity risk, currency risk, management risk, emerging market risk and others as disclosed in the Information Memorandum. This fund is eligible to be purchased by High Net Worth Individuals only, the criteria of High Net Worth Individuals as per stated in Schedules 6 and 7 of Capital Market and Services Act (CMSA) 2007.

Unit Trust investments are not bank deposits and are not obligations of or guaranteed or insured by OCBC Bank (Malaysia) Berhad. Unit Trust investments are not guaranteed and are subject to investment risk unless otherwise specified. The investment risk includes general risks as described in the Information Memorandum/Prospectuses for Unit Trust investment funds (“Information Memorandum/Prospectuses”) and specific risks which may be different for each Unit Trust investment. Description of specific risks and general risks are published in the Information Memorandum/Prospectuses. With respect to Unit Trust investment, past performance is not indicative of future results; the net asset value can go up or down. Investors should also note that the net asset value per unit and distributions payable, if any, may go down as well as up.

Where unit trust loan financing is available, investors are advised to read and understand the contents of the unit trust loan financing risk disclosure statement before deciding to borrow to purchase units. Where a unit split/distribution is declared, investors are advised that following the issue of additional units/distribution, the NAV per unit will be reduced from pre-unit split NAV/cum-distribution NAV to post-unit split NAV/ex-distribution NAV; and where a unit split is declared, investors should be highlighted of the fact that the value of their investment in Malaysian ringgit will remain unchanged after the distribution of the additional units.

The Information Memorandum/Prospectuses have been registered with the Securities Commission Malaysia, which takes no responsibility for its content. A copy of the Information Memorandum/Prospectuses can be obtained at OCBC Bank’s branches. Units will only be issued upon the receipt of application form referred in, and accompanying the Information Memorandum/Prospectuses. Investors are advised to read and understand the contents of the Information Memorandum/Prospectuses, and if necessary consult their adviser(s), as well as consider the fees and charges involved before investing in the Unit Trust.

This document has been prepared without taking account of the objectives, financial situation or needs of any specific person or organisation who may receive this document. Accordingly prior to making an investment decision, you should conduct such investigation and analysis regarding the product described herein as you deem appropriate and to the extent you deem necessary obtain independent advice from competent legal, financial, tax, accounting and other professionals, to enable you to understand and recognise fully the legal, financial, tax and other risks arising in respect of the product and the purchase, holding and sale thereof.

You should obtain and read the Product Highlight Sheet of the product before you make a decision to acquire the product. All information provided in this document is general and does not take into account your individual objectives, financial situation or specific needs.

You are required to read and understand the terms and Product Highlight Sheet of the product carefully before executing any transaction relating to the product with us. You may request for a copy of the Product Highlight Sheet at OCBC Banks’ branches.

The information provided herein is intended for general circulation and/or discussion purposes only and does not contain a complete analysis of every material fact. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. Without prejudice to the generality of the foregoing, please seek advice from a financial adviser regarding the suitability of any investment product taking into account your specific investment objectives, financial situation or particular needs before you make a commitment to purchase the investment product.

In the event that you choose not to seek advice from a financial adviser, you should consider whether the product in question is suitable for you. This does not constitute an offer or solicitation to buy or sell or subscribe for any security or financial instrument or to enter into a transaction or to participate in any particular trading or investment strategy.

All information presented is subject to change without notice. OCBC Bank shall not be responsible or liable for any loss or damage whatsoever arising directly or indirectly howsoever in connection with or as a result of any person acting on any information provided herein. The information provided herein may contain projections or other forward looking statement regarding future events or future performance of countries, assets, markets or companies. Actual events or results may differ materially. Past performance figures are not necessarily indicative of future or likely performance. Any reference to any specific company, financial product or asset class in whatever way is used for illustrative purposes only and does not constitute a recommendation on the same.

OCBC Bank and its respective associated and connected corporations together with their respective directors and officers may have or take positions in any securities mentioned in this report (which positions may change from time to time without notice) and may also perform or seek to perform broking and other investment or securities related services for the corporations whose securities are mentioned in this report as well as other parties generally.

The contents hereof may not be reproduced or disseminated in whole or in part without OCBC Bank’s written consent.




Lai Mun Yew (Michael)
  Vice President, Research, Wealth Management, OCBC Bank (Malaysia) Berhad

 

Global Outlook – Global Economy Has Been Resilient

 

In a low-growth, post-crisis world plagued by political instability, there are plenty of things that can go wrong. Policy offers some insurance, but no guarantees. However, in 2016 the world economy has continued to dodge the downside risks.

Key Points:

  • A period of slow growth in the wake of financial crisis is unsurprising and in recent years it has been exacerbated by weak productivity. The result is that global growth has been stuck in a 3 to 3.5 per cent range that is neither impressive nor particularly problematic.
  • However, the world economy has dodged various predicted disasters in recent years, sometimes thanks to timely policy interventions. This has continued in 2016 with a bounce in commodity prices, firmer emerging market growth and stability in China.
  • The outlook will never be entirely free of concern. The next major risk will be the U.S. Presidential election where a Trump victory would drive uncertainty. The odds are against him, but that was also true for Brexit.
  • The lesson is that we need to be sensitive to observable downside risks and to have some insurance against unpredictable “black swan” events. At the same time, we must remember the resilience and mean-reverting nature of the global economy, as well as the backdrop of policy support.
  • In the United States, the economy has enjoyed a steady recovery from the depths of recession in 2009. Recent data releases are volatile but the secret is to focus on finding consistency among the majority of the releases and not put too much emphasis on outliers. If policy is loose and the external environment is stable, then we should expect recovery to continue.
  • Concern that the Eurozone would suffer significant contagion from the U.K.’s Brexit vote has faded. Taking the purchasing managers’ index (as the broadest and most timely guide to economic activity), it is hard to see any impact. Readings are still comfortably above 50, at levels associated with gross domestic product (GDP) growth of around 1.5 per cent.
  • In Japan, another fiscal package has completed Japan’s U-turn from budget deficit reduction to economic stimulus. Despite the shift in priorities, it is hard to find evidence of material progress on the structural reform that is needed to raise the potential growth rate.
  • In China, the steady expansion of the credit bubble and the need for regular bursts of policy stimulus are two signs that, so far, reform has not been effective in producing an acceptable pace of sustainable growth. Adjustment will be a multi-year process, but at the moment progress seems slow and this suggests that another round of stimulus will be on the agenda by the end of the year.
  • Asia still looks solid in the face of sluggish growth in the developed world and troubles in China. The internally-driven dynamism that has been the feature of the past few years should continue to deliver growth. Current account surpluses, large foreign exchange reserves and floating exchange rates should be an adequate buffer against external events.



 

Foreign Exchange & Commodities – U.S. Dollar Bears Should Be Wary

 

Apart from a brief broad U.S. Dollar surge in late 2015 attributed to China’s steep currency devaluation and the hit to commodity currencies, the U.S. Dollar index has been in a broad holding pattern since early 2015. We expect the Dollar to continue trading within the range.

Key Points:

  • The broad U.S. Dollar had dipped near to the low end of this year’s range against the Euro dollar, the Australian dollar and the New Zealand dollar respectively. U.S. Dollar bears should be wary of a reversal. The Fed is increasingly worried about an overheating U.S. economy and its hesitance to raise rates may end once the November U.S. Presidential election is over.
  • The Japanese Yen and gold have proven to be attractive portfolio diversifiers so far this year. However, with both the Yen and gold near the strong end of this year’s range and with Bank of Japan Governor Kuroda’s hint of more easing likely at the 21 September meeting, this could limit the effectiveness of the Yen and gold as a risk-off hedge. If the source of shock is a hawkish Fed, being long the Yen and gold may also not be particularly good hedges against the resulting risk-off sentiment.
  • A Trump victory carries higher risk of policy uncertainty. But it is unclear if this would be broadly negative for the U.S. Dollar. Greater likelihood of a Trump presidency could weigh on the U.S. Dollar versus reserve currencies such as Japanese Yen, and also versus gold. Trump poses a negative for Asian currencies given risk of rising global trade tensions.
  • Our views on the targets for the Pound are unchanged. Its recent stabilisation is not strong enough yet to suggest that the lows are in place. We continue to believe that the broader Pound downtrend remains intact reflecting the U.K.’s chronic funding position.
  • If Fed’s comments turns more hawkish this could push gold price to test the key psychological level at $1,300 per ounce. We expect buying interest to emerge around this area. Any significant dips should be viewed as opportunities to build long tactical gold exposure for a 3 to 6 month timeframe. We maintain the view that gold will continue to trade in a US$1,250 to US$1,400 per ounce in 2H16. With other G4 central banks continuing with loose monetary policy and with core bond yields low to negative, gold remains an attractive portfolio diversifier against policy event risks such as a Trump election victory.
  • Oil prices are stabilising just below US$50 per barrel as solid demand gradually absorbs supply. Short-term volatility is being driven by speculative activity apparently in response to sentiment over supply disruptions or hopes of an OPEC deal to limit production. Oil rebounded in August as speculative short positions were cut on rumours of supply restraint, but there is a lack of fundamental drivers to produce a significant move in prices.
  • Most specialists put the equilibrium price where long-term supply and demand is in balance in the US$60 to US$70 per barrel range. This is a reasonable medium-term target, which implies a moderate upwards bias to prices. Feedback loops should mean that if prices push much higher, then the supply and demand adjustment will stall, which is a barrier to having an overly positive view.



 

Bonds – Still Positive EM High Yields

 

Our prognosis that interest will stay low for a fairly long period given accommodative monetary policy globally is a forecast that is supportive of bonds, especially emerging market high yield bonds which still enjoy reasonable valuations.

Key Points:

  • Recent months of strong job growth and a lack of contagion – either financial or economic – from the Brexit vote have emboldened Fed officials to guide towards a rate hike before the end of the year. Fed Chair Yellen’s speech at the Jackson Hole conference rounded off a sequence of positive comments, without giving any clarity on the precise timing, which seems to be dependent on the data flow. We see a Fed move in December as more likely than September.
  • Even though further easing from the Bank of Japan or European Central Bank might be limited, their current quantitative easing policies are likely to run for at least another year, and probably much longer. The resultant flows into the U.S. are likely to restrain the rise in U.S. Treasury yields even if the Fed puts through a series of rate hikes over the next couple of years.
  • Foreign inflows are expected to limit the increase in U.S. bond yields, but not prevent it altogether. In this scenario, we see 10-year Treasury yields at around 1.75 per cent by year end, with further modest increases in 2017. This should mean that investment grade bonds offer slightly better returns than cash for the remainder of the year.
  • While some equity markets have been reaching all-time highs, bonds have been performing equally well. We are less worried about the valuations on corporate bonds. One of the key valuation metrics of such bonds is its spread over government bonds. This is measured simply by the additional yield paid to the investor compared to the yield that would be paid on a government bond of the same maturity.
  • Emerging Market (EM) assets are typically vulnerable to Fed rate hikes. Higher U.S. rates often buoy the U.S. Dollar and weigh on EM assets and commodity prices. Yet, the reaction to the next rate rise could be muted. We expect the Fed to raise rates just once this year − likely in December − and to proceed gingerly thereafter.
  • The recent strong flow into EM assets is not without reason. EM fundamentals that saw the worst of the three year downturn is on the cusp of recovery, with external imbalances shrinking and EM growth dynamics improving compared to Developed Market growth.
  • The lower-for-longer outlook for Fed rates extends investors’ reach for yield. It also buys time for EMs to implement structural reforms, such as India’s recent tax reform and Indonesia’s renewed push for fiscal reform. This could enable selected EMs to be more resilient when the Fed eventually normalises rates.
  • Fixed Income should be in a position to continue to deliver performance over the coming months. Given current valuations within Emerging Markets, we continue to favour Emerging Market High Yield Bonds and maintain our positive stance towards the asset class.



 

Equities – Maintain Cautious Stance

 

We expect market volatility to continue in the near-term amid on-going political and global growth uncertainties, despite ready central banks to act further to support growth should the need arise. Valuations appear extended and overall downside risks have risen.

Key Points:

  • Since the Brexit-triggered sell-off in late June, global equities have rebounded by almost 11 per cent. Valuations at a forward price-to-earnings ratio (PE) of 17.5 times continue to look stretched. While we maintain our cautious stance on equities, we do not want to downgrade our call further yet, as there appears to be enough growth to prevent an outright contraction in earnings. Nevertheless, we think markets will trade sideways with heightened volatility and we prefer to focus on income over growth.
  • U.S. equities extended further into all-time high territory in August, albeit at a decelerated pace. Defensive sectors, led by Telecom and Utilities, continued to underperform as risk appetite grew. Looking ahead, we continue to see the on-going U.S. recovery and domestic consumption growth, driven by the tight labour market and rising inflation, to be supportive of earnings growth. Near-term, we see rising political risk running up to the Presidential election in November.
  • European equities recovered in August as the latest figures suggest that the economic fallout of Brexit could be isolated to the United Kingdom. However, the risk of political contagion is a potential overhang in anticipation of a busy political calendar over the next 6 to 12 months. These include Italy’s referendum on constitutional reforms and the general elections in France and Germany. With forward PE of 16.3 times, above the long-term average of 13 times, we remain cautious on European equities given the prospect of higher uncertainty.
  • Japanese equities continued to bounce back in August as the better-than-expected quarterly results season helped to stem the sharp earnings downgrade trend. Following the big Upper House election win, the Abe administration’s stimulus package is nowhere close to the level anticipated by the market and there is now further pressure on the BOJ to introduce more aggressive easing measures. We maintain the view that a sustained re-rating of Japanese equities would require more meaningful structural reforms. Valuations at a forward PE of 13.6 times are not demanding.
  • Asia Ex-Japan equities climbed further in August. Unlike its global peers, consensus 2016 earnings-per-share forecast for Asia Ex-Japan has continued to improve after picking up in June. Investors seemed to remain complacent of a lower-for-longer interest rate environment even as Fed commentary has started to take a more hawkish stance with the U.S. economy showing further signs of strengths. The low expectations of a U.S. rate hike this year suggests that the market could be easily spooked by any hawkish Fed commentary.



 

Important Information

 

Any opinions or views expressed in this material are those of the author and third parties identified, and not those of OCBC Bank (Malaysia) Berhad (“OCBC Bank”, which expression shall include OCBC Bank’s related companies or affiliates).

The information provided herein is intended for general circulation and/or discussion purposes only and does not contain a complete analysis of every material fact. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. Without prejudice to the generality of the foregoing, please seek advice from a financial adviser regarding the suitability of any investment product taking into account your specific investment objectives, financial situation or particular needs before you make a commitment to purchase the investment product.

In the event that you choose not to seek advice from a financial adviser, you should consider whether the product in question is suitable for you. This does not constitute an offer or solicitation to buy or sell or subscribe for any security or financial instrument or to enter into a transaction or to participate in any particular trading or investment strategy.

OCBC Bank, its related companies, their respective directors and/or employees (collectively ‘Related Persons’) may have positions in, and may effect transaction in the products mentioned herein. OCBC Bank may have alliances with the product providers, for which OCBC Bank may receive a fee. Product providers may also be Related Persons, who may be receiving fees from investors. OCBC Bank and the Related Person may also perform or seek to perform broking and other financial services for the product providers.

All information presented is subject to change without notice. OCBC Bank shall not be responsible or liable for any loss or damage whatsoever arising directly or indirectly howsoever in connection with or as a result of any person acting on any information provided herein. The information provided herein may contain projections or other forward-looking statements regarding future events or future performance of countries, assets, markets or companies. Actual events or results may differ materially. Past performance figures are not necessarily indicative of future or likely performance. Any reference to any specific company, financial product or asset class in whatever way is used for illustrative purposes only and does not constitute a recommendation on the same.

The contents hereof may not be reproduced or disseminated in whole or in part without OCBC Bank’s written consent.


 


Hunt For Yield as Politics Come To The Fore

 

Politics will force itself into spotlight soon as we head on to the final stretch of the year. We have learnt from Brexit not to ignore political risks. Hilary Clinton’s first debate with Donald Trump heralds the start of the run-in to the election in November. Italy, meanwhile, has firmed up the date for its constitutional referendum as December 4.

Markets may enter into a phase of higher uncertainty. Risks remain elevated as one of the concerns about market levels has been that much of the gains have been fuelled by liquidity, not underlying growth. There is a realization that monetary policy is coming to the end of its usefulness as a stimulant for growth, and that something more is needed.

The environment of still low bond yields and range bound equities argues for income from both equity and fixed income markets for the rest of 2016.

We continue to prefer credit over equity. We are negative in our outlook on equity evenly in the developed market - US, Europe, and Japan - while keeping our neutral call on Asia.

Asset allocation should be the key consideration in managing and building your core portfolio.

Recommendations:

  • Unit Trust: Investors seeking long term capital appreciation through global equity markets but with desire to gain exposure to a specific segment of the global economy could consider the TA Global Technology Fund (Risk rating: C-High), a diversified portfolio of 60-80 stocks across the different sub-sectors of global technology companies. The technology sector presents an attractive opportunity given that: a) technology stocks are poised to do well in a recovery market; b) valuation remains attractive; c) technology stocks are in good shape, supported by positive earnings growth and strong cash balance; and d) technology demand to underpin long-term driver of technology stocks.
  • Unit Trust: We recommend the Pacific Emerging Market Bond Fund (Risk rating: B-Moderate) as this Fund invests a minimum of 95% of its NAV in the MYR Hedged Class of the Target Fund managed by Lion Global Investors Limited. The target Fund is the Lion Capital Funds II – Lion-Bank of Singapore Emerging Market Bond Fund.
  • Unit Trust: We recommend the RHB Asian Income Fund (Risk rating: B-Moderate) as this Fund invests in one target fund, the Schroder Asian Income fund. This fund aims to provide income and capital growth over the medium- to long-term via an active asset allocation strategy. Exposure in Asia is opportunistic as we view Asia being in a relatively strong position with a high level of foreign reserves, limited external debt, undervalued exchange rates and plenty of policy flexibility.
  • Unit Trust: We recommend the RHB Global Macro Opportunities Fund (Risk rating: C-High) as this Fund aims to achieve capital appreciation above its benchmark by investing at least 95% of NAV in one target fund, the JPMorgan Investment Funds – Global Macro Opportunities Fund. The fund can diversify an overall portfolio by investing primarily in securities, globally, using Global Macro Approach and Dynamic Portfolio Implementation, which aim to deliver positive returns regardless of the market environment.

Top Investment Ideas are an expression of the investment outlook in this publication. They are not recommendations made in accordance with your investment objective and risk profile.



This document is not intended to constitute research analysis or recommendation and should not be treated as such.

We recommend that you read and understand the contents of the Master Prospectus for the TA Global Technology Fund dated 1 October 2016 by TA INVESTMENT MANAGEMENT BERHAD. Investments in the Fund are exposed to market risk, country risk, currency risk, sector investment risk, regulatory risk, external fund manager’s risk and others as disclosed in the Master Prospectus.

We recommend that you read and understand the contents of the revised Information Memorandum (issued to replace the Information Memorandum dated 26 January 2016) for Pacific Emerging Market Bond Fund dated 31 May 2016 by Pacific Mutual Fund Bhd. Investments in the Fund are exposed to political risk, repatriation risk, global emerging market risk, regulatory risk, concentration risk and others as disclosed in the Information Memorandum. This fund is eligible to be purchased by High Net Worth Individuals only, the criteria of High Net Worth Individuals as per stated in Schedules 6 and 7 of Capital Market and Services Act (CMSA) 2007.

We recommend that you read and understand the contents of the Master Prospectus for the RHB Asian Income Fund dated 6 October 2016 and expire on 5 October 2017, by RHB Asset Management Sdn Bhd. Investments in the Fund are exposed to management risk, liquidity risk, foreign investment risks such as currency risk and country risk and others as disclosed in the prospectus.

We recommend that you read and understand the content of the Information Memorandum for RHB Global Macro Opportunities Fund dated 1 June 2016 by RHB Asset Management Sdn Bhd. Investments in the Fund are exposed to country risk, equity risk, currency risk, management risk, emerging market risk and others as disclosed in the Information Memorandum. This fund is eligible to be purchased by High Net Worth Individuals only, the criteria of High Net Worth Individuals as per stated in Schedules 6 and 7 of Capital Market and Services Act (CMSA) 2007.

Product Risk Rating and Suitability Determination Matrix:

Rating Severity of Loss Product Risk Rating Customer Risk Profile
B Partial loss of full principal investment amount possible, total loss unlikely.
(‘Partial loss’ means the loss suffered by the investor can be up to 15% of the original investment principal)
Moderate
  • Balanced
  • Growth
  • Aggressive
C Client may suffer substantial or 100% loss of principal investment amount.
(‘Substantial loss’ means the loss suffered by the investor can be more than 15% of the investment principal)
High
  • Growth
  • Aggressive


Unit Trust investments are not bank deposits and are not obligations of or guaranteed or insured by OCBC Bank (Malaysia) Berhad. Unit Trust investments are not guaranteed and are subject to investment risk unless otherwise specified. The investment risk includes general risks as described in the Information Memorandum/Prospectuses for Unit Trust investment funds (“Information Memorandum/Prospectuses”) and specific risks which may be different for each Unit Trust investment. Description of specific risks and general risks are published in the Information Memorandum/Prospectuses. With respect to Unit Trust investment, past performance is not indicative of future results; the net asset value can go up or down. Investors should also note that the net asset value per unit and distributions payable, if any, may go down as well as up.

Where unit trust loan financing is available, investors are advised to read and understand the contents of the unit trust loan financing risk disclosure statement before deciding to borrow to purchase units. Where a unit split/distribution is declared, investors are advised that following the issue of additional units/distribution, the NAV per unit will be reduced from pre-unit split NAV/cum-distribution NAV to post-unit split NAV/ex-distribution NAV; and where a unit split is declared, investors should be highlighted of the fact that the value of their investment in Malaysian ringgit will remain unchanged after the distribution of the additional units.

The Information Memorandum/Prospectuses have been registered with the Securities Commission Malaysia, which takes no responsibility for its content. A copy of the Information Memorandum/Prospectuses can be obtained at OCBC Bank’s branches. Units will only be issued upon the receipt of application form referred in, and accompanying the Information Memorandum/Prospectuses. Investors are advised to read and understand the contents of the Information Memorandum/Prospectuses, and if necessary consult their adviser(s), as well as consider the fees and charges involved before investing in the Unit Trust.

This document has been prepared without taking account of the objectives, financial situation or needs of any specific person or organisation who may receive this document. Accordingly prior to making an investment decision, you should conduct such investigation and analysis regarding the product described herein as you deem appropriate and to the extent you deem necessary obtain independent advice from competent legal, financial, tax, accounting and other professionals, to enable you to understand and recognise fully the legal, financial, tax and other risks arising in respect of the product and the purchase, holding and sale thereof.

You should obtain and read the Product Highlight Sheet of the product before you make a decision to acquire the product. All information provided in this document is general and does not take into account your individual objectives, financial situation or specific needs.

You are required to read and understand the terms and Product Highlight Sheet of the product carefully before executing any transaction relating to the product with us. You may request for a copy of the Product Highlight Sheet at OCBC Banks’ branches.

The information provided herein is intended for general circulation and/or discussion purposes only and does not contain a complete analysis of every material fact. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. Without prejudice to the generality of the foregoing, please seek advice from a financial adviser regarding the suitability of any investment product taking into account your specific investment objectives, financial situation or particular needs before you make a commitment to purchase the investment product.

In the event that you choose not to seek advice from a financial adviser, you should consider whether the product in question is suitable for you. This does not constitute an offer or solicitation to buy or sell or subscribe for any security or financial instrument or to enter into a transaction or to participate in any particular trading or investment strategy.

All information presented is subject to change without notice. OCBC Bank shall not be responsible or liable for any loss or damage whatsoever arising directly or indirectly howsoever in connection with or as a result of any person acting on any information provided herein. The information provided herein may contain projections or other forward looking statement regarding future events or future performance of countries, assets, markets or companies. Actual events or results may differ materially. Past performance figures are not necessarily indicative of future or likely performance. Any reference to any specific company, financial product or asset class in whatever way is used for illustrative purposes only and does not constitute a recommendation on the same.

OCBC Bank and its respective associated and connected corporations together with their respective directors and officers may have or take positions in any securities mentioned in this report (which positions may change from time to time without notice) and may also perform or seek to perform broking and other investment or securities related services for the corporations whose securities are mentioned in this report as well as other parties generally.

The contents hereof may not be reproduced or disseminated in whole or in part without OCBC Bank’s written consent.




Lai Mun Yew (Michael)
  Vice President, Research, Wealth Management, OCBC Bank (Malaysia) Berhad

 

Global Outlook – Signs of a Shift in Policy Thinking

 

The focus is shifting towards greater acceptance of the potential for fiscal policy to support growth if necessary, due to the sense that monetary policy is starting to reach its limits.

Key Points:

  • Central banks have come round to realise that negative interest rate policies need to be calibrated more carefully, so the harm to the financial sector does not neuter the impact from lower borrowing costs.
  • In any case, there is a limit as to how far into the negative territory interest rates can go. Even confidence in the soothing effects of ever-more quantitative easing seems to be diminishing.
  • In many cases, fiscal or monetary policy does not offer solutions to the deeper causes of slow growth – issues like demographics or poor productivity.
  • With the U.S. (and even Japan) bordering on full employment, raising potential growth is becoming more important than delivering a short-term stimulus to demand. Unfortunately, in most developed markets there appears to be little commitment to deliver the effective structural reform that is necessary to boost potential growth.
  • The implication is that developed economies will struggle to escape from the sluggish growth of recent years, although downside risks will be limited by a flexible approach to policy making. That leaves the global economy stuck in the range of 3.0-3.5 per cent growth.
  • The U.S. economy remains in a sweet spot where growth is fast enough to absorb unemployed workers, but not so strong that it is generating much of a rise in inflation. As long as this balance is maintained, the Fed can continue with its cautious approach to tightening monetary policy.
  • A move in early November – just before the presidential election – looks unlikely, so we continue to see the next move as coming in December, followed by another two hikes in 2017. Faster inflation would be a threat to this gradual pace of tightening.
  • Concern that the Eurozone would suffer significant contagion from the UK’s Brexit vote has faded. Taking the purchasing managers’ index (PMI) as the broadest and most timely guide to economic activity, it is hard to see any impact. Readings are still comfortably above 50, at levels associated with GDP growth of around 1.5 per cent.
  • Political risk in Europe is inescapable over the coming year, with the referendum on a new constitution in Italy (probably November), followed by national elections in France, the Netherlands and Germany in 2017.
  • China’s PMI readings show that the manufacturing sector is steady, while non-manufacturing is stronger, which is supportive of claims of re-balancing. Unfortunately, the stability comes at a price. The credit bubble continues to expand very rapidly, despite official claims that it will come under control.
  • The partial recovery in commodity prices has eased the pressure on some emerging markets (EM) and allowed a rebound in exchange rates. Several countries are benefitting from improved policy-making, often in the wake of political change.
  • More fundamentally, there are signs of improving growth heading towards 2017 in major EM such as Argentina, Brazil, Indonesia, Mexico and Russia. This should increase resilience if the U.S. implements two or three rate hikes in 2017.
  • Asia still looks solid in the face of sluggish growth in the developed world and troubles in China. Low inflation and (mostly) solid government finances give policy flexibility if needed.



 

Foreign Exchange & Commodities – From Policy to Politics

 

Fed’s decision to stand pat at its September meeting places the U.S. dollar in a vulnerable spot for now. However, we do not expect the setback to last given Fed’s readiness to hike interest rates in December.

Key Points:

  • We are back to yield hunting following the Fed’s inaction in September. The U.S. Dollar will likely trade sideways after losing some ground.
  • The U.S. election will be the main market theme as central banks take a break. The possibility of a Trump win is negative for currencies that would be affected by his anti-immigration and anti-trade rhetoric. A Trump victory carries higher risk of policy uncertainty but it is unclear if this would be broadly negative for the U.S. Dollar.
  • The likelihood of a Trump presidency could weigh on the U.S. Dollar versus reserve currencies such as Japanese Yen, and also versus gold. Trump’s victory also poses a negative for Asian currencies, given the risk of rising global trade tensions.
  • The BOJ policy to steepen the yield curve is good for the financial sector but does not matter much for USD/JPY given that there is no addition of monetary stimulus. The fact that USD/JPY is below the pre-BOJ level shows that the Fed matters more than BOJ in driving USD/JPY.
  • We expect USDJPY to hover in a broad ¥100-110 range for the rest of 2016, with the downside capped by expectations of closer coordination of monetary and fiscal policies in Japan.
  • A patient ECB (the central bank is not rushing to ease policy) is a positive risk for the EUR. Extension of QE by ECB in December and resumption of Fed rate hikes by end-2016 should limit the risk of EUR becoming the new JPY.
  • However, upside risk to EUR will amplify if perceived European political risk unexpectedly turns benign.
  • The MAS is likely to maintain its neutral slope stance in the upcoming policy announcement in mid-October, judging from hints of a slightly more positive take on Singapore’s core inflation outlook.
  • But given prospects of below-trend growth and a softening labour market, we believe that MAS would like to see SGD/NEER trade in the weaker half of the policy band.
  • Gold may be losing steam on worries over hawkish Fed but prices should find support around US$1,300.
  • Gold bulls are likely to remain wary of hints that the Fed might raise rates in December. We maintain the view that gold will continue to trade in a new higher range of US$1250-1400 for the rest of 2016. Implied volatility for gold options is back near the lows of the year.
  • Oil rebounded in August as speculative short positions were cut on rumours of supply restraint, but there is a lack of fundamental drivers to produce a significant move in prices.
  • The equilibrium price where long-term supply and demand is in balance is an unknowable number, but most specialists put it in the US$60-70 range.



 

Bonds – Fed’s Delay a Boon for Credit Markets

 

With accommodative monetary policy globally, bonds should continue to deliver performance over the coming months. However, we expect returns to be driven more by income than capital appreciation.

Key Points:

  • After a modest decline early in the month, the Fed’s decision to put off a rate hike led to a rally in global bond markets. Emerging Market (EM) produced its seventh consecutive positive month.
  • The JPM CEMBI, a global, liquid corporate emerging markets benchmark that tracks U.S.-denominated corporate bonds issued by emerging markets entities, was up 12.1 per cent with High Yield gaining 16.7 per cent and High Grade up 9.3 per cent. EM bond seem on track to eclipse the 12.5 per cent return of 2010, the second best year on record, barring unforeseen calamities.
  • Within Developed Markets, U.S. High Yield managed to eke out a modest 0.1 per cent gain while Global Investment Grade declined 0.4 per cent.
  • Returns in Latin America have been both significant as well as broad-based. As such, valuations are no longer as attractive and we advocate a more neutral Asia/CEEMEA/Latin America top-down strategy. Our focus will be on specific Country, Sector and Individual Credit bets as the primary driver of performance for the remainder of the year.
  • Within Asia, we would take a more neutral stance on High Yield given that spread levels have tightened to around ~500 bps, well below the 5-year historical average of ~700 bps. We would also maintain our Underweight in Asian Investment Grade (particularly Korea and Malaysia) where spreads often trade inside of comparably rated Developed Market Credits.
  • We expect the spike in High Yield issuance to continue in October as issuers have found a receptive audience in the current ‘Hunt for Yield” environment.
  • While we remain constructive on the Emerging Market High Yield asset class in general, investors should be both circumspect and selective as this risk-on environment tends to result in increasingly lower quality issuers.
  • As such, we would maintain our preference for higher quality names (‘BB’ and above) despite less compelling valuations. Although the BOJ and Fed actions should be supportive for long dated bonds in the short-term, investors should be mindful of duration risk on an increased likelihood of a December hike.
  • An accommodative monetary policy globally should enable Fixed Income assets to continue to deliver performance over the coming months.
  • However, we expect returns to be driven more by income than capital appreciation. Given current valuations within Emerging Markets, we are positive on Emerging Market High Yield along with U.S. and EM Investment Grade.



 

Equities – Brace For Volatility

 

Market focus will likely shift towards the U.S. Presidential Election. Swings in election polls in the run up to November could impact investor sentiment and result in greater volatility.

Key Points:

  • Global equities ended September higher as dovish indications from central banks buoyed investor enthusiasm. Volatility, which spiked in mid-September, collapsed back to August’s levels.
  • The conditions are already in place to expect a rate hike at the December meeting. As the focus shifts towards the US Presidential Election, the expected return of volatility and extended valuations continue to provide limited upside.
  • Coupled with the extended valuations at 18.9 times forward price earnings, we are turning more cautious on U.S. equities despite a recovery in end-September to positive territory as less hawkish Fed commentary restored investor risk appetite.
  • European equities gained as macroeconomic data suggest that the impact of Brexit has been more muted than expected. At the same time, the earnings downgrade appears to be stabilising. Overall, we are turning less negative on the region.
  • However, the risk of a political contagion is still a potential overhang in anticipation of a busy 2017 political calendar. Also, even as investors question the efficacy of ECB stimulus, the resilient economic numbers for Europe has reduced the need for the central bank to respond in the near future. With forward price earnings of 16.5 times above the long-term average of 13 times, we remain cautious on European equities given the prospect of higher uncertainty.
  • A lower JPY helped Japanese equities to outperform in September. However, the disappointing BOJ move received underwhelming market response. Nevertheless, the absence of any further cut in negative interest rates and the introduction of yield curve control by the BOJ provided a fillip for the banks.
  • Looking forward, we maintain the view that sustained re-rating of Japanese equities would require more meaningful structural reforms. Valuations, at forward price earnings of 14.4 times are not demanding.
  • Asia ex-Japan was the top performing region again, as the less hawkish than expected Fed commentary provided the biggest relieve for Asia ex-Japan equities.
  • North Asian markets, led by China and Hong Kong, outperformed. On the other hand, the Philippines, Thailand and Malaysia lost ground. Although Asia ex-Japan continues to trade at a significant discount to its developed market peers, valuations for the region are no longer cheap versus its own historical levels, so we maintain our Neutral stance.
  • Within developed markets, Cyclical sectors, led by Technology and Financials, continued to outperform in September. We continue to look for global sectors with a combination of consumer exposure as well as relatively attractive valuations. These would be Consumer Discretionary, Healthcare, Technology and Telecoms.
  • Overall, we maintain our cautious stance on equities. As always, we advocate a diversified portfolio and investors may consider paring down their exposure to regional equities, which in sum, should lead to a paring down of overall equity exposure. Thus, investors will continue to have exposure to equities, but with a lower weightage relative to the size of the portfolio.



 

Important Information

 

Any opinions or views expressed in this material are those of the author and third parties identified, and not those of OCBC Bank (Malaysia) Berhad (“OCBC Bank”, which expression shall include OCBC Bank’s related companies or affiliates).

The information provided herein is intended for general circulation and/or discussion purposes only and does not contain a complete analysis of every material fact. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. Without prejudice to the generality of the foregoing, please seek advice from a financial adviser regarding the suitability of any investment product taking into account your specific investment objectives, financial situation or particular needs before you make a commitment to purchase the investment product.

In the event that you choose not to seek advice from a financial adviser, you should consider whether the product in question is suitable for you. This does not constitute an offer or solicitation to buy or sell or subscribe for any security or financial instrument or to enter into a transaction or to participate in any particular trading or investment strategy.

OCBC Bank, its related companies, their respective directors and/or employees (collectively ‘Related Persons’) may have positions in, and may effect transaction in the products mentioned herein. OCBC Bank may have alliances with the product providers, for which OCBC Bank may receive a fee. Product providers may also be Related Persons, who may be receiving fees from investors. OCBC Bank and the Related Person may also perform or seek to perform broking and other financial services for the product providers.

All information presented is subject to change without notice. OCBC Bank shall not be responsible or liable for any loss or damage whatsoever arising directly or indirectly howsoever in connection with or as a result of any person acting on any information provided herein. The information provided herein may contain projections or other forward-looking statements regarding future events or future performance of countries, assets, markets or companies. Actual events or results may differ materially. Past performance figures are not necessarily indicative of future or likely performance. Any reference to any specific company, financial product or asset class in whatever way is used for illustrative purposes only and does not constitute a recommendation on the same.

The contents hereof may not be reproduced or disseminated in whole or in part without OCBC Bank’s written consent.


 


Stay Defensive

 

We are defensive in our asset allocation and continue to prefer credit over equity. The current environment of still low bond yields and range bound equities continues to make the case for the hunt for yield from both equity and fixed income markets for the rest of 2016.

In terms of fixed income, we are positive on Developed Market investment grades. However, we are more selective on Emerging Market bonds, particularly high yield, as markets assess the uncertainty associated with a Trump presidency.

On equities, we are maintaining our cautious view on the back of extended valuations and event risks ahead. On equity regions, we would express our negative view evenly in the developed market – U.S., Europe, and Japan – and downgrade our call on Asia to Underweight in view of greater uncertainty in this region.

With a great deal of uncertainty ahead, asset allocation should be a key consideration in managing and building your core portfolio.

Recommendations:

  • Unit Trust: Investors seeking steady income stream over the medium to long-term period through investment primarily in bonds and other fixed income securities could consider the Affin Hwang Select Bond Fund (Risk rating: C – High). This fund invests into a portfolio of diversified global fixed income instruments with an Asian tilt.
  • Unit Trust: We recommend the Pacific Emerging Market Bond Fund (Risk rating: B-Moderate) as this Fund invests a minimum of 95% of its NAV in the MYR Hedged Class of the Target Fund managed by Lion Global Investors Limited. The target Fund is the Lion Capital Funds II – Lion-Bank of Singapore Emerging Market Bond Fund.
  • Unit Trust: We recommend the RHB Asian Income Fund (Risk rating: B-Moderate) as this Fund invests in one target fund, the Schroder Asian Income fund. This fund aims to provide income and capital growth over the medium- to long-term via an active asset allocation strategy. Exposure in Asia is opportunistic as we view Asia being in a relatively strong position with a high level of foreign reserves, limited external debt, undervalued exchange rates and plenty of policy flexibility.
  • Unit Trust: We recommend the CIMB-Principal Global Multi Asset Income Fund (Risk rating: C-High) as this Fund aims to provide income and potential capital growth to investors through investment in the Schroder International Selection Fund Global Multi-Asset Income (target fund). This fund invests into a diversified portfolio of global assets with a pool of 20 potential asset classes, 40 countries and 25,000 securities.

Top Investment Ideas are an expression of the investment outlook in this publication. They are not recommendations made in accordance with your investment objective and risk profile. As such, we recommend that you complete a suitability assessment before purchasing your selected investment product.



This document is not intended to constitute research analysis or recommendation and should not be treated as such.

We recommend that you read and understand the content of the Master Prospectus for the Affin Hwang Select Bond Fund dated 18 July 2016 and expires on 17 July 2017 by Affin Hwang Asset Management Berhad. Investments in the Fund are exposed to credit (default) risk, interest rate risk, structured products risk, country risk and others as disclosed in the prospectus.

We recommend that you read and understand the contents of the revised Information Memorandum (issued to replace the Information Memorandum dated 26 January 2016) for Pacific Emerging Market Bond Fund dated 31 May 2016 by Pacific Mutual Fund Bhd. Investments in the Fund are exposed to political risk, repatriation risk, global emerging market risk, regulatory risk, concentration risk and others as disclosed in the Information Memorandum. This fund is eligible to be purchased by High Net Worth Individuals only, the criteria of High Net Worth Individuals as per stated in Schedules 6 and 7 of Capital Market and Services Act (CMSA) 2007.

We recommend that you read and understand the contents of the Master Prospectus for the RHB Asian Income Fund dated 6 October 2016 and expire on 5 October 2017, by RHB Asset Management Sdn Bhd. Investments in the Fund are exposed to management risk, liquidity risk, foreign investment risks such as currency risk and country risk and others as disclosed in the prospectus.

We recommend that you read and understand the contents of the Information Memorandum for CIMB-Principal Global Multi Asset Income Fund dated 20 March 2014 and First Supplemental Information Memorandum dated 19 March 2015. Investments in the Fund are exposed to fund manager’s risk, country risk, currency risk, legal and taxation risk and default risk. This fund is eligible to be purchased by High Net Worth Individuals only, the criteria of High Net Worth Individuals as per stated in Schedules 6 and 7 of Capital Market and Services Act (CMSA) 2007.

Product Risk Rating and Suitability Determination Matrix:

Rating Severity of Loss Product Risk Rating Customer Risk Profile
B Partial loss of full principal investment amount possible, total loss unlikely.
(‘Partial loss’ means the loss suffered by the investor can be up to 15% of the original investment principal)
Moderate
  • Balanced
  • Growth
  • Aggressive
C Client may suffer substantial or 100% loss of principal investment amount.
(‘Substantial loss’ means the loss suffered by the investor can be more than 15% of the investment principal)
High
  • Growth
  • Aggressive


Unit Trust investments are not bank deposits and are not obligations of or guaranteed or insured by OCBC Bank (Malaysia) Berhad. Unit Trust investments are not guaranteed and are subject to investment risk unless otherwise specified. The investment risk includes general risks as described in the Information Memorandum/Prospectuses for Unit Trust investment funds (“Information Memorandum/Prospectuses”) and specific risks which may be different for each Unit Trust investment. Description of specific risks and general risks are published in the Information Memorandum/Prospectuses. With respect to Unit Trust investment, past performance is not indicative of future results; the net asset value can go up or down. Investors should also note that the net asset value per unit and distributions payable, if any, may go down as well as up.

Where unit trust loan financing is available, investors are advised to read and understand the contents of the unit trust loan financing risk disclosure statement before deciding to borrow to purchase units. Where a unit split/distribution is declared, investors are advised that following the issue of additional units/distribution, the NAV per unit will be reduced from pre-unit split NAV/cum-distribution NAV to post-unit split NAV/ex-distribution NAV; and where a unit split is declared, investors should be highlighted of the fact that the value of their investment in Malaysian ringgit will remain unchanged after the distribution of the additional units.

The Information Memorandum/Prospectuses have been registered with the Securities Commission Malaysia, which takes no responsibility for its content. A copy of the Information Memorandum/Prospectuses can be obtained at OCBC Bank’s branches. Units will only be issued upon the receipt of application form referred in, and accompanying the Information Memorandum/Prospectuses. Investors are advised to read and understand the contents of the Information Memorandum/Prospectuses, and if necessary consult their adviser(s), as well as consider the fees and charges involved before investing in the Unit Trust.

This document has been prepared without taking account of the objectives, financial situation or needs of any specific person or organisation who may receive this document. Accordingly prior to making an investment decision, you should conduct such investigation and analysis regarding the product described herein as you deem appropriate and to the extent you deem necessary obtain independent advice from competent legal, financial, tax, accounting and other professionals, to enable you to understand and recognise fully the legal, financial, tax and other risks arising in respect of the product and the purchase, holding and sale thereof.

You should obtain and read the Product Highlight Sheet of the product before you make a decision to acquire the product. All information provided in this document is general and does not take into account your individual objectives, financial situation or specific needs.

You are required to read and understand the terms and Product Highlight Sheet of the product carefully before executing any transaction relating to the product with us. You may request for a copy of the Product Highlight Sheet at OCBC Banks’ branches.

The information provided herein is intended for general circulation and/or discussion purposes only and does not contain a complete analysis of every material fact. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. Without prejudice to the generality of the foregoing, please seek advice from a financial adviser regarding the suitability of any investment product taking into account your specific investment objectives, financial situation or particular needs before you make a commitment to purchase the investment product.

In the event that you choose not to seek advice from a financial adviser, you should consider whether the product in question is suitable for you. This does not constitute an offer or solicitation to buy or sell or subscribe for any security or financial instrument or to enter into a transaction or to participate in any particular trading or investment strategy.

All information presented is subject to change without notice. OCBC Bank shall not be responsible or liable for any loss or damage whatsoever arising directly or indirectly howsoever in connection with or as a result of any person acting on any information provided herein. The information provided herein may contain projections or other forward looking statement regarding future events or future performance of countries, assets, markets or companies. Actual events or results may differ materially. Past performance figures are not necessarily indicative of future or likely performance. Any reference to any specific company, financial product or asset class in whatever way is used for illustrative purposes only and does not constitute a recommendation on the same.

OCBC Bank and its respective associated and connected corporations together with their respective directors and officers may have or take positions in any securities mentioned in this report (which positions may change from time to time without notice) and may also perform or seek to perform broking and other investment or securities related services for the corporations whose securities are mentioned in this report as well as other parties generally.

The contents hereof may not be reproduced or disseminated in whole or in part without OCBC Bank’s written consent.




Lai Mun Yew (Michael)
  Vice President, Research, Wealth Management, OCBC Bank (Malaysia) Berhad

 

Global Outlook – From Deflation Risk to Inflation Overshoot

 

The fear of global deflation of the past couple of years is fading. Solid growth and higher oil prices mean that a much smaller part of the world is at risk of falling into deflation.

Key Points:

  • Solid growth and higher oil prices mean that a much smaller part of the world is at risk of falling into deflation. In 2015, nearly 60 per cent of the world economy has inflation below 1 per cent. That proportion will fall to 30 per cent this year and by 2017 will be close to 10 per cent, which is more normal.
  • Central bankers are also more comfortable with the risk of excess inflation rather than deflation. Bank of Japan has committed to expanding liquidity until inflation overshoots its 2 per cent target. More recently, Fed Chair Janet Yellen had suggested allowing the economy to “run hot” in order to repair some of the structural damage caused by the Great Recession. This pro-inflation bias means that interest rates are not raised until well into the recovery.
  • Yet, a slow pace of normalisation does not necessarily mean zero rate hikes. We continue to expect the Fed to push interest rates 0.25 per cent higher at its mid-December meeting, with two more increases in 2017, a comfortably gradual pace of rate increases.
  • In the U.S., we are starting to see some evidence of capacity constraints pushing up wages and consumer prices. However, the pace of the pick-up is still quite moderate, which means that the need for Fed tightening is not as urgent, allowing them to move at a fairly gradual pace.
  • Increased government spending is a key theme of Mr Trump’s campaigns. This may imply a faster pace of rate hikes by the Fed as the economy does not have much spare capacity to absorb any material fiscal stimulus. Hence, it would need to be balanced by tighter monetary policy. Such a combination would probably be positive for USD.
  • In Europe, talk of tapering by the European Central Bank (ECB) does not look justified as long as inflation is not making material progress towards the ECB’s target. The ECB is likely to extend its quantitative easing programme at its meeting in December.
  • Growth in the Eurozone seems solid, with composite Purchasing Manager Indices (PMIs) staying over 50, implying expansion, for the past three years, even in the face of a range of geo-political shocks. That resilience will be tested again going into 2017 with a crowded political calendar. Brexit negotiations, the Italian referendum on a new constitution in early December and national elections in France, the Netherlands and Germany in 2017 are inescapable risks in the coming year.
  • For the U.K., the focus on limiting immigration points to a “hard” Brexit and means that trade and investment flows are likely to take a hit. The U.K.’s large current account deficit means that GBP will remain vulnerable.
  • We remain concerned over China’s ballooning credit-to-GDP ratio despite efforts aimed at deleveraging. Rapid lending, high investment rates and slowing growth are a combination that suggests an inefficient allocation of credit and an eventual bad debt crisis. In China, the process is largely internal – so no Lehman shock – and dominated by the state. Consequently, this implies that China’s growth rate should grind much lower should the credit bubble pop.
  • In Japan, the relentless grind of demographics means that growth has likely settled around its potential at 0-1 per cent, with fluctuations driven by fiscal policy or swings in the exchange rate. The emphasis needs to be on structural reform to raise the potential growth rate. Unfortunately, it is hard to find much evidence of progress, despite the government’s dominance of both houses of parliament.
  • Adjustments in Emerging Markets (EM) in the last few years in reaction to slower Chinese demand, lower commodity prices and the taper tantrum have improved growth prospects especially in countries like Argentina, Brazil, Indonesia, Mexico and Russia. This should help resilience if the U.S. implements two or three rate hikes in 2017, as we expect.
  • Asia still looks solid in the face of sluggish growth in the developed world and troubles in China. Low inflation and (mostly) solid government finances give policy flexibility if needed.



 

Foreign Exchange & Commodities – Don’t Chase the U.S. Dollar Rally

 

Greenback should be well supported by a Fed rate hike and a possible QE extension by the ECB in December. However, the USD is more likely to be more range-bound versus its G10 currency peers rather than a strong appreciation trend.

Key Points:

  • We do not expect the U.S. Dollar to set new highs moving forward for a few reasons. First, U.S. core inflation data is still not strong enough to merit a rapid Fed tightening. Also, other major central banks may not have the scope to ease monetary policy significantly beyond current levels. Second, while China has come back as a potential worry, we are less concerned of the CNY weakness triggering a sustained global risk sell-off that would fuel safe-haven demand for the USD.
  • In relation to the Yuan, the higher USDCNY fixings recently are more a reflection of USD strength as opposed to an outright sharp devaluation. Thus, we dismiss fears of ‘accelerated CNY depreciation’. Our view of orderly and gradual Yuan depreciation trend remains unchanged.
  • In terms of the Sterling, we believe Brexit developments rather than economic data will continue to drive movements in the currency. Uncertainty surrounding Brexit negotiations could nudge the Sterling below 1.20 against the U.S. Dollar over the next 3-6 months.
  • The European Central Bank (ECB) could extend their Quantitative Easing (QE) programme in December at the current pace, but we believe this is now broadly priced in at current levels.
  • Diminishing downside risk for oil prices on the back of speculations that an OPEC deal is forthcoming continue to support Emerging Market FX high-yielders such as IDR, INR, RUB and BRL. However, given the number of approaching event risks such as the U.S. elections, Fed’s December hike and Brexit negotiations, it is prudent to take only measured exposure to these risky trades and hedge against any potential short-term risks.
  • We are not long-term gold bulls, but gold remains a useful portfolio diversifier on a 3-6 month timeframe. There are enough potholes to navigate, including the U.S. elections, Italian referendum and Brexit considerations to name but a few, to still warrant a buy-on-dip bias for gold over the next few months. We would thus view a gold sell-off below US$1,240 as a strategic buying opportunity.
  • Moderate slippage in oil inventories over the past few months suggests that supply and demand forces are roughly in balance. As it stands, prices seem to be normalising around the US$50 level. We believe the longer-term equilibrium oil price should hover within the US$50-60 range. This implies prices should be stable around current levels.



 

Bonds – Prefer Credit for Carry but Advise to Shorten Duration Risk

 

Given less compelling valuations and the prospect of headwinds from higher interest rates, carry (income) will be a more critical component of total returns.

Key Points:

  • Post the US elections, traders have extrapolated the election campaign pledges of President-elect Trump that caused a sharp bond market sell-off. Given the difficulty and lags in translating policy rhetoric into implemented legislation, we are careful at this juncture not to extrapolate the election outcome into longer term financial market implications.
  • As Trump’s policies will be clearer in due course, investors should stay calm and not panic sell. At the same time, now is too early to aggressively add risk.
  • As markets assess the increased uncertainty associated with a Trump Presidency, we prefer to hold credit over duration risk and advise investors to shorten duration risk, in case long-dated yields back up in the coming months.
  • Beyond the US, the upcoming Italian constitutional referendum and the potential for Brexit-related fallout in the euro area to emerge argue for defensiveness and selectivity.
  • We expect modest returns here which should be delivered largely from carry or income rather than capital appreciation. It’s worth noting that income looks to be an increasingly critical component of total returns given less compelling valuations, prospects of actual headwinds arising from higher interest rates and the absence of strong catalysts to drive Emerging Market economies going into 2017.
  • We would continue to focus on specific country, sector and individual credit bets as the primary driver of outperformance in a return environment likely to be dominated by carry.
  • While we remain constructive on the EM High Yield in general, investors should be both circumspect and selective as this risk-on environment tends to result in increasingly lower quality issuers. As such, we would maintain our preference for higher quality names despite less compelling valuations.



 

Equities – Mind the Potholes Ahead

 

We remain cautious on equities as focus shifts to the likelihood of a Fed rate hike this year. This may weigh on investor sentiments in the near-term.

Key Points:

  • Near-term, sentiments are likely to stay cautious as investors continue to weigh the likelihood of a Fed hike this year. Much like the rate hike cycle of 2014, we can expect some market fear and perhaps correction post the December hike. Contingent on a compelling correction, we may see an opportunity to add equity risk.
  • Although the U.S. Presidential elections are over, event risks remain from a crowded political calendar in Europe, which spell higher volatility ahead. Coupled with the extended valuations, risk-reward remains unfavourable for investors. Accordingly, we maintain our cautious stance on equities.
  • We think the necessary conditions are already in place and continue to expect a rate hike at the December meeting. Similar with the lead up to the U.S. Presidential election, volatility is expected to spike in the run up to the Fed’s move in December. Coupled with the extended valuations of 18.4x forward price-to-earnings (PE), we remain cautious on U.S. equities.
  • Political risks loom large for European equities given the busy political calendar. These include the negotiations between the U.K. and the EU over the future of their relationship, Italy’s constitutional referendum scheduled in December and Germany and France’s elections in 2017. With forward PE of 16.3x above the long-term average of 13x, we remain cautious on European equities given the prospect of higher political uncertainty.
  • There is little by way of market catalysts for the Japanese stock market. It has also become increasingly clear that any additional short-term monetary or fiscal stimulus is unlikely to have a meaningful impact. Ultimately, the sustained re-rating of Japanese equities would require more meaningful structural reforms that would boost Japan’s growth potential. While valuations are not demanding at current levels, we would rather remain cautious in this space and look for companies with high earnings visibility.
  • Asia Ex-Japan equities held up relatively well in October as growth outlook for the region improved with an uptick in earnings growth as well as the relatively solid outlook. Although Asia Ex-Japan stocks continue to trade at a significant discount to its developed market peers, valuations for the region are no longer cheap versus its own long-term historical range. However, in anticipation of greater uncertainty for the region, primarily in view of Trump’s stance on trade, we are lowering Asia Ex-Japan from neutral to Underweight and continue to hold our negative stance on the other Developed Markets (U.S., Europe, Japan).



 

Important Information

 

Any opinions or views expressed in this material are those of the author and third parties identified, and not those of OCBC Bank (Malaysia) Berhad (“OCBC Bank”, which expression shall include OCBC Bank’s related companies or affiliates).

The information provided herein is intended for general circulation and/or discussion purposes only and does not contain a complete analysis of every material fact. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. Without prejudice to the generality of the foregoing, please seek advice from a financial adviser regarding the suitability of any investment product taking into account your specific investment objectives, financial situation or particular needs before you make a commitment to purchase the investment product.

In the event that you choose not to seek advice from a financial adviser, you should consider whether the product in question is suitable for you. This does not constitute an offer or solicitation to buy or sell or subscribe for any security or financial instrument or to enter into a transaction or to participate in any particular trading or investment strategy.

OCBC Bank, its related companies, their respective directors and/or employees (collectively ‘Related Persons’) may have positions in, and may effect transaction in the products mentioned herein. OCBC Bank may have alliances with the product providers, for which OCBC Bank may receive a fee. Product providers may also be Related Persons, who may be receiving fees from investors. OCBC Bank and the Related Person may also perform or seek to perform broking and other financial services for the product providers.

All information presented is subject to change without notice. OCBC Bank shall not be responsible or liable for any loss or damage whatsoever arising directly or indirectly howsoever in connection with or as a result of any person acting on any information provided herein. The information provided herein may contain projections or other forward-looking statements regarding future events or future performance of countries, assets, markets or companies. Actual events or results may differ materially. Past performance figures are not necessarily indicative of future or likely performance. Any reference to any specific company, financial product or asset class in whatever way is used for illustrative purposes only and does not constitute a recommendation on the same.

The contents hereof may not be reproduced or disseminated in whole or in part without OCBC Bank’s written consent.


 


Stay Defensive and Diversify

 

Given the uncertainties and volatility ahead, asset allocation should be the key consideration in managing and building one’s core portfolio.

We are moderately defensive in our asset allocation and continue to prefer credit over equity.

On equities, we are cautious on Europe, Japan and Asia ex-Japan but we have upgraded the U.S. to a neutral stance given its defensive traits.

Among bond markets, we are positive on Emerging Market high yields and have upgraded Developed Market high yields to neutral as well.

Recommendations:

  • Unit Trust: Investors seeking steady income stream over the medium to long-term period through investment primarily in bonds and other fixed income securities could consider the Affin Hwang Select Bond Fund (Risk rating: C – High). This fund invests into a portfolio of diversified global fixed income instruments with an Asian tilt.
  • Unit Trust: Investors seeking to invest in an income-driven, absolute return focused fund may consider the Affin Hwang Select Income Fund(Risk rating: B-Moderate). This fund also targets to provide a high level of cash flow as well as growth by investing at least 70% of its NAV into fixed income instruments and a maximum of 30% NAV into equities globally with an Asian focus.
  • Unit Trust: Investors seeking income and capital growth over the medium- to long-term via an active allocation strategy could consider the RHB Asian Income Fund(Risk rating: B-Moderate) which invests in one target fund, the Schroder Asian Income fund. Exposure in Asia is opportunistic as we view Asia being in a relatively strong position with a high level of foreign reserves, limited external debt, undervalued exchange rates and plenty of policy flexibility.
  • Unit Trust: Investors seeking capital growth opportunities through a portfolio of collective investment schemes with access into equities listed in global markets, fixed income instruments such as debt securities, money market instruments and fixed deposits, issued globally may consider the Affin Hwang Global Balanced Fund(Risk rating: B-Moderate).

Top Investment Ideas are an expression of the investment outlook in this publication. They are not recommendations made in accordance with your investment objective and risk profile. As such, we recommend that you complete a suitability assessment before purchasing your selected investment product.



This document is not intended to constitute research analysis or recommendation and should not be treated as such.

We recommend that you read and understand the content of the Master Prospectus for the Affin Hwang Select Bond Fund dated 18 July 2016 and expires on 17 July 2017 by Affin Hwang Asset Management Berhad (formerly known as Hwang Investment Management Berhad). Investments in the Fund are exposed to credit (default) risk, interest rate risk, structured products risk, country risk and others as disclosed in the prospectus.

We recommend that you read and understand the Master Prospectus for the Affin Hwang Select Income Fund dated 18 July 2016 and expires on 17 July 2017 by Affin Hwang Asset Management Bhd (formerly known as Hwang Investment Management Berhad). Investments in the Fund are exposed to specific risks including equity investment risk, equity-linked securities investment risk, credit/default risk, interest rate/price risk, structured products risk, country risk, currency risk, regulatory risk and others as disclosed in the prospectus.

We recommend that you read and understand the contents of the Master Prospectus for the RHB Asian Income Fund dated 6 October 2016 and expire on 5 October 2017, by RHB Asset Management Sdn Bhd. Investments in the Fund are exposed to management risk, liquidity risk, foreign investment risks such as currency risk and country risk and others as disclosed in the prospectus.

We recommend that you read and understand the contents of the Prospectus for the Affin Hwang Global Balanced Fund dated 1 September 2016 and expire on 31 August 2017, by Affin Hwang Asset Management Berhad. Investments in the Fund are exposed to collective investment schemes risk, credit and default risk, interest rate risk, currency risk, liquidity risk, related parties transaction risk, country risk and others as disclosed in the prospectus.

Product Risk Rating and Suitability Determination Matrix:

Rating Severity of Loss Product Risk Rating Customer Risk Profile
B Partial loss of full principal investment amount possible, total loss unlikely.
(‘Partial loss’ means the loss suffered by the investor can be up to 15% of the original investment principal)
Moderate
  • Balanced
  • Growth
  • Aggressive
C Client may suffer substantial or 100% loss of principal investment amount.
(‘Substantial loss’ means the loss suffered by the investor can be more than 15% of the investment principal)
High
  • Growth
  • Aggressive


Unit Trust investments are not bank deposits and are not obligations of or guaranteed or insured by OCBC Bank (Malaysia) Berhad. Unit Trust investments are not guaranteed and are subject to investment risk unless otherwise specified. The investment risk includes general risks as described in the Information Memorandum/Prospectuses for Unit Trust investment funds (“Information Memorandum/Prospectuses”) and specific risks which may be different for each Unit Trust investment. Description of specific risks and general risks are published in the Information Memorandum/Prospectuses. With respect to Unit Trust investment, past performance is not indicative of future results; the net asset value can go up or down. Investors should also note that the net asset value per unit and distributions payable, if any, may go down as well as up.

Where unit trust loan financing is available, investors are advised to read and understand the contents of the unit trust loan financing risk disclosure statement before deciding to borrow to purchase units. Where a unit split/distribution is declared, investors are advised that following the issue of additional units/distribution, the NAV per unit will be reduced from pre-unit split NAV/cum-distribution NAV to post-unit split NAV/ex-distribution NAV; and where a unit split is declared, investors should be highlighted of the fact that the value of their investment in Malaysian ringgit will remain unchanged after the distribution of the additional units.

The Information Memorandum/Prospectuses have been registered with the Securities Commission Malaysia, which takes no responsibility for its content. A copy of the Information Memorandum/Prospectuses can be obtained at OCBC Bank’s branches. Units will only be issued upon the receipt of application form referred in, and accompanying the Information Memorandum/Prospectuses. Investors are advised to read and understand the contents of the Information Memorandum/Prospectuses, and if necessary consult their adviser(s), as well as consider the fees and charges involved before investing in the Unit Trust.

This document has been prepared without taking account of the objectives, financial situation or needs of any specific person or organisation who may receive this document. Accordingly prior to making an investment decision, you should conduct such investigation and analysis regarding the product described herein as you deem appropriate and to the extent you deem necessary obtain independent advice from competent legal, financial, tax, accounting and other professionals, to enable you to understand and recognise fully the legal, financial, tax and other risks arising in respect of the product and the purchase, holding and sale thereof.

You should obtain and read the Product Highlight Sheet of the product before you make a decision to acquire the product. All information provided in this document is general and does not take into account your individual objectives, financial situation or specific needs.

You are required to read and understand the terms and Product Highlight Sheet of the product carefully before executing any transaction relating to the product with us. You may request for a copy of the Product Highlight Sheet at OCBC Banks’ branches.

The information provided herein is intended for general circulation and/or discussion purposes only and does not contain a complete analysis of every material fact. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. Without prejudice to the generality of the foregoing, please seek advice from a financial adviser regarding the suitability of any investment product taking into account your specific investment objectives, financial situation or particular needs before you make a commitment to purchase the investment product.

In the event that you choose not to seek advice from a financial adviser, you should consider whether the product in question is suitable for you. This does not constitute an offer or solicitation to buy or sell or subscribe for any security or financial instrument or to enter into a transaction or to participate in any particular trading or investment strategy.

All information presented is subject to change without notice. OCBC Bank shall not be responsible or liable for any loss or damage whatsoever arising directly or indirectly howsoever in connection with or as a result of any person acting on any information provided herein. The information provided herein may contain projections or other forward looking statement regarding future events or future performance of countries, assets, markets or companies. Actual events or results may differ materially. Past performance figures are not necessarily indicative of future or likely performance. Any reference to any specific company, financial product or asset class in whatever way is used for illustrative purposes only and does not constitute a recommendation on the same.

OCBC Bank and its respective associated and connected corporations together with their respective directors and officers may have or take positions in any securities mentioned in this report (which positions may change from time to time without notice) and may also perform or seek to perform broking and other investment or securities related services for the corporations whose securities are mentioned in this report as well as other parties generally.

The contents hereof may not be reproduced or disseminated in whole or in part without OCBC Bank’s written consent.




Lai Mun Yew (Michael)
  Vice President, Research, Wealth Management, OCBC Bank (Malaysia) Berhad

 

Global Outlook – Unusual Uncertainty in 2017

 

Political turbulence means that there is more uncertainty over the global economic outlook than there has been this decade. The risk of recession – perhaps due to “boom-bust” – has risen.

Key Points:

  • Previously, there was no prospect of a U.S. recession within a realistic time frame. Mildly-loose policy was allowing a gradual absorption of excess capacity. This no longer seems to be an appropriate framework.
  • The two factors that usually cause a downturn are an exogenous shock or domestic overheating that leads to monetary tightening which hurts growth. Both are possible now. The former could stem from tariffs that damage global trade, the latter from fiscal stimulus into an economy already near to full capacity. There is now a realistic risk of a recession in Trump’s first term in office, perhaps by 2019.
  • More positive outcomes are also possible. Judicious deregulation and targeted fiscal spending could raise the potential growth rate, especially if accompanied by restraint on trade policy. This could produce a “stronger for longer” expansion. This outlook will need to be revised as the policy direction of the new Trump administration becomes clearer.
  • The Eurozone is at risk of the disruption seen in the U.K. and U.S. in 2016, with several important political elections and events in the coming year. Rising anti-EU sentiment in the founding members of the EU is a particular concern. Even if the survival of the EU is not seriously threatened, it is becoming harder to implement reforms that would improve the stability of the region.
  • More positively, the anti-EU sentiment seems to have contributed to the acceptance of a slight loosening of fiscal policy, which will help to support growth in 2017 and 2018. Unlike the U.S. and Japan, the Eurozone still has significant excess capacity.
  • Japan’s economy is around full employment even though growth has averaged just 0.7 per cent over the past five years. Economic activity is only slightly greater than pre-crisis levels in 2008 which is a useful indication of the drag that demographics is having on productive capacity. Growth is set to be a little more rapid in 2017 due to fiscal stimulus and the weaker exchange rate, but this will just be a short-term lift.
  • In Asia, China remains a significant medium-term risk. Rapid lending, high investment rates and slowing economic growth are a combination that suggests an inefficient allocation of credit and an eventual bad debt crisis. In China, the process is largely internal – so no Lehman shock – and dominated by the state, which implies the consequence is that the growth rate grinds lower, rather than the system explodes.
  • After Mexico, Asia is the most exposed to U.S. tariffs. Restrictions on U.S. imports from China would affect the entire region through the impact on the extended supply chains. Moreover, the U.S. has large trade deficits with many other Asian economies, even before we consider their exports that go to the U.S. via China.



 

Foreign Exchange & Commodities – Making the US dollar great again?

 

In the event trade tension between China and the U.S heighten, trade-exposed Asian currencies stand to lose the most, given that they have been major beneficiaries of globalisation.

Key Points:

  • The possibility of stronger economic growth and higher interest rates in the U.S. should augur well for the U.S. dollar and there are good reasons to be positive about the currency. However, there is insufficient information so far on the Trump’s administration’s priorities and the magnitude of its intended policies. Until we get more clarity, it’s hard to say with a great deal of conviction that the U.S. dollar could surge significantly against other major currencies like the Yen and the Euro.
  • Two other considerations complicate the path of the U.S. dollar against reserve currencies. First, is the lurking fear that if trade disruption becomes a first-order issue, this would help the Euro and Yen while undermining Asian currencies. Second, if the drag on U.S. growth from the stronger greenback and higher yields manifests before the boost from fiscal policy, then we may see additional market volatility as positioning and investor expectations get revised. The U.S. dollar could then struggle as the markets reassess “Trumponomics”.
  • Trade-exposed Asian currencies stand to lose most from an escalation of trade tension between China and the U.S. So far, China has not reacted to the U.S. election. The Chinese currency has been weakening against the U.S. dollar but the currency has actually been stable-to-slightly stronger against a basket. Whether the Chinese currency will continue to remain stable against its basket is a risk that we will have to remain vigilant over, as an acceleration of its weakness would create adverse spillovers on other Asian currencies.
  • Low oil prices in 2016 had put a strain on a range of oil producing countries. This lends some credibility to the OPEC deal to cut output, even though enforcement will be a problem, as usual. OPEC still accounts for over one-third of global production. Unfortunately for OPEC, shale has changed the dynamics of oil production as supply can quickly respond to a rise in prices. The U.S. rig count is already up nearly 50 per cent from the lows of May 2016 as producers respond to the prospect of higher profitability. This will limit the upside to prices.
  • We are not long-term gold bulls but there are enough uncertainties ahead – from politics to potential policy impact on growth and inflation – to support gold prices going into early 2017. However, the Trump victory in the U.S. elections has repriced the U.S. dollar and interest rate expectations higher, both of which are headwinds for gold prices. Consequently, we have lowered our gold price forecasts. However, gold should still offer protection to portfolios in risk-averse periods, especially after its recent sharp fall; gold prices should rise fast when risky assets run into trouble.



 

Bonds – Shift in Outlook for U.S. Rates

 

A Trump Presidency could mean a faster pace of rate hikes in the next two years. Previously, we had expected five 25 basis point rate hikes in 2017-2018 but now we provisionally raise this to seven rate hikes.

Key Points:

  • Trump will inherit an economy in its eighth year of expansion (admittedly a slow-paced one) and near to full capacity. Inflation is increasingly evident, in both consumer prices and wages. In this situation, the planned fiscal stimulus and a more restrictive approach to immigration will heighten inflationary pressures, as would tariffs on imports.
  • This implies a faster pace of Fed tightening over the next couple of years, although much depends on the policy choices of the Trump administration. However, as financial markets anticipate this change, through a firmer U.S. dollar and higher bond yields, these act as a drag on activity and reduce the need for the Fed to be too aggressive.
  • The Fed seems happy to allow the economy to “run hot” in order to pull away from deflation risk and perhaps repair some of the damage to the labour market. However, core inflation is already at 1.7 per cent, so there is not much room before it breaches the Fed’s 2 per cent target.
  • Also, remember that at some point the Fed is likely to let the size of its balance sheet shrink. It has been stable for the past two years as the proceeds of maturing bonds are being re-invested. We doubt that the Fed would run down its balance sheet before interest rates are over 1 per cent which probably rules out 2017. However, it could announce its future policy intentions at any point and there is a risk that this has an impact akin to former Fed Chair Bernanke’s infamous “tapering” remark in May 2013.
  • The bond market has already started to respond to the new outlook for U.S. policy. After the initial jump, yields could stabilise until the Trump’s policy priorities become clearer, hopefully in 1Q2017. After that, we can see Fed tightening pushing up the curve, with 10-year US Treasury yields approaching 3 per cent by end-2017. Investment grade returns will be dull in this environment – barely better than cash.
  • We are moderately defensive in our asset allocation and continue to prefer credit over equity. On credit, we do not foresee credit spreads widening significantly, as any fiscal stimulus would delay recession risk. As a result, we are turning less bearish on developed market high yield bonds. However, we are careful not to take on too much bond duration risk because higher inflation expectations will push long-dated bond yields higher.
  • We recently lowered our positive stance on Emerging Market high yield bonds given expected headwinds emanating from anticipated changes under a Trump administration, which moderates our expected 2017 return for the aggregate asset class. However, given our expectation of modest spread tightening going forward, the higher coupon of High Yield should help buffer and insulate returns to at least some extent from rising U.S. Treasury yields and place it in a position to outperform Emerging Market investment grade bonds.
  • Given the potential risks posed by Trump’s policies, there will be greater differentiation among Emerging Market bonds with those operating in countries and sectors which are less affected by global trade and with relatively strong external balances, showing more resilience. On the other hand, Emerging Market bonds with a bigger exposure to external trade and poorer economic fundamentals would probably be more vulnerable.



 

Equities – Remain Cautious on Equities

 

We expect volatility to remain elevated in 2017 as markets continue to discover what a Trump presidency really represents. As such, we remain cautious on equities but have upgraded US equities to Neutral from Underweight for its defensive traits.

Key Points:

  • Markets dived onto a reflationary trade even as the Republican’s sweep has widened the range of possible global growth and geopolitical outcomes. At the same time, the pace of Fed rate hikes is likely to accelerate. Further, ahead of the busy political agenda, European political risks lurk. Coupled with extended valuations, risk-reward remains unattractive. Hence, we remain cautious on equities. Regionally, we are neutral on the U.S. and cautious on Europe, Japan and Asia ex-Japan.
  • The post-U.S. election rally to record levels - notwithstanding the rise in yields - suggests that the market sees growth acceleration outweighing the impact from higher rates. Clearly, there is not enough information at this stage to arrive at such a conclusion with conviction. Further, with the recent rise, valuations have become extended. Without more concrete details, the Trump reflation trade could run out of steam. Nevertheless, U.S. equities remain more defensive on a relative basis.
  • Going into 2017, the risk of political contagion remains a potential overhang in Europe given the busy political calendar. In the meantime, negotiations between the U.K. and the EU are expected to kick-off. Also, consensus earnings growth for 2017 seems to be optimistic again. Combined with the region’s above-average price-to-earnings ratio, we remain cautious in European equities.
  • In Japan, we maintain the view that investors would see beyond short-term stimulus, whether from monetary or fiscal policy and more sustained re-rating of Japanese equities would require more meaningful structural reforms that would boost Japan’s growth potential. Meanwhile, near-term, the market would continue to be driven mainly by movements of the Yen. Although valuations are not demanding, we remain cautious on Japanese equities.
  • Asia ex-Japan equities bore the brunt of Trump’s victory. Besides fears of Trump-triggered trade war, growing expectations of faster Fed tightening also weighed on regional currencies. If Trump pursues his anti-trade policies, it is highly negative for Asia’s growth. Also, an accelerated Fed tightening phase would weigh on the region. Hence, although Asia Ex-Japan markets continue to trade at a discount to their Developed Market peers, risk-reward for the region has deteriorated.



 

Important Information

 

Any opinions or views expressed in this material are those of the author and third parties identified, and not those of OCBC Bank (Malaysia) Berhad (“OCBC Bank”, which expression shall include OCBC Bank’s related companies or affiliates).

The information provided herein is intended for general circulation and/or discussion purposes only and does not contain a complete analysis of every material fact. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. Without prejudice to the generality of the foregoing, please seek advice from a financial adviser regarding the suitability of any investment product taking into account your specific investment objectives, financial situation or particular needs before you make a commitment to purchase the investment product.

In the event that you choose not to seek advice from a financial adviser, you should consider whether the product in question is suitable for you. This does not constitute an offer or solicitation to buy or sell or subscribe for any security or financial instrument or to enter into a transaction or to participate in any particular trading or investment strategy.

OCBC Bank, its related companies, their respective directors and/or employees (collectively ‘Related Persons’) may have positions in, and may effect transaction in the products mentioned herein. OCBC Bank may have alliances with the product providers, for which OCBC Bank may receive a fee. Product providers may also be Related Persons, who may be receiving fees from investors. OCBC Bank and the Related Person may also perform or seek to perform broking and other financial services for the product providers.

All information presented is subject to change without notice. OCBC Bank shall not be responsible or liable for any loss or damage whatsoever arising directly or indirectly howsoever in connection with or as a result of any person acting on any information provided herein. The information provided herein may contain projections or other forward-looking statements regarding future events or future performance of countries, assets, markets or companies. Actual events or results may differ materially. Past performance figures are not necessarily indicative of future or likely performance. Any reference to any specific company, financial product or asset class in whatever way is used for illustrative purposes only and does not constitute a recommendation on the same.

The contents hereof may not be reproduced or disseminated in whole or in part without OCBC Bank’s written consent.


 


Asset Allocation Key Amid Greater Uncertainty

 

We expect greater volatility ahead with President Trump’s increasingly anti-trade -- rather than the highly-anticipated reflationary -- posture.

Given the uncertainties and volatility ahead, asset allocation should be the key consideration in managing and building a core portfolio. We are moderately defensive in our asset allocation and continue to prefer credit over equity.

On equities, we are negative on Europe, Japan and Asia ex-Japan but with a preference for the U.S., given its defensive traits.

Among bond markets, we are positive on Emerging Market and Developed Market high yield bonds.

Top Investment Ideas:

  • Unit Trust: Pacific Asian Income Fund (Risk rating: High)
    Eligibility: High Net Worth Investors Only
    This fund invests in a target fund, the Lion Capital Funds II – LION-BOS Asian Income Fund – MYR and is suitable for investors seeking capital growth and income in the medium to long term via a dynamic and flexible asset allocation strategy. Income would be derived from well diversified sources such as equity dividend, bond coupons and option premiums.
  • Unit Trust: Affin Hwang Select Income Fund (Risk rating: Moderate)
    Eligibility: Retail and High Net Worth Investors
    Suitable for investors seeking to invest in an income-driven, absolute return focused fund. This fund also targets to provide a high level of cash flow as well as growth by investing at least 70% of its NAV into fixed income instruments and a maximum of 30% NAV into equities globally with an Asian focus.
  • Unit Trust: RHB Asian Income Fund (Risk rating: Moderate)
    Eligibility: Retail and High Net Worth Investors
    This fund invests in one target fund, the Schroder Asian Income fund and is suitable for investors seeking income and capital growth over the medium- to long-term via an active allocation strategy. Exposure in Asia is opportunistic as we view Asia being in a relatively strong position with a high level of foreign reserves, limited external debt, undervalued exchange rates and plenty of policy flexibility.
  • Unit Trust: Affin Hwang Global Balanced Fund (Risk rating: Moderate)
    Eligibility: Retail and High Net Worth Investors
    Investors seeking capital growth opportunities through a portfolio of collective investment schemes with access into equities listed in global markets, fixed income instruments such as debt securities, money market instruments and fixed deposits, issued globally may consider this fund.

Top Investment Ideas are an expression of the investment outlook in this publication. They are not recommendations made in accordance with your investment objective and risk profile. As such, we recommend that you complete a suitability assessment before purchasing your selected investment product.



Any opinions or views expressed in this material are those of the author and third parties identified, and not those of OCBC Bank (Malaysia) Berhad (“OCBC Bank”, which expression shall include OCBC Bank’s related companies or affiliates).

We recommend that you read and understand the contents of the Information Memorandum for the Pacific Asian Income Fund dated 12 January 2017, by Pacific Mutual Fund Bhd. Investments in the Fund are exposed to market risk, target fund risk, currency risk, country/foreign securities risk, regulatory risk, external fund manager’s risk and others as disclosed in the Information Memorandum. This fund is eligible to be purchased by High Net Worth Individuals only, the criteria of High Net Worth Individuals as per stated in Schedules 6 and 7 of Capital Market and Services Act (CMSA) 2007.

We recommend that you read and understand the Master Prospectus for the Affin Hwang Select Income Fund dated 18 July 2016 and expires on 17 July 2017 by Affin Hwang Asset Management Bhd (formerly known as Hwang Investment Management Berhad). Investments in the Fund are exposed to specific risks including equity investment risk, equity-linked securities investment risk, credit/default risk, interest rate/price risk, structured products risk, country risk, currency risk, regulatory risk and others as disclosed in the prospectus.

We recommend that you read and understand the contents of the Master Prospectus for the RHB Asian Income Fund dated 6 October 2016 and expire on 5 October 2017, by RHB Asset Management Sdn Bhd. Investments in the Fund are exposed to management risk, liquidity risk, foreign investment risks such as currency risk and country risk and others as disclosed in the prospectus.

We recommend that you read and understand the contents of the Prospectus for the Affin Hwang Global Balanced Fund dated 1 September 2016 and expire on 31 August 2017, by Affin Hwang Asset Management Berhad. Investments in the Fund are exposed to collective investment schemes risk, credit and default risk, interest rate risk, currency risk, liquidity risk, related parties transaction risk, country risk and others as disclosed in the prospectus.

Product Risk Rating and Suitability Determination Matrix:

Product Risk Rating What this rating could mean to your principal amount Suitable for risk profiles:
Moderate Partial loss of full principal investment amount possible, total loss unlikely.
(‘Partial loss’ means the loss suffered by the investor can be up to 15% of the original investment principal)
  • Balanced
  • Growth
  • Aggressive
High Client may suffer substantial or 100% loss of principal investment amount.
(‘Substantial loss’ means the loss suffered by the investor can be more than 15% of the investment principal)
  • Growth
  • Aggressive


Unit Trust investments are not bank deposits and are not obligations of or guaranteed or insured by OCBC Bank (Malaysia) Berhad. Unit Trust investments are not guaranteed and are subject to investment risk unless otherwise specified. The investment risk includes general risks as described in the Information Memorandum/Prospectuses for Unit Trust investment funds (“Information Memorandum/Prospectuses”) and specific risks which may be different for each Unit Trust investment. Description of specific risks and general risks are published in the Information Memorandum/Prospectuses. With respect to Unit Trust investment, past performance is not indicative of future results; the net asset value can go up or down. Investors should also note that the net asset value per unit and distributions payable, if any, may go down as well as up.

Where unit trust loan financing is available, investors are advised to read and understand the contents of the unit trust loan financing risk disclosure statement before deciding to borrow to purchase units. Where a unit split/distribution is declared, investors are advised that following the issue of additional units/distribution, the NAV per unit will be reduced from pre-unit split NAV/cum-distribution NAV to post-unit split NAV/ex-distribution NAV; and where a unit split is declared, investors should be highlighted of the fact that the value of their investment in Malaysian ringgit will remain unchanged after the distribution of the additional units.

The Information Memorandum/Prospectuses have been registered with the Securities Commission Malaysia, which takes no responsibility for its content. A copy of the Information Memorandum/Prospectuses can be obtained at OCBC Bank’s branches. Units will only be issued upon the receipt of application form referred in, and accompanying the Information Memorandum/Prospectuses. Investors are advised to read and understand the contents of the Information Memorandum/Prospectuses, and if necessary consult their adviser(s), as well as consider the fees and charges involved before investing in the Unit Trust.

This document has been prepared without taking account of the objectives, financial situation or needs of any specific person or organisation who may receive this document. Accordingly prior to making an investment decision, you should conduct such investigation and analysis regarding the product described herein as you deem appropriate and to the extent you deem necessary obtain independent advice from competent legal, financial, tax, accounting and other professionals, to enable you to understand and recognise fully the legal, financial, tax and other risks arising in respect of the product and the purchase, holding and sale thereof.

You should obtain and read the Product Highlight Sheet of the product before you make a decision to acquire the product. All information provided in this document is general and does not take into account your individual objectives, financial situation or specific needs.

You are required to read and understand the terms and Product Highlight Sheet of the product carefully before executing any transaction relating to the product with us. You may request for a copy of the Product Highlight Sheet at OCBC Banks’ branches.

The information provided herein is intended for general circulation and/or discussion purposes only and does not contain a complete analysis of every material fact. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. Without prejudice to the generality of the foregoing, please seek advice from a financial adviser regarding the suitability of any investment product taking into account your specific investment objectives, financial situation or particular needs before you make a commitment to purchase the investment product.

In the event that you choose not to seek advice from a financial adviser, you should consider whether the product in question is suitable for you. This does not constitute an offer or solicitation to buy or sell or subscribe for any security or financial instrument or to enter into a transaction or to participate in any particular trading or investment strategy.

All information presented is subject to change without notice. OCBC Bank shall not be responsible or liable for any loss or damage whatsoever arising directly or indirectly howsoever in connection with or as a result of any person acting on any information provided herein. The information provided herein may contain projections or other forward looking statement regarding future events or future performance of countries, assets, markets or companies. Actual events or results may differ materially. Past performance figures are not necessarily indicative of future or likely performance. Any reference to any specific company, financial product or asset class in whatever way is used for illustrative purposes only and does not constitute a recommendation on the same.

OCBC Bank and its respective associated and connected corporations together with their respective directors and officers may have or take positions in any securities mentioned in this report (which positions may change from time to time without notice) and may also perform or seek to perform broking and other investment or securities related services for the corporations whose securities are mentioned in this report as well as other parties generally.

The contents hereof may not be reproduced or disseminated in whole or in part without OCBC Bank’s written consent.




Lai Mun Yew (Michael)
  Vice President, Research, Wealth Management, OCBC Bank (Malaysia) Berhad

 

Global Outlook – Faster Growth but Rising Risks

 

Economic growth has picked up, but the early days of the Trump presidency have highlighted the risks to a liberal world order led by the United States.

Key Points:

  • The rebound in business confidence began ahead of the U.S. election and has been a global occurrence, so it does not appear to be driven by Trump’s victory. However, in the U.S., hopes of fewer regulations and lower taxes might be behind a post-election spike in confidence, especially for small firms.
  • Deregulation, tax reform and infrastructure investment in the U.S. all have the potential to raise the U.S. growth rate, but passing the legislation will take time, and the economic impact will be gradual. A more immediate concern is that cutting taxes when the economy is already running hot is likely to boost inflation and widen the trade deficit.
  • Protectionism is our greatest concern. Tariffs would threaten to reverse the globalisation that has been at the heart of the success story of many emerging markets – especially Asia – in recent decades. The U.S. would also suffer from distortions to resource allocation and higher prices to consumers, even before we consider the risk of retaliation by major trading partners.
  • In Europe, elections in Netherlands, France and Germany, imply continued uncertainty in 2017, especially in the wake of the political surprises of 2016. Unavoidably, the focus is on downside risks, including the survival of the Euro. However, there is also the possibility of positive outcomes, such as the election of a reformist right-of-centre president in France.
  • The U.K. is treading a perilous path towards Brexit and there is a danger that it leaves the European Union without securing any form of preferential access for trade relations. Large budget and external deficits limit the room for manoeuvre and leave the U.K. exposed to damage from Brexit.
  • In Japan, exports and output were already benefitting from the bounce in world trade seen in late 2016, and the drop in Yen should sustain that momentum. This will compound the tightness in labour markets which are already the best in 25 years.
  • Unfortunately, (from the Bank of Japan’s point of view) deflationary expectations appear to be so entrenched that wages have shown very little response to labour shortages. Similarly, prices are stable and although inflation will be boosted by the weak exchange rate, the BOJ’s 2 per cent target is still far in the distance.
  • China could be the target for U.S. protectionist policies. Trump’s appointment of related officials supports this view. Japan and Mexico have also found themselves under scrutiny, but the deficit with China is five times as large as either of them.
  • Any Chinese response to U.S. tariffs is likely to target specific U.S. firms. The hope is that this leads to more moderate behaviour from the U.S. side, but the risk is that it is viewed as provocation that leads to an escalating trade war. The unpredictability and inexperience of the U.S. administration makes this a realistic concern.
  • All emerging markets – not just China – are at risk from U.S. protectionism. Even if China is the primary focus, many of Asia’s regional production networks depend on assembly in China for eventual export to the United States. Moreover, if the (probably unachievable) objective is to create millions of new manufacturing jobs in the U.S., penalising China only to see the trade deficit shift to other countries is likely to provoke similar measures on other exporters.



 

Foreign Exchange & Commodities – U.S. Dollar Rally Stalling?

 

The U.S. Dollar has reached a new cycle high and valuation is relatively stretched compared to its fair value. This is given that markets have priced in much of the fiscal optimism but insufficient trade protectionism risk.

Key Points:

  • The greenback’s rally has been hampered as President Trump takes office. The U.S. dollar has corrected amid concerns of a possible delay on the delivery of growth-positive fiscal measures. Growing signs that reflation is a global, not just an American-only, phenomenon also challenges the idea that U.S. dollar should be exceptionally stronger.
  • Recent comments by Trump that the U.S. dollar is “too strong”, has also undermined the currency. Expectations that Trump will tone down the trade protectionist rhetoric that got him elected appears false. Global risk sentiment, which is approaching “complacency” territory, could sour if trade tension escalates as the U.S. threatens import tariffs. Emerging market currencies are vulnerable to higher risk aversion and are likely to underperform reserve assets such as Gold, the Euro and Japanese Yen.
  • Given that the medium-term trend of a weaker Renminbi is still intact and the non-negligible risk of U.S. trade protectionist policies targeting China, we maintain our bearish view on trade-exposed Asian currencies. The clear risk to our view of weaker Asian currencies is the Chinese central bank attempting to hold the Renminbi stable for longer than we forecast to reduce risk of trade friction with the United States.
  • The Pound rebounded after U.K. Prime Minister Theresa May confirmed intentions to leave the EU single market. However, we remain worried that the heavy political calendar in Europe this year will lead the EU towards a tough negotiating position and the market could start pricing “hard Brexit” again.
  • We continue to see Gold as a valid asset to hold as a diversifier and hedge against concerns that a potential escalation of trade tension between the U.S. and China could threaten the global recovery. Safe haven buying has been a feature of the Gold market since the start of 2017 and we expect this to continue as Trump moves quickly to initiate his campaign policies. A decline in U.S. real interest rates and consequently the possibility of a weaker U.S. dollar could add to Gold's appeal over the next few months.
  • OPEC seems to be successful in reducing output, which is allowing prices to push above the US$50 per barrel level. The main impact of the OPEC deal is to limit downside risk, as it reduces the threat of extreme over-supply. Upside remains limited by alternative (higher cost) supply becoming more viable as prices rise. This is already evident in the U.S., where the rig count is up 70 per cent from the lows of May 2016.



 

Bonds – Positive on High Yield Bonds

 

In the face of potentially improving fundamentals and a lower default rate, the downside for high yield bonds looks limited - even as the Fed raises interest rates.

Key Points:

  • The deflation risk of recent years that has had central banks in developed economies pursuing ever-more radical policies is fading. Firmer growth and a rebound in commodity prices are pushing inflation higher, so attention is turning to when stimulus will be withdrawn. This will become an issue for Europe and Japan as the year progresses, but the United States is leading the shift.
  • We continue to expect the Fed to raise interest rates three times this year and another four in 2018. The economy is at full employment and inflation is only marginally below the 2 per cent target, so the Fed should be uncomfortable with interest rates around 2.5 per cent below neutral levels.
  • Of course the Fed does not operate in a policy vacuum and must be sensitive to any changes from the new Trump administration. The most obvious risk is that fiscal stimulus boosts growth and raises inflationary pressure, which would demand a more aggressive response from the Fed.
  • The bond market has already started to respond to this new outlook for policy, and we can expect yields to push higher as the Fed gradually tightens. We see 10-year U.S. Treasury yields at around 3 per cent by end-2017. Investment grade bond returns will be dull in this environment and we have cut our stance to neutral, preferring to take some credit risk in high yield bonds.
  • Despite higher interest rates, we continue to see opportunities in bond markets but returns will not be as high as in 2016. High yield bonds should remain in vogue as the search for yield continues. Ageing demographics and surplus savings should support the continued search for yield.
  • Valuations on neither High Yield nor Investment Grade look particularly compelling currently. However, in a reflationary environment with higher rates, we believe that coupon or carry will become an increasingly important component of total return. With its higher corporate spread component, High Yield bonds should be somewhat better insulated from the adverse impact of higher rates. Furthermore, High Yield is better positioned to benefit from a decline in overall default rates in 2017 versus 2016.
  • There are three things to bear in mind when investing in bond markets to reduce risk. Firstly, given the potential for higher U.S. interest rates, investors should focus on bonds with a shorter tenor as such bonds are less affected by higher interest rates compared with longer dated bonds. Secondly, consider investing in a portfolio of bonds through a unit trust rather than buying individual bonds as many individual bonds require a significant investment outlay and can expose investors to concentration risk. Finally, it is absolutely imperative to buy only into bonds with decent credit fundamentals to reduce default risk.



 

Equities – From Reflation to Anti-trade?

 

We expect volatility to remain elevated in 2017 as President Trump’s push for anti-trade seems to be intensifying instead of the highly-anticipated reflationary stance.

Key Points:

  • Equity markets have defied expectations and done well despite Trump's victory. The reason for the run up is because investors chose to focus on the reflation theme and are hopeful that Trump could boost the U.S. economy through expansionary fiscal policy.
  • Meanwhile, Trump’s increasingly brazen protectionist push could derail global growth. Furthermore, the pace of Fed’s interest-rate normalisation is likely to pick up. Also, given the busy political agenda, European political risks lurk. Coupled with extended valuations, risk-reward remains unattractive. We maintain our Underweight stance on equities. Regionally, we are neutral on the U.S. for its relatively defensive traits and underweight Europe, Japan and Asia ex-Japan.
  • Without a clearer roadmap, the Trump reflation trade could run out of steam. The increasingly protectionist approach to trade by Trump could also impact U.S. corporate earnings growth and profitability as a result of higher costs and/or lower revenues. Despite our cautious view on equities, U.S. equities remain more defensive on a relative basis.
  • In Europe, Theresa May’s decision not to pursue partial EU membership will force the U.K. to leave the single market and this has raised more questions than answers. Even as earnings are expected to recover from the sharp decline last year, consensus 2017 earnings growth of 13.7 per cent remains optimistic, in our view. Meanwhile, the risk of political contagion remains, given the busy political calendar. Hence we remain cautious on European equities.
  • We maintain our view that a sustained re-rating of Japanese equities would require more meaningful structural reforms that would boost Japan’s growth potential. The weakened Yen would provide a boost to corporate earnings but the rebound in share prices would have largely discounted the consensus 2017 earnings growth of 10.9 per cent. After China, Japan accounts for a substantial share of U.S. trade deficit and is vulnerable to potential trade pressure.
  • Asia ex-Japan equities rebounded in January, after bearing the brunt of the post U.S. election market response. The “America First” rhetoric during Trump’s inauguration speech does not augur well for the region. China accounts for more than one-third of the overall U.S. trade deficit and will be the focus of any U.S. anti-trade policies. But given the highly connected intra-Asia as well as U.S.-Asia trade links, it is unlikely that any of the Asian markets would go unscathed if the situation turns ugly.



 

Important Information

 

Any opinions or views expressed in this material are those of the author and third parties identified, and not those of OCBC Bank (Malaysia) Berhad (“OCBC Bank”, which expression shall include OCBC Bank’s related companies or affiliates).

The information provided herein is intended for general circulation and/or discussion purposes only and does not contain a complete analysis of every material fact. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. Without prejudice to the generality of the foregoing, please seek advice from a financial adviser regarding the suitability of any investment product taking into account your specific investment objectives, financial situation or particular needs before you make a commitment to purchase the investment product.

In the event that you choose not to seek advice from a financial adviser, you should consider whether the product in question is suitable for you. This does not constitute an offer or solicitation to buy or sell or subscribe for any security or financial instrument or to enter into a transaction or to participate in any particular trading or investment strategy.

OCBC Bank, its related companies, their respective directors and/or employees (collectively ‘Related Persons’) may have positions in, and may effect transaction in the products mentioned herein. OCBC Bank may have alliances with the product providers, for which OCBC Bank may receive a fee. Product providers may also be Related Persons, who may be receiving fees from investors. OCBC Bank and the Related Person may also perform or seek to perform broking and other financial services for the product providers.

All information presented is subject to change without notice. OCBC Bank shall not be responsible or liable for any loss or damage whatsoever arising directly or indirectly howsoever in connection with or as a result of any person acting on any information provided herein. The information provided herein may contain projections or other forward-looking statements regarding future events or future performance of countries, assets, markets or companies. Actual events or results may differ materially. Past performance figures are not necessarily indicative of future or likely performance. Any reference to any specific company, financial product or asset class in whatever way is used for illustrative purposes only and does not constitute a recommendation on the same.

The contents hereof may not be reproduced or disseminated in whole or in part without OCBC Bank’s written consent.


 


Rebalance in Times of Uncertainty

 

We expect greater volatility ahead with President Trump increasingly pushing anti-trade policy rather than the highly-anticipated reflationary one.

Given the uncertainties and volatility ahead, asset allocation is key to navigating the markets.

We prefer credit over equity.

On equities, we are still negative on Europe, Japan and Asia ex-Japan but neutral on the US given its defensive traits.

Among bond markets, we are positive on Emerging Market and Developed Market high yield bonds.

Recommendations:

  • Unit Trust: Pacific Asian Income Fund (Risk rating: High)
    Eligibility: High Net Worth Investors Only
    This fund invests in a target fund, the Lion Capital Funds II – LION-BOS Asian Income Fund – MYR and is suitable for investors seeking capital growth and income in the medium to long term via a dynamic and flexible asset allocation strategy. Income would be derived from well diversified sources such as equity dividend, bond coupons and option premiums.
  • Unit Trust: Affin Hwang Select Income Fund (Risk rating: Moderate)
    Eligibility: Retail and High Net Worth Investors
    Suitable for investors seeking to invest in an income-driven, absolute return focused fund. This fund also targets to provide a high level of cash flow as well as growth by investing at least 70% of its NAV into fixed income instruments and a maximum of 30% NAV into equities globally with an Asian focus.
  • Unit Trust: RHB Asian Income Fund (Risk rating: Moderate)
    Eligibility: Retail and High Net Worth Investors
    This fund invests in one target fund, the Schroder Asian Income fund and is suitable for investors seeking income and capital growth over the medium- to long-term via an active allocation strategy. Exposure in Asia is opportunistic as we view Asia being in a relatively strong position with a high level of foreign reserves, limited external debt, undervalued exchange rates and plenty of policy flexibility.
  • Unit Trust: Affin Hwang Global Balanced Fund (Risk rating: Moderate)
    Eligibility: Retail and High Net Worth Investors
    Investors seeking capital growth opportunities through a portfolio of collective investment schemes with access into equities listed in global markets, fixed income instruments such as debt securities, money market instruments and fixed deposits, issued globally may consider this fund.

Top Investment Ideas are an expression of the investment outlook in this publication. They are not recommendations made in accordance with your investment objective and risk profile. As such, we recommend that you complete a suitability assessment before purchasing your selected investment product.



This document is not intended to constitute research analysis or recommendation and should not be treated as such.

We recommend that you read and understand the contents of the Information Memorandum for the Pacific Asian Income Fund dated 12 January 2017, by Pacific Mutual Fund Bhd. Investments in the Fund are exposed to market risk, target fund risk, currency risk, country/foreign securities risk, regulatory risk, external fund manager’s risk and others as disclosed in the Information Memorandum. This fund is eligible to be purchased by High Net Worth Individuals only, the criteria of High Net Worth Individuals as per stated in Schedules 6 and 7 of Capital Market and Services Act (CMSA) 2007.

We recommend that you read and understand the Master Prospectus for the Affin Hwang Select Income Fund dated 18 July 2016 and expires on 17 July 2017 by Affin Hwang Asset Management Bhd (formerly known as Hwang Investment Management Berhad). Investments in the Fund are exposed to specific risks including equity investment risk, equity-linked securities investment risk, credit/default risk, interest rate/price risk, structured products risk, country risk, currency risk, regulatory risk and others as disclosed in the prospectus.

We recommend that you read and understand the contents of the Master Prospectus for the RHB Asian Income Fund dated 6 October 2016 and expire on 5 October 2017, by RHB Asset Management Sdn Bhd. Investments in the Fund are exposed to management risk, liquidity risk, foreign investment risks such as currency risk and country risk and others as disclosed in the prospectus.

We recommend that you read and understand the contents of the Prospectus for the Affin Hwang Global Balanced Fund dated 1 September 2016 and expire on 31 August 2017, by Affin Hwang Asset Management Berhad. Investments in the Fund are exposed to collective investment schemes risk, credit and default risk, interest rate risk, currency risk, liquidity risk, related parties transaction risk, country risk and others as disclosed in the prospectus.

Product Risk Rating and Suitability Determination Matrix:

Product Risk Rating What this rating could mean to your principal amount Suitable for risk profiles:
Moderate Partial loss of full principal investment amount possible, total loss unlikely.
(‘Partial loss’ means the loss suffered by the investor can be up to 15% of the original investment principal)
  • Balanced
  • Growth
  • Aggressive
High Client may suffer substantial or 100% loss of principal investment amount.
(‘Substantial loss’ means the loss suffered by the investor can be more than 15% of the investment principal)
  • Growth
  • Aggressive


Unit Trust investments are not bank deposits and are not obligations of or guaranteed or insured by OCBC Bank (Malaysia) Berhad. Unit Trust investments are not guaranteed and are subject to investment risk unless otherwise specified. The investment risk includes general risks as described in the Information Memorandum/Prospectuses for Unit Trust investment funds (“Information Memorandum/Prospectuses”) and specific risks which may be different for each Unit Trust investment. Description of specific risks and general risks are published in the Information Memorandum/Prospectuses. With respect to Unit Trust investment, past performance is not indicative of future results; the net asset value can go up or down. Investors should also note that the net asset value per unit and distributions payable, if any, may go down as well as up.

Where unit trust loan financing is available, investors are advised to read and understand the contents of the unit trust loan financing risk disclosure statement before deciding to borrow to purchase units. Where a unit split/distribution is declared, investors are advised that following the issue of additional units/distribution, the NAV per unit will be reduced from pre-unit split NAV/cum-distribution NAV to post-unit split NAV/ex-distribution NAV; and where a unit split is declared, investors should be highlighted of the fact that the value of their investment in Malaysian ringgit will remain unchanged after the distribution of the additional units.

The Information Memorandum/Prospectuses have been registered with the Securities Commission Malaysia, which takes no responsibility for its content. A copy of the Information Memorandum/Prospectuses can be obtained at OCBC Bank’s branches. Units will only be issued upon the receipt of application form referred in, and accompanying the Information Memorandum/Prospectuses. Investors are advised to read and understand the contents of the Information Memorandum/Prospectuses, and if necessary consult their adviser(s), as well as consider the fees and charges involved before investing in the Unit Trust.

This document has been prepared without taking account of the objectives, financial situation or needs of any specific person or organisation who may receive this document. Accordingly prior to making an investment decision, you should conduct such investigation and analysis regarding the product described herein as you deem appropriate and to the extent you deem necessary obtain independent advice from competent legal, financial, tax, accounting and other professionals, to enable you to understand and recognise fully the legal, financial, tax and other risks arising in respect of the product and the purchase, holding and sale thereof.

You should obtain and read the Product Highlight Sheet of the product before you make a decision to acquire the product. All information provided in this document is general and does not take into account your individual objectives, financial situation or specific needs.

You are required to read and understand the terms and Product Highlight Sheet of the product carefully before executing any transaction relating to the product with us. You may request for a copy of the Product Highlight Sheet at OCBC Banks’ branches.

The information provided herein is intended for general circulation and/or discussion purposes only and does not contain a complete analysis of every material fact. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. Without prejudice to the generality of the foregoing, please seek advice from a financial adviser regarding the suitability of any investment product taking into account your specific investment objectives, financial situation or particular needs before you make a commitment to purchase the investment product.

In the event that you choose not to seek advice from a financial adviser, you should consider whether the product in question is suitable for you. This does not constitute an offer or solicitation to buy or sell or subscribe for any security or financial instrument or to enter into a transaction or to participate in any particular trading or investment strategy.

All information presented is subject to change without notice. OCBC Bank shall not be responsible or liable for any loss or damage whatsoever arising directly or indirectly howsoever in connection with or as a result of any person acting on any information provided herein. The information provided herein may contain projections or other forward looking statement regarding future events or future performance of countries, assets, markets or companies. Actual events or results may differ materially. Past performance figures are not necessarily indicative of future or likely performance. Any reference to any specific company, financial product or asset class in whatever way is used for illustrative purposes only and does not constitute a recommendation on the same.

OCBC Bank and its respective associated and connected corporations together with their respective directors and officers may have or take positions in any securities mentioned in this report (which positions may change from time to time without notice) and may also perform or seek to perform broking and other investment or securities related services for the corporations whose securities are mentioned in this report as well as other parties generally.

The contents hereof may not be reproduced or disseminated in whole or in part without OCBC Bank’s written consent.




Lai Mun Yew (Michael)
  Vice President, Research, Wealth Management, OCBC Bank (Malaysia) Berhad

 

Global Outlook – Global Monetary Policy at Turning Point

 

Faster global growth and reflation implies that the next move in monetary policy in the Eurozone and Japan is likely to be towards tightening, even as the Fed prepares to hike rates further.

Key Points:

  • Global economic growth continues to improve and, together with firmer commodity prices, this is reducing the risk of deflation. Headline inflation rates have picked up across the developed world, although core inflation has been slower to respond as it typically excludes the effect of higher oil prices.
  • Faster growth and higher inflation spells a turning point in global monetary policy. Of course the US is already tightening and various emerging markets seem to have stopped cutting rates, so the focus is on other developed markets. In the second half of 2017, we can expect to see the Eurozone planning to taper asset purchases and Japan start to increase the target yield for bonds.
  • In the US, the “America First” attitude will be a persistent risk. With the trade deficit already at 4 per cent of GDP and set to expand due to the strong US dollar and tight domestic capacity, tariff protection will be a constant threat.
  • In Europe, the dichotomy continues between an increasingly solid economic performance and continued political turmoil and uncertainty. PMI readings show Eurozone business confidence at the highest level since 2011 while unemployment has been falling steadily for over three years.
  • The improving economy seems to have done little to reduce public dissatisfaction with the political status quo. This should not be too much of a surprise, as the UK and US both enjoyed a stronger recovery than the Eurozone from the recession of 2008-09, but were not immune to unexpected election outcomes last year.
  • The UK is treading a perilous path towards Brexit and there is the danger that it leaves the European Union without securing any form of preferential access for trade relations. Large budget and external deficits limit the room for manoeuvre and leave the UK exposed to damage from Brexit.
  • In Japan, the pick-up in regional trade has boosted Japan’s exports in recent months, even before we see the likely benefits of the recent currency weakness. In turn, this is driving a rebound in industrial output that will feed through to corporate profits.
  • As in Europe, solid economic growth means that discussion is turning to the question of when the Bank of Japan (BOJ) might start to tighten monetary policy. Assuming that inflation picks up a little in coming months and the exchange rate remains soft, the BOJ could look at raising the target for 10-year bond yields around the middle of the year. This could bring the benefit of reducing a source of potential friction with the US as well as reducing the pressure for the BOJ to expand its balance sheet so rapidly.
  • In China, concern over the overheating housing market has brought some macro-prudential policy tightening, as well as a slight squeeze on liquidity. This points to slower growth in coming months, but it seems unlikely to risk a serious undershoot of targets.
  • Policy-makers’ priorities have been clear in recent years, with the determination to deliver solid growth taking precedence over efforts to control the credit bubble. As a consequence, the debt service burden is rising, bringing the risk of a rise in non-performing loans. However, most of the debts are in local currency so the government should be able to prevent abrupt systemic disruption.
  • The recovery in emerging markets is threatened by higher US interest rates and trade protectionism. Asia is relatively less exposed to a rise in borrowing costs, as most economies run a current account surplus, so are exporters of capital.
  • Conversely, Asia is badly exposed to a reversal of the globalisation of the past few decades. Even if America’s protectionist focus is on China, the rest of the region is indirectly threatened as much of its trade with China is ultimately dependent on demand from the United States.



 

Foreign Exchange & Commodities – Greenback Awaiting Policy Clarity

 

We expect Trumponomics to keep the Dollar good, although great is not very likely, especially against reserve currencies such as the Yen, Swiss Franc and the Euro.

Key Points:

  • The unwinding of post-election US dollar strength appears mature but the US dollar will likely remain difficult to trade. The greenback’s struggle to rally was disappointing following the slightly hawkish rhetoric from Fed officials and a solid set of upside US data surprises. We expect the US dollar to move sideways until we see the greater details of the Trump fiscal plans.
  • Elsewhere, oil prices remain resilient despite continued high inventory levels and signs that non-OPEC production is already rising in response to the rebound in prices over the past year. This should limit the upside.
  • Oil prices have been surprisingly resilient in the face of two factors that threaten a reversal. First, inventories remain at unusually high levels, even as we start to come out of the winter season. Demand continues to grow at a steady pace around 2 per cent but it is not strong enough to make inroads into inventory levels.
  • Second, supply is quickly rebounding even though prices are still relatively subdued. The US rig count has almost doubled from the lows of May 2016 and production is already responding. Moreover, the Trump administration’s apparent determination to reduce environmental protection implies an increase in supply of both oil and other fossil fuels.
  • The combination of OPEC controls on excess supply and simultaneously the promise of non-OPEC production increasing as prices rise mean that oil prices could be set for a period of relative stability. It looks as though the longer-term equilibrium price where supply and demand is in balance is lower than previously thought. It is perhaps in the US$50-60 per barrel range, which implies prices should be stable around current levels.
  • European political risks (e.g. French elections) and uncertainty around US fiscal and economic policy under Trump have supported safe haven buying of gold. Safe-haven buying of gold can be strong during periods of geopolitical upheaval and policy uncertainty. The higher near-term gold price backdrop is consistent with our view of gold as a valid asset to hold as a diversifier and hedge.
  • The break of gold price above US$1,250 per ounce is bound to attract attention. The risk that market participants will have to play catch-up is increasing and this could extend the upside to gold. Stronger gold price is likely to attract interest out of China, where participants tend to buy into momentum. However, on a twelve month outlook, we are cautious on gold given the risk of a pullback as political risks subside and as Fed steps up rate hikes further out.



 

Bonds – Stay Positive High Yield Bonds

 

Valuations on High Yield bonds do not look compelling currently. However, in a reflationary environment, High Yield bonds should be better insulated from the adverse impact of higher rates.

Key Points:

  • U.S. bond yields have stalled as the market awaits more clarity on the direction of policy. The Fed seems likely to raise rates again by June, but uncertainty is greatest on fiscal policy where details of planned reforms are sparse.
  • We continue to expect the Fed to raise interest rates three times this year and another four in 2018. The economy is at full employment and inflation is only marginally below the 2 per cent target, so the Fed should be uncomfortable with interest rates around 2.5 per cent below neutral levels.
  • However, the minutes of the most recent Fed policy meeting suggests they are not worried about the risk of overshooting targets for unemployment and inflation. As such, gradual tightening still seems like the most likely scenario.
  • The minutes of the most recent policy meeting also show that the Fed is preparing for a formal discussion on shrinking its balance sheet – quantitative tightening. Initially this will happen by ending the reinvestment of proceeds from maturing bonds and it seems likely to start in 2018. A smaller Fed balance sheet implies a higher risk premium for US Treasuries and there is a risk that this has an impact akin to former Fed Chair Bernanke’s infamous “tapering” remark in May 2013.
  • Despite higher interest rates, we continue to see opportunities in bond markets. We stay positive on Developed Market and Emerging Market high yield bonds. The pick-up in growth bodes well for high yield bond issuers and if Trump were to enact his expansionary fiscal policies, it would be conducive for high yield bonds. Besides, oil prices are now less of a drag on the sector.
  • In the face of potentially improving fundamentals and a lower default rate, the downside for high yield looks limited - even as the Fed proceeds to raise rates - given the spread cushion it enjoys. High yield bonds still offers investor good carry to tide through this period of uncertainty.
  • Finally, we reiterate that there are three things to bear in mind when investing in bond markets to reduce risk. Firstly, given the potential for higher US interest rates, investors should focus on bonds with a shorter tenor as such bonds are less affected by higher interest rates compared to longer dated bonds. Secondly, consider investing in a portfolio of bonds through a unit trust rather than buying individual bonds as many individual bonds require a significant investment outlay and can expose investors to concentration risk. Finally, it is absolutely imperative to buy only into bonds with decent credit fundamentals to reduce default risk.



 

Equities – Cautious on Equities

 

Uncertainties surrounding Trump’s policies direction and impact, Fed rate hikes, political risk in the European region as well as extended valuations underpin the unattractive risk-reward profile for equities at this juncture.

Key Points:

  • Positive global growth momentum and hope of clearer US fiscal stimulus and tax reform plans continued to drive global equities higher in February. The first month of President Trump’s administration has been typified by drama in Washington. It remains to be seen how much longer the market’s patience last. In addition, the pace of Fed interest-rate normalisation is likely to pick up and political risk in Europe remains an issue. Coupled with extended valuations, risk-reward remains unattractive. Hence, we maintain our cautious stance on equities.
  • In the US, the stronger than expected quarterly earnings season has ignited 2017 earnings growth expectations. Looking ahead, the stronger US dollar, higher interest rates and tighter labour market suggest that corporate profit margins are unlikely to be sustained. Also, the intricacies and time involved in pushing through tax reforms means that the Trump reflation trade could lose steam. Nevertheless, given our overall cautious view on global equities, US equities remain more defensive on a relative basis.
  • In Europe, equities underperformed other regions as concerns with political risk re-merged with hustling of the French presidential election gaining momentum, even as uncertainty hangs over UK’s departure of the EU market. Although firmer economic growth on loose monetary policy and fiscal austerity is expected to provide a boost, consensus CY2017 earnings growth of 13.7 per cent remains optimistic. Meanwhile, risk of political contagion remains, given the busy political calendar. Hence, we remain cautious on European equities.
  • Japanese equities continued to mirror movements of the Yen. We maintain our view that a sustained re-rating of the market would require more meaningful structural reforms. After China, Japan accounts for a substantial share of the US trade deficit and is vulnerable to potential trade pressure. Near-term, the market would continue to be driven mainly by macro factors and movements of the Yen, which is expected to stay volatile. Valuations, however, are not cheap.
  • In Asia ex-Japan, Trump’s “America First” posture does not augur well for China and the region. While it would be highly negative for Asia’s growth if Trump pursues his anti-trade policies, investors seem surprisingly sanguine. Coupled with potential impact of faster-than-expected US interest-rate normalisation and currency vulnerability, we remain cautious on Asia Ex-Japan.



 

Important Information

 

Any opinions or views expressed in this material are those of the author and third parties identified, and not those of OCBC Bank (Malaysia) Berhad (“OCBC Bank”, which expression shall include OCBC Bank’s related companies or affiliates).

The information provided herein is intended for general circulation and/or discussion purposes only and does not contain a complete analysis of every material fact. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. Without prejudice to the generality of the foregoing, please seek advice from a financial adviser regarding the suitability of any investment product taking into account your specific investment objectives, financial situation or particular needs before you make a commitment to purchase the investment product.

In the event that you choose not to seek advice from a financial adviser, you should consider whether the product in question is suitable for you. This does not constitute an offer or solicitation to buy or sell or subscribe for any security or financial instrument or to enter into a transaction or to participate in any particular trading or investment strategy.

OCBC Bank, its related companies, their respective directors and/or employees (collectively ‘Related Persons’) may have positions in, and may effect transaction in the products mentioned herein. OCBC Bank may have alliances with the product providers, for which OCBC Bank may receive a fee. Product providers may also be Related Persons, who may be receiving fees from investors. OCBC Bank and the Related Person may also perform or seek to perform broking and other financial services for the product providers.

All information presented is subject to change without notice. OCBC Bank shall not be responsible or liable for any loss or damage whatsoever arising directly or indirectly howsoever in connection with or as a result of any person acting on any information provided herein. The information provided herein may contain projections or other forward-looking statements regarding future events or future performance of countries, assets, markets or companies. Actual events or results may differ materially. Past performance figures are not necessarily indicative of future or likely performance. Any reference to any specific company, financial product or asset class in whatever way is used for illustrative purposes only and does not constitute a recommendation on the same.

The contents hereof may not be reproduced or disseminated in whole or in part without OCBC Bank’s written consent.


 


The Reflationary Environment has Further to Go

 

We prefer high yielding bonds where higher income can provide a cushion against rising interest rates and heightened uncertainty.

s Given prevailing uncertainties and potential volatility ahead, asset allocation is key to navigating the markets.

A consolidation phase is probable following the earlier run-up, especially as risk assets seem over-extended in the aftermath of the U.S. election. We are not bearish on risk assets because the medium-term economic outlook remains moderately constructive with corporate margins improving.

On equities, we are still negative on Europe, Japan and Asia ex-Japan but neutral on the U.S. given its defensive traits.

On bonds, we remain positive on Emerging Market and Developed Market high yield.

Recommendations:

  • Unit Trust: Pacific Asian Income Fund (Risk rating: High)
    Eligibility: High Net Worth Investors Only
    This fund invests in a target fund, the Lion Capital Funds II – LION-BOS Asian Income Fund – MYR and is suitable for investors seeking capital growth and income in the medium to long term via a dynamic and flexible asset allocation strategy. Income would be derived from well diversified sources such as equity dividend, bond coupons and option premiums.
  • Unit Trust: Affin Hwang Select Income Fund (Risk rating: Moderate)
    Eligibility: Retail and High Net Worth Investors
    Suitable for investors seeking to invest in an income-driven, absolute return focused fund. This fund also targets to provide a high level of cash flow as well as growth by investing at least 70% of its NAV into fixed income instruments and a maximum of 30% NAV into equities globally with an Asian focus.
  • Unit Trust: RHB Asian Income Fund (Risk rating: Moderate)
    Eligibility: Retail and High Net Worth Investors
    This fund invests in one target fund, the Schroder Asian Income fund and is suitable for investors seeking income and capital growth over the medium- to long-term via an active allocation strategy. Exposure in Asia is opportunistic as we view Asia being in a relatively strong position with a high level of foreign reserves, limited external debt, undervalued exchange rates and plenty of policy flexibility.
  • Unit Trust: Affin Hwang Global Balanced Fund (Risk rating: Moderate)
    Eligibility: Retail and High Net Worth Investors
    Investors seeking capital growth opportunities through a portfolio of collective investment schemes with access into equities listed in global markets, fixed income instruments such as debt securities, money market instruments and fixed deposits, issued globally may consider this fund.

Top Investment Ideas are an expression of the investment outlook in this publication. They are not recommendations made in accordance with your investment objective and risk profile. As such, we recommend that you complete a suitability assessment before purchasing your selected investment product.



This document is not intended to constitute research analysis or recommendation and should not be treated as such.

We recommend that you read and understand the contents of the Information Memorandum for the Pacific Asian Income Fund dated 12 January 2017, by Pacific Mutual Fund Bhd. Investments in the Fund are exposed to market risk, target fund risk, currency risk, country/foreign securities risk, regulatory risk, external fund manager’s risk and others as disclosed in the Information Memorandum. This fund is eligible to be purchased by High Net Worth Individuals only, the criteria of High Net Worth Individuals as per stated in Schedules 6 and 7 of Capital Market and Services Act (CMSA) 2007.

We recommend that you read and understand the Master Prospectus for the Affin Hwang Select Income Fund dated 18 July 2016 and expires on 17 July 2017 by Affin Hwang Asset Management Bhd (formerly known as Hwang Investment Management Berhad). Investments in the Fund are exposed to specific risks including equity investment risk, equity-linked securities investment risk, credit/default risk, interest rate/price risk, structured products risk, country risk, currency risk, regulatory risk and others as disclosed in the prospectus.

We recommend that you read and understand the contents of the Master Prospectus for the RHB Asian Income Fund dated 6 October 2016 and expire on 5 October 2017, by RHB Asset Management Sdn Bhd. Investments in the Fund are exposed to management risk, liquidity risk, foreign investment risks such as currency risk and country risk and others as disclosed in the prospectus.

We recommend that you read and understand the contents of the Prospectus for the Affin Hwang Global Balanced Fund dated 1 September 2016 and expire on 31 August 2017, by Affin Hwang Asset Management Berhad. Investments in the Fund are exposed to collective investment schemes risk, credit and default risk, interest rate risk, currency risk, liquidity risk, related parties transaction risk, country risk and others as disclosed in the prospectus.

Product Risk Rating and Suitability Determination Matrix:

Product Risk Rating What this rating could mean to your principal amount Suitable for risk profiles:
Moderate Partial loss of full principal investment amount possible, total loss unlikely.
(‘Partial loss’ means the loss suffered by the investor can be up to 15% of the original investment principal)
  • Balanced
  • Growth
  • Aggressive
High Client may suffer substantial or 100% loss of principal investment amount.
(‘Substantial loss’ means the loss suffered by the investor can be more than 15% of the investment principal)
  • Growth
  • Aggressive


Unit Trust investments are not bank deposits and are not obligations of or guaranteed or insured by OCBC Bank (Malaysia) Berhad. Unit Trust investments are not guaranteed and are subject to investment risk unless otherwise specified. The investment risk includes general risks as described in the Information Memorandum/Prospectuses for Unit Trust investment funds (“Information Memorandum/Prospectuses”) and specific risks which may be different for each Unit Trust investment. Description of specific risks and general risks are published in the Information Memorandum/Prospectuses. With respect to Unit Trust investment, past performance is not indicative of future results; the net asset value can go up or down. Investors should also note that the net asset value per unit and distributions payable, if any, may go down as well as up.

Where unit trust loan financing is available, investors are advised to read and understand the contents of the unit trust loan financing risk disclosure statement before deciding to borrow to purchase units. Where a unit split/distribution is declared, investors are advised that following the issue of additional units/distribution, the NAV per unit will be reduced from pre-unit split NAV/cum-distribution NAV to post-unit split NAV/ex-distribution NAV; and where a unit split is declared, investors should be highlighted of the fact that the value of their investment in Malaysian ringgit will remain unchanged after the distribution of the additional units.

The Information Memorandum/Prospectuses have been registered with the Securities Commission Malaysia, which takes no responsibility for its content. A copy of the Information Memorandum/Prospectuses can be obtained at OCBC Bank’s branches. Units will only be issued upon the receipt of application form referred in, and accompanying the Information Memorandum/Prospectuses. Investors are advised to read and understand the contents of the Information Memorandum/Prospectuses, and if necessary consult their adviser(s), as well as consider the fees and charges involved before investing in the Unit Trust.

This document has been prepared without taking account of the objectives, financial situation or needs of any specific person or organisation who may receive this document. Accordingly prior to making an investment decision, you should conduct such investigation and analysis regarding the product described herein as you deem appropriate and to the extent you deem necessary obtain independent advice from competent legal, financial, tax, accounting and other professionals, to enable you to understand and recognise fully the legal, financial, tax and other risks arising in respect of the product and the purchase, holding and sale thereof.

You should obtain and read the Product Highlight Sheet of the product before you make a decision to acquire the product. All information provided in this document is general and does not take into account your individual objectives, financial situation or specific needs.

You are required to read and understand the terms and Product Highlight Sheet of the product carefully before executing any transaction relating to the product with us. You may request for a copy of the Product Highlight Sheet at OCBC Banks’ branches.

The information provided herein is intended for general circulation and/or discussion purposes only and does not contain a complete analysis of every material fact. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. Without prejudice to the generality of the foregoing, please seek advice from a financial adviser regarding the suitability of any investment product taking into account your specific investment objectives, financial situation or particular needs before you make a commitment to purchase the investment product.

In the event that you choose not to seek advice from a financial adviser, you should consider whether the product in question is suitable for you. This does not constitute an offer or solicitation to buy or sell or subscribe for any security or financial instrument or to enter into a transaction or to participate in any particular trading or investment strategy.

All information presented is subject to change without notice. OCBC Bank shall not be responsible or liable for any loss or damage whatsoever arising directly or indirectly howsoever in connection with or as a result of any person acting on any information provided herein. The information provided herein may contain projections or other forward looking statement regarding future events or future performance of countries, assets, markets or companies. Actual events or results may differ materially. Past performance figures are not necessarily indicative of future or likely performance. Any reference to any specific company, financial product or asset class in whatever way is used for illustrative purposes only and does not constitute a recommendation on the same.

OCBC Bank and its respective associated and connected corporations together with their respective directors and officers may have or take positions in any securities mentioned in this report (which positions may change from time to time without notice) and may also perform or seek to perform broking and other investment or securities related services for the corporations whose securities are mentioned in this report as well as other parties generally.

The contents hereof may not be reproduced or disseminated in whole or in part without OCBC Bank’s written consent.




Lai Mun Yew (Michael)
  Vice President, Research, Wealth Management, OCBC Bank (Malaysia) Berhad

 

Global Outlook – As Good As It Gets?

 

It looks hard for the recent growth surge to continue to accelerate while central banks in various developed markets are preparing to signal policy tightening. Optimism over reforms in the U.S. seems to have peaked.

Key Points:

  • The overall macroeconomic situation looks encouraging. Growth has improved, deflation risk has fallen and the need for emergency monetary policy has faded. However, this makes it hard to see where the next incremental positive surprise might come from and as a result, this might be as good as it gets.
  • Economic data has consistently surprised on the upside for several months, which has boosted investor confidence and supported strong corporate earnings upgrades over the past year. Yet, economic surprise indexes are at elevated levels and may moderate in the months ahead. This means that we could be near to a point of maximum optimism on macroeconomic drivers and we could see a pause in the recent acceleration.
  • In the U.S., measures of consumer and small business confidence are showing exceptional strength. However, optimism about the scale and timing of major economic policies from the Trump Administration is prone to disappointment. Overhauling the U.S. health care system has stalled. Enacting corporate tax reform and approving large-scale infrastructure programmes may run into hurdles given legislative and economic realities. An additional concern is that if Trump fails to move his economic agenda forward, then he might move backwards through the use of trade protectionism to distract attention from domestic difficulties.
  • In the Eurozone, it looks like 2017 could produce the strongest growth in a decade. The transmission of monetary policy has improved in response to a healthier financial system, which is supporting economic activity. Purchasing Manager Index (PMI) readings are showing the best business conditions since before the start of austerity programmes in 2011.
  • However, it might also be as good as it gets for European politics, as confidence grows that the French elections will not be disruptive. Before long, the focus will shift to Germany, and then to Italian elections which appear to involve far more hazards, with much greater support for anti-Euro parties.
  • In Japan, inflation is gradually starting to lift, and the Bank of Japan is expected to start to increase its target for 10-year bond yields in the second half of 2017 in response. Unfortunately, structural problems remain and reform is making only limited progress. Labour markets are very tight and would benefit from reform that improves flexibility and productivity, but this does not seem likely.
  • In China, a solid growth outlook for 2017 means that protectionism, rather than a burst of stress in the domestic financial system, is the greater threat to stability in China. So far, the Trump administration has been surprisingly quiet on trade relations with China, compared to its pre-election rhetoric, but America’s huge bilateral deficit means that tensions could easily surface.



 

Foreign Exchange & Commodities – U.S. Dollar Down but Not Out

 

The U.S. dollar is likely to increase gradually instead of a sharp rise, supported against a backdrop of strong US economy and further Fed tightening.

Key Points:

  • Markets are worried that Trump will keep struggling to get any of his agenda through Congress this year following his failure to pass this healthcare bill. This has dampened expectation about tax reforms and large-scale infrastructure programs. We think the de-pricing of the Trumpflation trade is already at a mature stage and continue to expect the U.S. dollar to be “not great, not bad but just good”.
  • Political risks in Europe seem to be abating and the PMI indicators surprised strongly to the upside, keeping European reflation in focus. If the French election tail risk is avoided, strengthening economic momentum suggests further upside potential for the Euro.
  • In the month that follows the Article 50 trigger, the EU will publish the “Brexit directives” that will set the tone for the EU negotiation. Markets will scrutinise the details to assess the probability that the trade negotiations could happen alongside the divorce deal (citizens’ rights, UK’s Brexit bill). It is likely that the EU will seek to limit initial talks to the latter. The market is pricing increasing probability of a Bank of England hike, which seems premature. With valuations for the currency extremely cheap and speculative positioning still short, there is a risk that Pound rallies become more frequent. But we still struggle to justify turning bullish on the Pound at above US$1.20.
  • Although political risk in Europe has receded following the first French presidential debate, hopes of a gradual Fed rate hike and worries over Trump policy delays have benefitted gold price. Gold's reaction thus far should help assert its role as a portfolio diversifier and this could gain further traction should the reflationary ‘Trump Trade’ stall further.
  • In March, concern over inventories and the supply discipline of OPEC producers sent oil prices lower, with speculative short positions increasing sharply. This is the type of moderate short-term volatility that we can expect as prices are constrained on the upside by the threat of output rising as more of the marginal producers become profitable. Meanwhile, prices are limited on the downside by OPEC controls on excess supply and inefficient producers being squeezed out of the market. It looks as though the longer-term equilibrium price where supply and demand is in balance is perhaps in the US$50-60 per barrel range, which implies prices should be relatively stable around current levels.



 

Bonds – Prefer High Yield Bonds

 

We prefer high yielding bonds where higher income can provide a cushion against rising interest rates and heightened uncertainty. High yield credit offers an interesting opportunity given the recent widening of credit spreads.

Key Points:

  • Stronger growth brings the prospect of monetary policy tightening. This is most apparent in the U.S. where we think the Fed is set to raise interest rates six more times by the end of 2018. However, it also applies to China, which is trying to cool down the housing market, and even to Europe and Japan which are likely to be signalling a shift in monetary policy before the end of 2017. In a year’s time, G3 monetary policy will still be very loose, but the lengthy era of zero interest rates and abundant liquidity is slowly drawing to a close.
  • There is the risk that an aggressive tax reform programme by the Trump administration may intensify concerns about overheating and drives the Fed to be more hawkish. However, the current political timetable implies that this is more likely to be an issue for 2018 rather than this year, and it is unclear whether tax reform will provide a significant fiscal boost. The collapse of healthcare reform suggests that the fiscal conservatives in the Republican Party could block policies that increase the budget deficit.
  • Despite the prospects for higher interest rates, we continue to be positive on high yield bonds. Bonds as an asset class arguably benefits more directly from strong underlying growth than equities. Equity markets have high growth expectations to live up to; bonds only have to remain creditworthy. That is much less of a challenge in a benign economic environment.
  • Valuations on both high yield and investment grade bonds currently are rich by historical standards. However, in a reflationary environment with higher rates, we believe that income from coupons will become an increasingly important component of total return. With its higher corporate spread component, high yield bonds should be somewhat better insulated from the adverse impact of higher rates. Furthermore, high yield bonds are better positioned to benefit from a decline in overall default rates in 2017 versus 2016.
  • Finally, we reiterate three key things to bear in mind when investing in bond markets to reduce risk. Firstly, given the potential for higher U.S. interest rates, investors should focus on bonds with a shorter tenor (preferably five years or less) as such bonds are less affected by higher interest rates compared with longer dated bonds. Secondly, consider investing in a portfolio of bonds through a unit trust rather than buying individual bonds as many individual bonds require a significant investment outlay and can expose investors to concentration risk. Finally, it is absolutely imperative to buy only into quality bonds with decent credit fundamentals to reduce default risk.



 

Equities – Is the Equity Rally Stalling?

 

With Trump approaching his first 100 days in office mark, the lack of concrete evidence on Trump’s ability to deliver on his promises and the failure of the Republicans to replace Obamacare are triggering fear that the reflationary trade might not materialise as easily as the market has come to expect since November.

Key Points:

  • Global equities had a more difficult month in March as doubts about Trump and the Republicans’ ability to push through reflationary and growth boosting policies brew. Investor sentiment continued to be underpinned by U.S. macro and political events. While the more dovish than expected Fed buoyed risk appetite, the Republicans’ failure to replace Obamacare dented confidence. It remains to be seen how much longer the market’s patience can last.
  • We remain cautious on equities given the concerns cited above and also because of the extended valuations and the unattractive risk-reward trade off. Regionally, we continue to prefer the U.S. for its relatively defensive traits, and stay cautious on Europe, Japan and Asia ex-Japan for now.
  • The Trump reflation trade will start to run out of steam unless there is clearer signs that Trump’s tax reform plans, a key component of his growth boosting agenda, remains on track. Fundamentally, a stronger U.S. dollar, higher interest rates and tighter labour market suggest that corporate profit margins are unlikely to be sustained going forward. Nevertheless, given our overall cautious view on global equities, U.S. equities remain more defensive on a relative basis.
  • Although firmer economic growth on loose monetary policy and fading fiscal austerity is expected to provide a boost in the Eurozone, consensus 2017 earnings growth of 16.1 per cent remains optimistic. At the same time, forward Price-to-Earnings (PE) valuation of 15.4 times, versus the 5-year historical average PE of 14.4 times, is not undemanding. Le Pen’s odds of winning declined but European political risks remain, especially given the busy political calendar ahead. For these reasons we remain cautious on European equities.
  • On Japanese equities, we maintain our view that a sustained re-rating of the market would require more meaningful structural reforms. After China, Japan accounts for a substantial share of U.S. trade deficit and is vulnerable to potential trade pressure. Near-term, the market would continue to be driven mainly by macro factors and movements of the Yen. Valuations, at forward PE of 15.8 times versus the 5-year historical average of 14.6 times, are not undemanding.
  • It would be highly negative for Asia’s growth if Trump pursues his anti-trade policies, but investors seem surprisingly sanguine. It remains to be seen if the failure in healthcare reforms would push the Trump administration to accelerate its tax reform agenda or pursue trade protectionism. Coupled with the potential impact of faster-than-expected U.S. interest-rate normalisation and currency vulnerability, we remain cautious on Asia Ex-Japan.



 

Important Information

 

Any opinions or views expressed in this material are those of the author and third parties identified, and not those of OCBC Bank (Malaysia) Berhad (“OCBC Bank”, which expression shall include OCBC Bank’s related companies or affiliates).

The information provided herein is intended for general circulation and/or discussion purposes only and does not contain a complete analysis of every material fact. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. Without prejudice to the generality of the foregoing, please seek advice from a financial adviser regarding the suitability of any investment product taking into account your specific investment objectives, financial situation or particular needs before you make a commitment to purchase the investment product.

In the event that you choose not to seek advice from a financial adviser, you should consider whether the product in question is suitable for you. This does not constitute an offer or solicitation to buy or sell or subscribe for any security or financial instrument or to enter into a transaction or to participate in any particular trading or investment strategy.

OCBC Bank, its related companies, their respective directors and/or employees (collectively ‘Related Persons’) may have positions in, and may effect transaction in the products mentioned herein. OCBC Bank may have alliances with the product providers, for which OCBC Bank may receive a fee. Product providers may also be Related Persons, who may be receiving fees from investors. OCBC Bank and the Related Person may also perform or seek to perform broking and other financial services for the product providers.

All information presented is subject to change without notice. OCBC Bank shall not be responsible or liable for any loss or damage whatsoever arising directly or indirectly howsoever in connection with or as a result of any person acting on any information provided herein. The information provided herein may contain projections or other forward-looking statements regarding future events or future performance of countries, assets, markets or companies. Actual events or results may differ materially. Past performance figures are not necessarily indicative of future or likely performance. Any reference to any specific company, financial product or asset class in whatever way is used for illustrative purposes only and does not constitute a recommendation on the same.

The contents hereof may not be reproduced or disseminated in whole or in part without OCBC Bank’s written consent.


 


Moderately Defensive, In Favour of High Yield Bonds

 

Growth is likely to moderate for the next few quarters; considering that valuations are stretched to the point where all the good news the market has to offer has been more or less priced in, we maintain our broadly cautious stance in equity markets.

Markets, which have been on the rise since November last year due to improving economic cycles, are now in a consolidation phase as the economic momentum moderates. Such an environment favours asset classes that offer income and rely less on growth acceleration, as equity start to moderate.

In anticipation of some market volatility, we maintain our moderately defensive investment stance, preferring high yield bonds as they offer higher returns.

We remain cautious on equities, focusing on high quality dividend plays to get additional returns in a sideways market.

By markets, we are still negative Japan and Asia ex-Japan but neutral on the U.S. and Europe.

On bonds, we remain positive on Emerging Market and Developed Market high yields.

Recommendations:

  • Unit Trust: Pacific Asian Income Fund (Risk rating: High)
    Eligibility: High Net Worth Investors Only
    This fund invests in a target fund, the Lion Capital Funds II – LION-BOS Asian Income Fund – MYR and is suitable for investors seeking capital growth and income in the medium to long term via a dynamic and flexible asset allocation strategy. Income would be derived from well diversified sources such as equity dividend, bond coupons and option premiums.
  • Unit Trust: Affin Hwang Select Income Fund (Risk rating: Moderate)
    Eligibility: Retail and High Net Worth Investors
    Suitable for investors seeking to invest in an income-driven, absolute return focused fund. This fund also targets to provide a high level of cash flow as well as growth by investing at least 70% of its NAV into fixed income instruments and a maximum of 30% NAV into equities globally with an Asian focus.
  • Unit Trust: RHB Asian Income Fund (Risk rating: Moderate)
    Eligibility: Retail and High Net Worth Investors
    This fund invests in one target fund, the Schroder Asian Income fund and is suitable for investors seeking income and capital growth over the medium- to long-term via an active allocation strategy. Exposure in Asia is opportunistic as we view Asia being in a relatively strong position with a high level of foreign reserves, limited external debt, undervalued exchange rates and plenty of policy flexibility.
  • Unit Trust: Affin Hwang Global Balanced Fund (Risk rating: Moderate)
    Eligibility: Retail and High Net Worth Investors
    Investors seeking capital growth opportunities through a portfolio of collective investment schemes with access into equities listed in global markets, fixed income instruments such as debt securities, money market instruments and fixed deposits, issued globally may consider this fund.

Top Investment Ideas are an expression of the investment outlook in this publication. They are not recommendations made in accordance with your investment objective and risk profile. As such, we recommend that you complete a suitability assessment before purchasing your selected investment product.



This document is not intended to constitute research analysis or recommendation and should not be treated as such.

We recommend that you read and understand the contents of the Information Memorandum for the Pacific Asian Income Fund dated 12 January 2017, by Pacific Mutual Fund Bhd. Investments in the Fund are exposed to market risk, target fund risk, currency risk, country/foreign securities risk, regulatory risk, external fund manager’s risk and others as disclosed in the Information Memorandum. This fund is eligible to be purchased by High Net Worth Individuals only, the criteria of High Net Worth Individuals as per stated in Schedules 6 and 7 of Capital Market and Services Act (CMSA) 2007.

We recommend that you read and understand the Master Prospectus for the Affin Hwang Select Income Fund dated 18 July 2016 and expires on 17 July 2017 by Affin Hwang Asset Management Bhd (formerly known as Hwang Investment Management Berhad). Investments in the Fund are exposed to specific risks including equity investment risk, equity-linked securities investment risk, credit/default risk, interest rate/price risk, structured products risk, country risk, currency risk, regulatory risk and others as disclosed in the prospectus.

We recommend that you read and understand the contents of the Master Prospectus for the RHB Asian Income Fund dated 6 October 2016 and expire on 5 October 2017, by RHB Asset Management Sdn Bhd. Investments in the Fund are exposed to management risk, liquidity risk, foreign investment risks such as currency risk and country risk and others as disclosed in the prospectus.

We recommend that you read and understand the contents of the Prospectus for the Affin Hwang Global Balanced Fund dated 1 September 2016 and expire on 31 August 2017, by Affin Hwang Asset Management Berhad. Investments in the Fund are exposed to collective investment schemes risk, credit and default risk, interest rate risk, currency risk, liquidity risk, related parties transaction risk, country risk and others as disclosed in the prospectus.

Product Risk Rating and Suitability Determination Matrix:

Product Risk Rating What this rating could mean to your principal amount Suitable for risk profiles:
Moderate Partial loss of full principal investment amount possible, total loss unlikely.
(‘Partial loss’ means the loss suffered by the investor can be up to 15% of the original investment principal)
  • Balanced
  • Growth
  • Aggressive
High Client may suffer substantial or 100% loss of principal investment amount.
(‘Substantial loss’ means the loss suffered by the investor can be more than 15% of the investment principal)
  • Growth
  • Aggressive


Unit Trust investments are not bank deposits and are not obligations of or guaranteed or insured by OCBC Bank (Malaysia) Berhad. Unit Trust investments are not guaranteed and are subject to investment risk unless otherwise specified. The investment risk includes general risks as described in the Information Memorandum/Prospectuses for Unit Trust investment funds (“Information Memorandum/Prospectuses”) and specific risks which may be different for each Unit Trust investment. Description of specific risks and general risks are published in the Information Memorandum/Prospectuses. With respect to Unit Trust investment, past performance is not indicative of future results; the net asset value can go up or down. Investors should also note that the net asset value per unit and distributions payable, if any, may go down as well as up.

Where unit trust loan financing is available, investors are advised to read and understand the contents of the unit trust loan financing risk disclosure statement before deciding to borrow to purchase units. Where a unit split/distribution is declared, investors are advised that following the issue of additional units/distribution, the NAV per unit will be reduced from pre-unit split NAV/cum-distribution NAV to post-unit split NAV/ex-distribution NAV; and where a unit split is declared, investors should be highlighted of the fact that the value of their investment in Malaysian ringgit will remain unchanged after the distribution of the additional units.

The Information Memorandum/Prospectuses have been registered with the Securities Commission Malaysia, which takes no responsibility for its content. A copy of the Information Memorandum/Prospectuses can be obtained at OCBC Bank’s branches. Units will only be issued upon the receipt of application form referred in, and accompanying the Information Memorandum/Prospectuses. Investors are advised to read and understand the contents of the Information Memorandum/Prospectuses, and if necessary consult their adviser(s), as well as consider the fees and charges involved before investing in the Unit Trust.

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Global Outlook – Economic Momentum is Slipping

 

We see early signs that economic momentum is slipping. The lack of progress on economic policy in the U.S. is more of a concern, where the first 100 days of the Trump presidency have not delivered much change and tax reform looks increasingly difficult.

Key Points:

  • Last month we asked if this was “as good as it gets?”. That concept has been supported by the softer flow of data and policy news. Any loss of momentum is unlikely to be very troubling, but it is increasingly difficult to see where the next piece of good news will come from.
  • The theme of “as good as it gets” extends to the policy arena, where hopes for significant economic reform in the U.S. has faded. On the monetary side, the Fed seems intent on tightening policy much faster than expected, while the ECB is also starting to look for an exit.
  • The hope was that the first 100 days of the Trump presidency would offer some clarity on policy priorities. Unfortunately, despite all of the political activity and controversy, we have not learned very much about the plans for economic policy.
  • Japan has mirrored the rest of the Asian region – indeed, the world – in seeing a pick-up in trade flows and business confidence over the past six months. This was pointing towards higher inflation and the Bank of Japan starting to raise its target for 10-year bond yields in 2H2017, but that seems likely to be delayed after the recent spike in the exchange rate.
  • Structural problems remain in Japan and reform is making only limited progress. Labour markets are very tight and would benefit from reform that improves flexibility and productivity, but this does not seem likely.
  • China’s economy recorded impressively rapid growth in 1Q2017, with GDP up 6.9 per cent and the strongest industrial production growth since 2014. This fits with the “as good as it gets” outlook for the world economy, with policy tightening likely to produce a moderate slowdown as the year develops.
  • China’s huge trade surplus with the U.S. implies a persistent risk of trade friction. So far, the Trump administration has been surprisingly quiet on trade relations, compared to its pre-election rhetoric, highlighted by declining to label China a currency manipulator. However, there is low confidence that this will continue.
  • The European economy is looking similar to the performance seen in the U.S. earlier in the cycle. Growth is solid, unemployment is falling, credit transmission is improving, but underlying inflation is still very subdued. This creates a challenge for the central bank in terms of judging how long to wait before starting to cut back on monetary support.
  • Elsewhere, most emerging markets continue to look healthy, buoyed by the pick-up in global trade and commodity prices as well as the domestic policy improvements of the past few years.
  • We can expect pressure on some deficit countries in emerging markets as U.S. interest rates continue to rise and the cost of attracting capital becomes more expensive, but this does not seem likely to become a systemic problem.



 

Foreign Exchange & Commodities – Don’t Write Off the U.S. Dollar

 

It is too early to discard the likelihood of tax reform arising again. If it does, it could include some fiscal stimulus. The markets also seem too dovish on Fed rate hikes and the extent of its balance sheet normalisation. As such, the current low levels present an opportunity to build up positions in the greenback.

Key Points:

  • Political gridlock in Washington has fuelled pessimism over the highly anticipated U.S. tax reform. This, along with the perception that the U.S. economy is weakening, have weighed on the U.S. Dollar.
  • We are in one of those many mini-periods where political noise and risk temporarily trump economic signals. Amid worries over under-delivery of fiscal stimulus in the U.S., French presidential election jitters and tensions in the Korean peninsula, there has been a lack of clear U.S. dollar trend recently. Political noise should not be ignored but, most of the time, will fade sooner than later. Our approach to FX positioning is almost always to focus on the economic fundamentals.
  • It is too early write-off the greenback. Tax reform in the U.S. does still seem likely to return and may involve some element of fiscal stimulus. The interest rates market is also pricing too little in terms of Fed rate hike and the extent of Fed balance sheet normalisation in our view, particularly if fiscal reforms go ahead. The well-known seasonal adjustment bias in the US GDP data has resulted in weak 1Q2017 US GDP growth. But we have seen this move before as growth picks up anew in in the second quarter.
  • Political events have also taken centre-stage in the U.K. with Prime Minister May calling for early elections on 8 June. The initial bullish reaction of the Pound to an early U.K. election seems overdone. It is not clear that early elections will lead to softer Brexit stance or make the EU give the UK a better Brexit deal. We wouldn’t chase the Pound rally.
  • In Europe, the Eurozone’s improving economic fundamentals strengthens our conviction that the downtrend in Euro is gradually turning as European Central Bank comes under pressure to exit from extremely accommodative stance of monetary policy.
  • In commodity markets, gold remains a valid asset to hold against political and macro uncertainties. Jitters over geopolitical escalation in North Korea, worries over flagging U.S. economic growth and rich U.S. stock market valuation should keep gold prices supported in the near-term. However, in the medium term, real U.S. interest rates could firm back up, which once again could be gold negative.
  • In the oil markets, OPEC’s efforts appear to have put a floor under prices, but they face the headwind from rising U.S. output, which is adding to already-high inventory levels. The U.S. rig count has more than doubled from the lows of April 2016 as enough producers find it profitable to drill at current prices and output is already recovering.
  • Short-term volatility is inevitable, but oil prices are constrained on the upside by the threat of output rising as more of the marginal producers become profitable. Meanwhile, prices are limited on the downside by OPEC controls on excess supply and inefficient producers being squeezed out of the market. It looks as though the longer-term equilibrium price where supply and demand is in balance is perhaps in the US$50-60 per barrel range, which implies prices should be relatively stable around current levels.