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CIO Insights 1Q25: Game Changers

The Value in Bitcoin Volatility

Trump 2.0 – Winners & Losers

Credit: Soft-Landing Until Proven Otherw

Credit:Soft-Landing Until Proven Otherwise

The ASEAN Portfolio

CIO Industry Guide: November 2024

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Navigating obstacles and isolated opportunities as the world retreats into de-globalisation

Thematic Strategy 4Q24: The ASEAN Portfolio

The post-pandemic world has brought elements investors had not previously considered. Geopolitical unrest and protectionist policies are disrupting the global economy, fragmenting trade networks, regulatory environments, and global supply chains.
<ul style="list-style-type: square;">
<li style="text-align: justify;">China+1 presents opportunities for various sectors to move up the value chain which continues to benefit ASEAN</li>
<li style="text-align: justify;">Investment landscape is becoming increasingly collaborative</li>
<li style="text-align: justify;">Access to critical materials, proximity to low-cost manufacturing and suppliers, and concerted efforts in energy transition are critical for long-term growth</li>
</ul>
Figure 1: ASEAN-6 economies sustain strong growth momentum
<img src="/iwov-resources/aics/images/AICS/CIOweb/202410/CIOInsights4Q24_ASEANFig1.jpg" alt="" width="615" height="341" /> 
Source: IMF, DBS Download the PDF to read the full Thematic Strategy report. Click <a href="../102024/CIOInsights4Q24.xml"> here </a>for the full 4Q24 CIO Insights publication.

We look at how the space economy has evolved, which companies are ready for take-off, and why a future in space is the new reality for humanity

Space – The Next Frontier

To Infinity and Beyond
Mankind&rsquo;s fascination with space dates back centuries, but recent decades have seen a remarkable advancement in space exploration. The entry of private companies (such as the likes of SpaceX, Blue Origin, and Virgin Galactic) have infused new dynamism into the space industry, propelling technological advancements and reducing costs through innovation and competition.
In this publication, we take a deep dive into the following:
<ul>
<li style="text-align: justify;">The space economy and how it is driven by commercialisation</li>
<li style="text-align: justify;">How cost reduction has played a part in the rise of reusable rockets and smaller satellites</li>
<li style="text-align: justify;">Societal benefits of a flourishing space economy</li>
<li style="text-align: justify;">Investment themes and key players in the space economy</li>
</ul>
We believe that established industry players that build on the legacy of innovation in aerospace and new entrants that leverage on cutting-edge technology and visionary approaches will redefine the boundaries of space exploration. Download the PDF to read the full report.

In an ever-evolving market, companies that resonate with a "quiet luxury" ethos demonstrate superior financials

Thematic Strategy 1Q24: Quiet Luxury

Mindsets shift with a growing focus on sustainability and conscious consumerism. This has manifested in the growing popularity of understated opulence, better known as &lsquo;Quiet Luxury&rsquo;, where consumers partake in mindful choices that are timeless yet sophisticated.
<ul>
<li style="text-align: justify;">Subtle displays of wealth are fast gaining prominence amid growing social divides and the desire for exclusivity</li>
<li style="text-align: justify;">The rise of quiet luxury reflects a changing consumer mindset &mdash; one that values subtlety, authenticity, and a deeper connection to products</li>
<li style="text-align: justify;">Change is underway in the realms of horology, perfumery, and gastronomy, reflecting a broader shift in consumer values and preferences</li>
<li style="text-align: justify;">Brands that resonate with the quiet luxury ethos not only cater to a discerning clientele, but also demonstrate superior profitability in an ever-evolving market</li>
</ul>
 
Figure 1: A widening social divide - Ever-increasing gap in wealth disparity since the 1970s
<img src="/iwov-resources/aics/images/AICS/CIOweb/202312/CIOInsights1Q24_LuxuryFig1.jpg" alt="" />
Source: Bloomberg, DBS
&nbsp;
&nbsp;
<div>Download the PDF to read the full Quiet Luxury report.</div>
<div>Click&nbsp;<a href="../122023/CIOInsights1Q24.xml">here</a>&nbsp;for the full 1Q24 CIO Insights publication.</div>

Persistent demand for resilient and adaptable infrastructure to keep up with 21st century challenges

Thematic Strategy 1Q24: Next Generation Infrastructure

Demand for next generation infrastructure to persist as the world races to keep ahead of climate crises, demographic shifts, cyberattacks and supply chain upheaval. This presents attractive opportunities to deploy capital towards building future-proof infrastructure assets.
<ul>
<li style="text-align: justify;">A shift to cleaner energy sources creates opportunities to invest in renewable energy generation, grid networks for distribution, energy storage solutions, and new mobility solutions</li>
<li style="text-align: justify;">Widespread adoption of cloud services will drive the demand for data centres, reliable cloud networks, and their surrounding ecosystems</li>
<li style="text-align: justify;">Global trends in reshoring to increase demand for transport and logistics infrastructure</li>
<li style="text-align: justify;">Investments in infrastructure are generally long-term commitments, backed by real assets, and generally offer protection against inflation</li>
<li style="text-align: justify;">Investors seeking exposure to infrastructure would do well to understand the nuances of different infrastructure strategies; assets with more core-like characteristics offer persistent demand and stable cash flows across economic cycles </li>
</ul>
Figure 1: The world faces a cumulative USD15t infrastructure gap
<img src="/iwov-resources/aics/images/AICS/CIOweb/202312/CIOInsights1Q24_InfrastructureFig1.jpg" alt="" />
Source: Global Infrastructure Hub, DBS
&nbsp;
&nbsp;
<div>Download the PDF to read the full&nbsp;Infrastructure report.</div>
<div>Click&nbsp;<a href="../122023/CIOInsights1Q24.xml">here</a>&nbsp;for the full 1Q24 CIO Insights publication.</div>

We cut through buzzwords, hype, and hyperbole surrounding the AI craze to decipher what it means and how investors can benefit

Into the AI Frontier

AI's Coming of Age
In 1950, Alan Turing &ndash; the founding father of modern cognitive science &ndash; devised the &ldquo;Turing test&rdquo; to evaluate a machine&rsquo;s ability to exhibit intelligent behaviour. For more than 70 years, this remained within the realm of science fiction; but today, Artificial Intelligence (AI) has finally made its definitive transition into reality. 2022 would be remembered as the year that machines successfully conquered Turing&rsquo;s imitation game &ndash; with (i) Google&rsquo;s LaMDA being claimed to be &ldquo;sentient&rdquo; by one of its engineers, and (ii) OpenAI&rsquo;s ChatGPT taking the world by storm with its human-like natural language outputs.
Exponential Growth Ahead
AI&rsquo;s revenue potential is projected to grow rapidly over the next decade. Back in 2021, Fortune Business Insights had already estimated that the Global AI market size would grow at a CAGR of 40% to reach USD360.4b by 2028. Considering these projections were made even before the meteoric rise of ChatGPT and the recent quantum leaps in AI technology, they would most likely be considered conservative by today&rsquo;s standards. All this to say, the total addressable market for AI is more than likely to grow at breakneck speed moving forward.
In this publication, we take a deep dive into the following:
<ul>
<li style="text-align: justify;">Understanding the AI "Toolbox"</li>
<li style="text-align: justify;">Generative AI - The Rising Star</li>
<li style="text-align: justify;">How does Generative AI Learn?</li>
<li style="text-align: justify;">Cognitive AI - Mixing Man and Machine</li>
<li style="text-align: justify;">Macro Impact of AI</li>
<li style="text-align: justify;">Industries Affected &amp; Business Applications</li>
<li style="text-align: justify;">Investment Expressions</li>
</ul>
With such ground-breaking disruption coming at us at breakneck speed, we believe there is no better time to start preparing for the future of AI than now. Download the PDF to read the full report.

With India and China now contributing a quarter of global economic activity and more than a third of the world's population, their growth potential surely cannot be ignored

Jewels of India and China

Cradles of civilisation. Pioneers of groundbreaking technologies. Modern day economic marvels. These accolades come to mind when we consider - by many metrics - the meteoric rise of India and China. The strength of their economies might have ebbed and flowed over time, but in this decade, they have emerged as two of the most significant players in the global economy, possessing trump cards that make them a force to reckon with. In this publication, we look into their demographic, economic, and geopolitical drivers, to identify winners within these markets, or what we term, the &lsquo;Jewels of India and China&rsquo;.&nbsp; India&rsquo;s Sectoral Jewels
<ul style="list-style-type: square;">
<li>IT services &ndash; A growth powerhouse in a digital era</li>
<li>Banking &ndash; Vast untapped potential</li>
<li>Consumer staples &ndash; A demographic play</li>
<li>Pharmaceuticals &ndash; Regulatory tailwinds abound</li>
</ul>
 China&rsquo;s Sectoral Jewels
<ul style="list-style-type: square;">
<li>Digital economy &ndash; Winning the digital arms race</li>
<li>Consumer discretionary &ndash; Multiple dimensions of growth</li>
<li>Banking &ndash; Growing affluence</li>
</ul>
<div style="text-align: justify;">Beyond these sectors, there are also opportunities to be unearthed in India and China's debt and private asset markets. Several long-standing macro trends appear favourable for debt in both India and China. Although India and China local currency bond markets are still in the early stage of development, we believe bond investors should keep a pulse on these markets for future consideration in alpha generation. Meanwhile, with their vibrant talent pools and innovative culture, India and China are both hosts to thriving ecosystems of emerging technologies and new businesses, and we expect to see the landscape for private asset investing in the region develop and flourish in the coming decade. Download the PDF to read the full report.</div>

Focus on quality plays and stay with industry leaders

Luxury Still Reigns Supreme 

Sectoral call on luxury playing out as high-end spending remains resilient. On the back of secular trends of rising affluence and consumerism, we had earlier identified the global luxury goods sector as a winner for the 21st century. Today, although dampening consumption, growth headwinds and economic challenges cloud the near-term horizon, this has not dulled the sector&rsquo;s outlook. In fact, this challenging climate has allowed leading brands to distinguish their performance as evidenced through their brand loyalty, superior pricing power, and resilient demand through economic cycles.
Indeed, the luxury sector has widened its lead in a macroeconomic environment that has otherwise proven challenging for investors. To illustrate, the European luxury index widened its outperformance over global equities by more than 20% year-to-date (YTD), with luxury powerhouse LVMH making headlines by becoming the first European company to break USD500b in market capitalisation. Other luxury bellwethers have also displayed outstanding performance, driven by strong sales especially in Europe and Asia.
Risks to the sector include a slowdown in consumption given the challenging macro environment, especially in the US. There are also uncertainties regarding sentiment in China as the society emerges from months of prolonged, stringent lockdowns. Nonetheless, we remain optimistic regarding the gradual return of Chinese tourists to global luxury retail and China&rsquo;s continued role as the world&rsquo;s consumption engine. Furthermore, should a slowdown ensue, the most established brands catering to the most exclusive echelons of consumers are generally insulated and able to best defend their margins, boding well for the owners of top brands. On the flipside, companies concentrated on specific brands which are still subject to execution risk could face challenges.
We reiterate our strategy to focus on high quality companies. The outperformance of the sector has been backed by strong organic sales growth, demonstrating the ability of distinguished brands to entice consumers through economic cycles. Stay with industry leaders given brand polarisation that favours the most established, exclusive brands.
Figure 1: Luxury sector widening its lead since the start of 2023
<img src="/iwov-resources/aics/images/AICS/CIOweb/202304/230427CIOP2Fig1.jpg" alt="" /> 
Source: Bloomberg, DBS
&nbsp;
Download the PDF to read the report.&nbsp;

We reaffirm our conviction in cybersecurity as a growth theme

Thematic Strategy 2Q23: Cybersecurity - Opportunity Amid Danger

In part two of our cybersecurity deep-dive, we determine the costs of cyberattacks and where the growth areas lie. We look at large technology players that are making strategic acquisitions of smaller firms for their specific expertise, and consider APAC which promises to be the next growth region for the sector.
<ul>
<li style="text-align: justify;">Expectations of cyberattacks are increasing as corporate executives brace for a surge in hacking and cybersecurity breaches</li>
<li style="text-align: justify;">Healthcare and financial sectors have been among the hardest hit, experiencing the highest cost per data breach compared to other sectors</li>
<li style="text-align: justify;">Higher spending will be allocated to the following key areas: 1) endpoint &amp; network security, 2) identity &amp; access management, and 3) application &amp; data protection with overall emphasis on Cloud security</li>
<li style="text-align: justify;">AI provides some viable solutions to identify cyber threats though there is a long runway to achieve optimal implementation levels</li>
<li style="text-align: justify;">Growth opportunities abound for the sector as the demand for cybersecurity become commonplace, and we expect disproportionate amounts of corporate spending on Cloud and IT infrastructure</li>
</ul>
<img src="/iwov-resources/aics/images/AICS/CIOweb/202303/CIOInsights2Q23_CybersecurityFig1.JPG" alt="" width="1083" height="544" /> 
<div>Download the PDF to read the full&nbsp;Cybersecurity&nbsp;report. Click <a href="CIOInsights2Q23.xml">here</a>&nbsp;for the full 2Q23 CIO Insights publication.</div>

Thematics

Space economy reaches for the stars with robust growth trajectory backed by innovation and competition

Thematic Strategy 3Q24: The Next Frontier

Big Tech's outperformance is rooted in superior revenue and earnings growth

Thematic Strategy 2Q24: Big Tech's New Paradigm

We look beyond the surface of the aesthetic, identifying the undercurrents driving the re-emergence of stealth wealth and what it means for investors

Luxury, Redefined

Explore long-term investment opportunities in Big Tech, Hardware Manufacturers, Cloud Platforms, and Cybersecurity

Thematic Strategy 3Q23: Artificial Intelligence

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Stay up to date with our comprehensive coverage of global industries

<div style="text-align: justify;">Trump's presidency forms the backdrop of this issue of the CIO Industry Guide.</div>
 
Trump 2.0
Lower taxation and deregulation to benefit energy and financials while placing pressure on domestic retailers as potential tariffs hikes lead to higher import costs.
Earnings Beat
Communication services, technology, and healthcare posted highest earnings beats in recent reporting season; S&amp;P 500 poised for robust earnings growth of c.13% in 2025.
Winning Streak
Fund flows into tech stay robust amid strong interest in artificial intelligence plays. Financials and consumer discretionary have also attracted significant inflows, ranking just behind tech.
Mixed Messaging
<div style="text-align: justify;">US economic resilience and upcoming festive season serve as tailwinds for consumption and tourism plays, but mixed macro outlook for China fuzzies the picture. Download the PDF to read the full report.</div>

Current AI training is aimed at meeting the growing demand for AI-driven solutions by end customers

Global Data Centres: AI Inferencing to Drive Next Leg of Growth

AI inferencing to reshape data centre power use and infrastructure. Schneider projects that data centre power consumption will increase from 57GW in 2023 to 93GW by 2028 at 10% CAGR. This will be driven by AI power usage, expected to grow from 4.5GW to 14-19GW at a 25-33% CAGR over the same period. Currently, 35-40% of AI computing goes to inference and 60-65% to training. The training of AI models today will be crucial to fulfill AI inferencing, which is expected to rise to 75-80% of AI workload due to real-time large-scale usage across billions of devices. Edge data centres, which are closer to the end customers, are increasingly used for inferencing due to lower latency on higher bandwidth. Additionally, hybrid data centres, where one centre handles large language model (LLM) training and another focuses on model inferencing, will become the next area of growth. This dual-structure approach will enhance efficiency, catering for the growing energy demands and computational needs of AI deployment. However, AI-ready data centres will require larger cooling systems to support higher power density (5-15x higher than traditional data centres) and predictive maintenance systems.
3Q24 results show strong adj EBITDA improvements. In 3Q24, US data centre players registered an average 11%-12% y/y growth in adj EBITDA, surpassing consensus estimates. These players have projected 7-11% growth in adj EBITDA for FY2024, compared with 7-12% growth rate guided by Chinese operators, supported by bottoming-out of wholesale data-centre pricing in China and the emergence of AI-led demand. Meanwhile, Chinese AI firms are also capitalising on generative AI demand and developing new AI-embedded chips with potential clients to address the issue of chip shortages. US data centre operators have mentioned that about 50% of overall bookings came from AI in 3Q24 and highlighted that currently, training workloads have been dominating total kilowatts leased. This offers tremendous new opportunities as customers moved through the stages of AI adoption at a much faster pace in 3Q24. Equinix raised its FY24F adjusted EBITDA guidance slightly by 0.3% while Digital Realty raised the lower end of the FY24F adjusted EBITDA guidance by 4%, guiding for an overall growth rate of 6-8%.
Prefer data centre players for growth, rising capex may cap dividends going forward. We prefer operators with strong balance sheets who can fund the remodeling of existing data centres to fulfill the rising demand for inferencing. Owing to rising capex requirement, the 100% payout ratios (on adjusted fund flows) among industry leaders will have to be toned down. In this backdrop, we see a five-to-seven-year cycle of higher revenue growth and lower free cash flow in the data centre sector. We prefer players who can raise funds via assert-sale, equity and debt issuances to invest in the next leg of AI-ready data centres.
Figure 1: Data centres and AI power consumption <img src="/iwov-resources/aics/images/AICS/CIOweb/202411/241113CIOPFig1.jpg" alt="" width="1444" height="581" />
 Source: Schneider, DBS 
 Download the PDF to read the full report.

US oil majors and shale plays to continue to see upside in volume growth starting next year

Global Oil and Gas: Election Results May Boost US Plays

Oil prices taking a dip but should bounce off recent lows. Brent crude oil prices have fallen more than 15% since start of 3Q24 to recent lows of around USD70/bbl, compared to an average of USD85.0/bbl in 2Q24. The recent weakness was driven by rising demand risks, and the risk of a full-blown crisis in the Middle East has been averted so far. Iran and Israel have deployed limited strike options against each other, averting further damage on energy infrastructure. Meanwhile, negative demand trends from China, tepid demand in US and other developed economies and the spectre of looming production increase from OPEC+ have kept a lid on oil price trends. We have recently lowered our average base-case Brent crude oil price forecast to USD77-82/bbl in 2024 and USD70-75/bbl in 2025, from USD80-85/bbl and USD72-77/bbl earlier, given the prevailing demand risks. However, at USD70/bbl, oil prices look oversold and hence there is room for a bounce back.
A Trump win could boost US oil and gas share prices. The US Presidential race has been too close to call for some time. In the event of a Trump victory, we believe sentiment for US oil and gas stocks could see a near term uplift. Separately, US shale oil production is not as dependent on politics as much as market factors, with production increasing sharply under Biden&rsquo;s administration. On the gas front, the ban on export terminals may be lifted and higher export volume should be beneficial for shale gas producers, both from a volume and price perspective. Diplomatic efforts behind the scenes have possibly reined in Israel&rsquo;s attacks on Iran and reciprocal actions, ahead of the US elections. However, once the elections are over, the possibility of geopolitical risks resurfacing cannot be ruled out entirely as Israel remains on the offensive in the Gaza theatre as well as in Lebanon and Iran, with no signs of a ceasefire yet.
Oil and gas share prices have moderated since 2Q24, better entry points now. Overall, we believe market pessimism may be unwarranted at USD70/bbl oil levels. Recent stimulus measures rolled out by the Chinese government could mean a better 2025 for Chinese oil demand. In addition, OPEC+ retains the flexibility to stabilise markets and thus we expect reasonable support for oil prices in near term, with potential further Fed rate cuts and a weaker US dollar on the horizon. US oil and gas plays have since given off much of the gains for the year, down around 18% on average from the highs in April. Thus, current levels seem a safe bet to accumulate names like ExxonMobil, Chevron, ConocoPhillips or EOG Resources. We believe US oil majors and shale plays will continue to see upside from both organic and inorganic volume growth starting next year.
Figure 1: US shale plays have moderated after a strong start to the year <img src="/iwov-resources/aics/images/AICS/CIOweb/202411/241106CIOPFig1.jpg" alt="" width="1444" height="581" />
 Source: Bloomberg, DBS 
 Download the PDF to read the full report.

We favour a selective approach and companies with strong underwriting growth

Global Insurers: Steer Towards Growth Driven by Trump 2.0

Trump&rsquo;s presidency favours life insurers. With Donald Trump&rsquo;s second term in office, we expect rising interest rates and inflation, driven by his aggressive trade policies and increased pressure on European defence spending. These macroeconomic shifts are likely to have mixed implications for global insurers. For life insurers, a higher-for-longer interest rate environment is expected to provide some tailwinds. Rising yields on 10-year government bonds across major markets should support the sale of savings and investment-linked products and enhance recurring investment yields of insurers. Life insurance claims are less sensitive to inflationary pressures as life policies typically have longer durations and more stable claims patterns. Property and casualty (P&amp;C) insurers are likely to face greater challenges due to claim costs which are more exposed to inflationary pressures. This could pressure underwriting margins, particularly if inflation persists at elevated levels.
Eyeing policy stimulus in China. In China, the potential impact of rising tariffs under a second Trump term may be less severe than previously anticipated. While tariffs may increase pressure on China&rsquo;s export sector, demand from emerging markets and China&rsquo;s efforts to reduce its trade deficit could help offset the impact. Moreover, the Chinese government&rsquo;s ongoing policy stimulus measures are expected to provide substantial support to economic growth and market sentiment. The recent announcement of a RMB6tn debt swap plan, aimed at addressing bad debt in local government financing vehicles (LGFVs), is a key step in stabilising the financial system. Additionally, the planned capital injection into major China banks should facilitate loan book expansion, supporting economic activity across both public and private sectors. Combined with consumption-driven stimulus measures, these actions are likely to result in stable economic growth in China. Insurers in China stand to benefit from a reduction in concerns around LGFV and property risks, while an improved consumption outlook should support premium growth, particularly in the life and health insurance segments.
Selective names with robust growth and diversified business portfolio. We continue to favour Asia-Pacific regional and China insurers which are well-positioned to capitalise on secular growth opportunities in the Asia life insurance market. This sector is expected to outpace global peers in terms of growth, driven by favourable demographics and rising middle-class wealth. Additionally, insurers with strong ties to the high-net-worth (HNW) segment in Asia stand to benefit from an increasing customer base and closer connections across China and ASEAN countries. Any upside surprise in China&rsquo;s policy stimulus could further catalyse a re-rating of regional and China insurers. We also see attractive opportunities in global insurers with strong market positions and a balanced business mix that can pass rising claim costs to customers and maintain strong premium growth. Companies with significant exposure to Asia&mdash;particularly those offering attractive shareholder returns (dividend yield &gt;5%, plus share buyback)&mdash;remain our top picks in the global insurance space.
Figure 1: US/EU/JP 10-year government bond historical yield and DBS forecasts <img src="/iwov-resources/aics/images/AICS/CIOweb/202411/241120CIOPFig1.jpg" alt="" width="1444" height="581" />
 Source: Bloomberg, DBS 
 Download the PDF to read the full report.

Brace for potential near term slowdown and prepare for the long term

Global Oilfield Services: Still Constructive, but Be Selective

Capex discipline trend to continue in 2025The trend of capex discipline in the oil and gas (O&amp;G) industry is likely to persist in 2025, especially with expectations of moderating oil prices. Oil majors remain focused on returning capital to shareholders via dividends and buybacks, thus the low reinvestment rates, further aided by cost reduction and efficiency gains over the past decade. Some signals of capex scale back have been observed. In early December, Chevron unveiled plans to reduce 2025 capex by ~USD1bn or c.6-7% to the USD14.5-15.5bn range (vs USD15.5-16.5bn for 2024), including investment cuts in the US Permian basin, in favour of free cash flow. Petrobras indicated an intention to lower 2025 capex from USD21bn to USD17bn, citing rising equipment cost and financing limitations. Over in Asia, Petronas&rsquo; capex may also decline in 2025 due to greenfield project delays and loss of Sarawak gas income. There will be more clarity in the next few months as other supermajors and national oil companies (NOCs) release their annual strategies.
Oilfield services&rsquo; medium-term outlook remains constructive.Despite the likelihood of a slight slowdown in the near term, we believe the longer term outlook remains constructive with low single digit growth expected for global oilfield services (OFS) through 2030, driven by still robust production and exploration activities, particularly in the gas segment, and the deployment of new technologies, aimed at optimising production costs and decarbonisation. Digitalisation and low carbon technology investment will continue to be the bright spots of OFS market with 25-30% of key oil majors&rsquo; capex spent on low carbon products/technology (comprising hydrogen production and carbon capture). OFS giants, Schlumberger and Baker Hughes, are the industry leaders in this regard&mdash;taking the leap and transforming into energy technology companies that develop critical technologies for the transition. The North American market is also expected to see an uptick in activities with Trump promising to raise O&amp;G lease sales and expedite approvals for LNG export permits. The consolidation trend in the oilfield service sector is also set to intensify under Trump.
Stay with the industry leaders. Weak macroeconomics and muted oil market fundamentals have taken a toll on share price performance of OFS stocks this year with Schlumberger (SLB) and Halliburton (HAL) having corrected ~20% YTD. Baker Hughes outperformed its two peers with share price rising over 20% YTD, thanks to its steadier diversified portfolio and gas leverage which are expected to continue driving the outperformance. We believe downside has been priced in to a large extent. The O&amp;G capex and OFS outlook remain constructive as long as oil price remains above USD70/bbl.
Figure 1: Share price performance relative to Brent oil price and indexes <img src="/iwov-resources/aics/images/AICS/CIOweb/202412/241211CIOPFig1.jpg" alt="" width="1444" height="581" />
 Source: Bloomberg, DBS 
 Download the PDF to read the full report.

Striking the right balance between direct-to-consumer and wholesale channels is key for incumbent brands

Global Sports Apparel: Subdued Optimism For 2025

Firm industry growth. The global sports apparel industry is set to enter 2025 with stabilising revenue expansion estimated in the mid-single digits. Non-luxury segments are expected to drive growth as rising inflation, lingering geopolitical tensions, and subdued consumer sentiment prompt shoppers to gravitate toward value-driven options. At the same time, shifting consumer behaviors, marked by a preference for personalised products, value-conscious choices, and unique shopping experiences continue to reshape the industry&rsquo;s landscape.
While young consumers remain the key demand driver, the emerging influence of the silver generation (i.e. the over-50 demographic) has prompted brands to cater to their preferences. To capitalise on these evolving opportunities, industry players must prioritise innovative product differentiation, agile operational models, and cultural resonance. Such strategies will help mitigate inventory challenges and maintain competitiveness in a crowded marketplace.
The rise of challenger brands. Established players in the sports apparel industry are facing mounting competition from challenger brands like Lululemon, ON, and Hoka. While these relatively newer entrants have started to see gradual normalisation in growth after the initial rapid expansion, they have distinguished themselves through visible product innovation, a focus on specialised sports categories, and strategic marketing initiatives.
Incumbent brands like Nike and Adidas must adapt by diversifying their offerings and fostering more authentic partnerships with athletes and celebrities to maintain relevance. Striking the right balance between direct-to-consumer and wholesale channels will be critical to enhancing brand presence and customer engagement. Moreover, continued investment in innovation, targeted marketing, and consumer relationships will be essential for legacy brands to retain their competitive edge.
Bolstering resilience. While top players like Nike, Adidas, and Puma have experienced mixed results in recent year, Chinese sports apparel brands have shown agility in responding to shifting consumer demands. They are also poised to benefit from the government's latest stimulus plans, as well as its goal of expanding the Chinese sports industry to CNY5tn by 2025 (2022: CNYB3.3tn). To navigate the volatility, key players continue to reduce excess stock and steer towards healthier inventory levels. These efforts position them well for better growth prospects as market conditions stabilise.
Overall, with the global sports apparel industry expecting to sustain decent CAGR of 5.9% in 2023-28, brands that can improve their resilience and responsiveness to market changes are likely to emerge as industry outperformers.
Figure 1: 9M24 revenue growth, currency neutral basis (%y/y) <img src="/iwov-resources/aics/images/AICS/CIOweb/202412/241205CIOPFig1.jpg" alt="" width="1444" height="581" />
 Source: Companies, DBS 
 *Nike: 1Q FY25 (i.e. Jun-Aug 2024); ^Estimated 
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Volume recovery is expected in 2H25, bolstered by anticipated interest rate cuts and easing inflation

Global Home and Personal Care: Diversified and Defensive Portfolios Key Amid Delayed Volume Recovery

US HPC companies' core EPS beat estimates despite slowing sales growth. In the current quarter ending Sep 2024, US Home &amp; Personal Care (HPC) companies reported core EPS that exceeded market expectations, bolstered by productivity gains and pricing benefits that offset higher raw material costs, increased marketing expenses, and adverse foreign exchange impacts. Organic sales growth slowed to 1&ndash;7% y/y as volume recovery lagged at 0&ndash;4% growth despite tempered price hikes of 1&ndash;3%, mainly in hyperinflationary markets. Kimberly-Clark (KMB) lowered its FY24F organic sales growth guidance to 3&ndash;4% (from mid-single digits), while Colgate-Palmolive (CL) raised its target to 7&ndash;8% (from 6&ndash;8%), indicating moderating growth in 4Q24. Procter &amp; Gamble (PG) maintained its FY25F organic sales growth target at 3&ndash;5%, expecting softer growth in 4Q24 and stronger growth in 2025.
Short-term volume growth challenges persist, acceleration expected in 2H25. With consumer spending still under pressure in some markets, HPC companies face decelerated volume growth that is likely to remain subdued in the near term. Modest organic sales growth is anticipated as the effects of prior price increases wane. Additionally, competition from private labels and increased trade-down behaviour may further constrain volume growth. In response, companies may intensify promotions, especially for lower-priced tiers and ramp up advertising efforts to drive demand, supported by cost-saving initiatives. Volume recovery is expected to be more assured in the latter part of 2025, bolstered by anticipated interest rate cuts, enhanced economic growth, and easing inflation.
Preference for diversified geographic exposure and defensive portfolios. Amid ongoing macroeconomic and political volatility, adverse foreign exchange movements, and slowdowns in markets like China, North America, and Latin America, companies with diversified geographic exposure and defensive product portfolios are preferred. Companies with lower exposure to China are favoured due to delayed demand recovery despite recent stimulus measures. We prefer companies with less concentration in North America where uncertainty surrounding the upcoming US election may affect consumer sentiment. Meanwhile, growth in Europe, Asia Pacific, the Middle East, and Africa appears more resilient, though still dependent on product categories. Companies focused on daily essentials are preferred as they demonstrate more resilient demand compared to discretionary items like cosmetics or prestige beauty products. CL exemplifies this with its geographically diverse portfolio and strong oral care segment, leading to better volume growth relative to peers.
Figure 1: Net sales by geographic region <img src="/iwov-resources/aics/images/AICS/CIOweb/202410/241030CIOPFig1.jpg" alt="" width="1444" height="581" />
 Source: Company reports, DBS 
*For CL: Oral, Personal, and Home Care only; excludes Pet Nutrition
**India etc. refers to India, the Middle East, and Africa
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Rise in popularity of weight-loss drugs due to simple usage and high efficacy

Global Pharmaceuticals: Breakthrough in Weight Loss Drugs 

Rise in popularity of weight-loss drugs due to simple usage and high efficacy. Obesity, often defined as having a body mass index (BMI) of over 30, affects c.650mn patients globally. The current weight-loss drug market is a duopoly dominated by Novo Nordisk (NOVOB DC) and Eli Lilly (LLY US). In 2021, Novo Nordisk launched Wegovy, its first glucagon-like peptide-1 (GLP-1) receptor agonist for treatment of obesity. GLP-1 drugs work by activating the GLP-1 receptor which inhibits appetite, effectively leading to weight loss. Wegovy skyrocketed in popularity, generating USD4.5bn in sales in FY23 and is expected to bring in USD13.0bn in FY25F, according to estimates by Visible Alpha. In 2023, Eli Lilly launched Zepbound, its first dual glucose-dependent insulinotropic polypeptide/glucagon-like peptide-1 receptor co-agonist (GIP/GLP-1). GIP/GLP-1 drugs work by blocking the GIP receptor (which leads to less fat storage) and activating the GLP-1 receptor (which inhibits appetite), leading to weight loss. Zepbound brought in USD176mn in FY23 and is expected to bring in USD11.3bn in FY25F, according to estimates by Visible Alpha.
Breakthrough in weight-loss drugs industry. Wegovy and Zepbound are both small-molecule drugs injected weekly, reducing body weight by 14.9% in 68 weeks and 13.6% in 52 weeks, respectively. The breakthrough comes in the form of MariTide by Amgen (AMGN US) which is a large-molecule drug injected monthly, reducing body weight by 14.5% in 12 weeks, significantly sooner than Wegovy and Zepbound. Its molecular size is 31-36x larger than that of Wegovy and Zepbound, which allows it to stay in the human body longer, resulting in less frequent injections. We expected Amgen to start phase 3 clinical trials in early 2025, with interim results expected to be released in 2H25 on indications such as obesity, type 2 diabetes, cardiovascular disease, and chronic kidney disease. The data is expected to be positive, as Amgen has axed R&amp;D of other weight-loss drugs to focus on MariTide.
Other companies developing biologic GLP-1 drugs will benefit as well. Apart from Amgen, Sino Biopharmaceutical is the only company globally developing a biologic weight-loss drug (GMA106) with a formula similar to that of MariTide (GIP/GLP-1). Amgen&rsquo;s share price surged 12% in one day when it reported positive Phase 2 interim data. Phase 2 clinical data is expected in 4Q24. The positive clinical data of MariTide will raise market confidence in its mechanism which could spill over to the GMA106 drug. Visible Alpha estimates GMA106 will generate sales of USD54-493mn in 2028F-30F, equivalent to 1-13% of 23A sales.
Figure 1: Weight-loss drug sales <img src="/iwov-resources/aics/images/AICS/CIOweb/202411/241127CIOPFig1.jpg" alt="" width="1444" height="581" />
 Source: Visible Alpha, DBS 
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