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.

Our cross-asset views for the fourth quarter of 2024:

Macro Policy
The Fed’s surprise 50 bps cut marks the start of easing. ECB makes second cut of the year. BOJ holds rates steady, but expect gradual hikes starting 1Q25. China policy support continues with new stimulus measures.

Economic Outlook
The bumper 50 bps rate cut will shore up the likelihood of a soft landing, as opposed to a recession scenario. Asia exports beat expectations on electronics upcycle.

Equities
Moderating growth and a weaker dollar should benefit more defensive sectors such as utilities, consumer staples, and healthcare. Falling rates to boost ASEAN equities and Asia REITs.

Credit
Sweet spot remains in A/BBB credit with duration barbell between 1-3Y credit to mitigate reinvestment risk and 7-10Y credit to capture risk premium and yield spread compression. US MBS and European credit poised to offer strong value plays.

Rates
Steeper curves for the US and EU given policy easing mode. The BOJ remains the outlier, implying that the JGB curve is biased towards flattening. Expect falling China government bond yields.

Currencies
US Dollar Index (DXY) languishing below 100 is likely in the next US presidential term, driven by Fed rate cuts in a soft landing environment. Asian currencies will gain as the region anchors global growth, supported by export recovery.

Alternatives
Gold set for further highs with impending rate cuts. In private markets, secondaries are seeing a phenomenal rise due to demand for liquidity amid a tighter IPO, M&A environment for exit.

Commodities
Soft commodity prices on slowing economic momentum. Expect a bottoming in oil price on favourable supply demand. Precious metals remain the standout performer.

Thematics
ASEAN to benefit as a strategic economic bloc from China+1. Tailwinds from lower rates and dollar weakness to sustain strong growth momentum.