CIO Insights 4Q24: In a Sweet Spot
As the Fed continues to cut rates, Chief Investment Officer Hou Wey Fook foresees a soft landing that is constructive for risk assets
Chief Investment Office30 Sep 2024
  • The Fed shifts its policy towards lowering rates; soft landing likely with bumper 50 bps rate cut
  • Bull market in equities to continue, with a broadening to laggard sectors
  • Shift out of cash instruments to IG bonds with average 5-7Y duration and average BBB credit rating
  • Gold, hedge funds, and private assets are a source of additional non-market directional returns
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Dear valued clients,

In the two quarters leading up to now, we have expounded our case that risk assets were in play. Going into 4Q, risk assets should remain in a sweet spot as the surprise 50 bps rate cut will increase the odds of a soft landing.

Since then, bond and equity indices have trended upwards. More recently within equities, non-tech laggard sectors have started to outperform US Tech. Notwithstanding this, we stay convinced of our longer-term “barbell” strategy comprising secular growth equities on one end and income generating assets on the other.

Even with the recent moves, Big Tech continues to shine in the growth end of our portfolio. Unlike the dot-com boom during the 1990s, the AI revolution today is being funded by free cash flow rather than debt. This is clearly demonstrated in the hyperscaler companies of Alphabet, Amazon, Meta, and Microsoft, which remain flush with cash from their well-established and profitable businesses – and we maintain that the AI revolution is in its infancy and holds immense growth potential.

On the broadening theme, we like ASEAN equities as they will be a beneficiary of lower rates and a weaker US dollar. While they have been laggards for several years, it is now time for ASEAN equities to shine.

On the income end of the portfolio, longer-duration, investment-grade bonds will provide constant cash flow, with potential for capital gains as the Fed embarks on monetary easing. We also go overweight on Singapore REITs for their attractive valuation and sound financial metrics.

Last but not least, alternatives will continue to feature in our portfolio as gold, hedge funds, and private assets offer a non-correlating source of returns, or alpha.

Do enjoy the read, and I wish you a fruitful final quarter of investing.

Hou Wey Fook, CFA
Chief Investment Officer



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