4Q21 Outlook: Stay the Course

DBS CIO Hou Wey Fook shares how to position your portfolio when the Fed will begin its QE tapering plans sooner rather than later
Chief Investment Office08 Oct 2021
Photo credit: AFP Photo

Dear valued clients,

Risk assets of equities and high yield bonds continued to grind higher in the third quarter of the year, despite the Federal Reserve’s intent to taper its quantitative easing (QE) policy.

Thus far, the Fed’s USD120b monthly purchase of government securities has been an effective tool in supporting the economy against the pandemic storm. Now, with growth normalizing on the back of US and European economies reopening, will the QE taper lead to a tantrum in financial markets?

You may recall in the 2013 QE taper that panic ensued, leading to heightened market volatility. This time around, we believe the Fed will be very deliberate in communicating their intent and roadmap, and financial markets will be on stronger footing amid a continued zero-bound rate policy stance.

During the quarter, we also noted China’s regulatory tightening on the tutoring, property, and gaming sectors that led to a large sell down. We remain hopeful as China has solid long-term economic fundamentals and its stock market has corrected to attractive GARP (Growth-At-Reasonable-Price) valuations.

We continue to advocate that your portfolios stay invested. Our Barbell Strategy comprising overweight positions in secular growth equities and income-generating assets has a proven track record, and we are convinced that such a portfolio is well positioned to outperform going forward. In this quarterly publication, we also feature Treasury Inflation-Protected Securities to provide a deeper understanding of this instrument.

Do enjoy the read. 

Hou Wey Fook 

Chief Investment Officer

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