With a recovering global economy, investors should be looking at “vaccine winners” - companies that are expected to recover once a vaccine is found - to invest in.
This was just one of the insights that DBS released in their 4Q Investment Outlook report, in addition to how to build a portfolio to take advantage of the recovering economy.
In a briefing on Oct 1, DBS Chief Investment Officer Hou Wey Fook cited mobility data from Apple and Google and said this is a sign that the world is “normalising”, and therefore, a good sign for consumption looking forward.
Despite many countries around the world experiencing a second wave of infections as lockdowns were lifted, Hou noted that there were lower fatalities rates and more successful attempts at “flattening the curve”, and as such, he does not believe that the world will undergo another blanket lockdown like what we saw in the first half of the year.
Coupled with “easy” monetary policies and fiscal spending by governments, and Hou believes that this has “put a floor” to risk assets in 2Q, and are now translating into economic recovery.
This is reflected in the expansion of the global manufacturing sector with new orders at its steepest since mid-2018. Improvement in the labour market, however, will take longer as traditional business models will be undergoing restructuring, in response to the world’s new normal.
For investors, Hou advises that they stay invested in secular growth equities, income-generating assets, and gold in this new digital world, amid an ultra-low interest rate environment.
Furthermore, given the positive developments in the race to discover a vaccine, he believes that “pandemic victims” like hotels, restaurants, integrated resorts, and beauty industry equities for potential reversion to the mean. In his report, he pointed out that these pandemic victims are currently trading at about -2 Standard Deviation.
However, he does caution against sectors like the aviation industry, despite it trading at a very bearish -4 SD, Hou said recovery “will be a little bit longer” than the previous mentioned sectors.
As for credits, Hou said BBB/BB-rated bonds in Asia and Europe are expected to outperform. In a world where central banks have anchored rates at zero, credit yield spreads would continue to narrow and he thinks that investors should maintain an average portfolio duration of 5 years.
Most notably, Hou is very optimistic on gold as a “risk diversifier” and said the low interest rate environment will benefit gold investors.
He is going as far as to call the growth potential of gold as “infinite”, and that “the sky's the limit for the gold”. This is because unlike industrial metals and like agricultural soft commodities - even if gold prices surge to goes to three, four, five, or even US$10,000? - central banks and governments won’t intervene.
“This is because it has no impact on the mass population, it doesn't create inflation. So that's why we think gold is very important, I would say, holding in your overall portfolio,” says Hou
