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- Equities: Global equities rise on US GDP upside surprises and rev up in China's domestic consumption
- Credit: Yield investors should stay with high quality fixed income in the 3-5Y duration
- FX: DXY consolidation on the cards; watch for monetary policy, geopolitics, and macro slowdown
- Rates: Upcoming FOMC meeting closely watched and consensus expecting another downshift to 25 bps
- Thematics: Festivities and reopening to buoy sentiment at start of 2023
Global equities rally against positive macroeconomic backdrop. Global equities extend their winning streak last week (week ended 27 January), fueled by slightly better-than-expected economic growth in the US; fourth quarter gross domestic product (GDP) grew at an annualised pace of 2.9%, beating economists’ estimates of 2.8%. Global equities were up 2.1% for the week, with Developed Markets (DM) and Emerging Markets (EM) gaining 2.2% and 1.4% respectively.
The S&P 500, Nasdaq, and Dow Jones notched weekly gains of 2.5%, 4.3%, and 1.8% respectively and continued their stellar run in 2023 thus far. Europe stocks also closed slightly higher as German business sentiment rose in January and French household confidence remain stable; the Stoxx 600 rose 0.7% while the FTSE100 dipped 0.1% for the week. Asian equities traded higher as Japan’s inflation nears 42-year high; the Nikkei 225 rose 3.1%. Chinese stocks gained as travel and box office spending picked up pace thanks to waning Covid restrictions during the Lunar New Year holiday; the HSCEI and Hang Seng rose 3.9% and 2.9%.
Topic in focus: S-REITs ride on easing bond yields and China tailwinds. Singapore real estate investment trusts (S-REITs) are poised to perform better this year riding on two strong tailwinds: i) easing bond yields; and ii) China’s re-opening. The sector’s valuation succumbed to higher bond yields last year as the yield gap (dividend yield minus Singapore 10Y bond yield) compressed to the lowest level when Singapore bond yields rose 200 bps from 1.6% to 3.6% during the year.
With the peaking of the bond yields behind us, we believe the sector could re-rate as the sector’s financials have proven to be resilient in a rising rate environment – gearing ratios are manageable, and distributions are recovering from the Covid disruption. China’s long-awaited re-opening will also improve the outlook for retail and hospitality REITs, especially those with Hong Kong/China exposure, while the easing of previously feared global hard landing risk should cushion the Industrials, logistics, and office REITs. Singapore assets, including the income generating S-REITS, are also looking more attractive with a stronger SGD outlook.
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