Monthly Wrap: Political tensions and Fed tapering testing the Bulls
Month in Review: In our last publication 3 months ago, we called for overweight in AeJ, neutral in US and underweight rest of the world. Looking at 3M performance, it seems that our forecast are in line with expectations: AeJ maintains stellar performance with +6.3%, followed by +1.5% in US and +1.2% in SG and rest of the region in the red. All 3 of our alpha picks outperformed the general market: Capitaland Mall Trust (+7%), Nvidia (+15%), PHLX Semiconductor ETF (+9%). We recommend taking profit on Nvidia and PHLX trade as valuations are now unattractive.
US: “Goldilocks” economy situation, but heightened uncertainty over North Korea situation. Maintain neutral.
EU: Further improvement in macro but Brexit proceedings still lack clarity. All eyes on German elections and ECB comments on EUR strength. Maintain underweight.
AeJ: Maintain overweight despite signs of slowdown in top two economies in the region as valuations look attractive. Removed overweight on India. JP: Further signs of improved macro, but North Korea tensions are higher than before. Downgrade to underweight (2 to 1).
SG: We maintain our underweight view due to lack of catalyst and being extremely sensitive to global trade disruptions if North Korea situation escalates.
Overall: Heightened geopolitical tensions with North Korea 1) launching missile over Japan and 2) conducting nuclear test, coupled with rich valuations and talks of central bank tapering QE by mid-2018, we generally do not like to be in equities and recommend some profit taking to stock up cash to buy on dips.
- Cash (see above reasons)