Bullish global markets have yet to cool down, but volatility is on the increase amid concerns over monetary tightening and a possible global trade war, DBS Bank Ltd said yesterday.
While equities have seen corrections, credit markets have proven resilient, which is reflected in stable corporate yield spreads that point to a low default-rate environment, DBS consumer banking vice president Chen Yu-chia (陳昱嘉) told a news conference in Taipei.
Bouts of fear over a quicker normalization of interest rates or a tit-for-tat response to rising US protectionism could prove destabilizing in the short term, but rosy corporate earnings outlooks would trump such worries, Chen said.
Other analysts have warned of an impending bearish turn in the market, citing a narrowing gap between short-term and long-term bond yields, among other signs, he said.
Bear markets have historically taken place during periods of recession, but the world continues to see synchronized growth and the corporate earnings outlook is upbeat, Chen said.
The trade tensions between the US and China will eventually lead to a resolution, albeit through intensified negotiations, he said.
DBS Bank suggests staying in equities and corporate bonds, particularly “BBB/BB”-rated corporate bonds and dividend-focused equities in Asia, to increase portfolio resilience from multiple stable income sources.
The US Federal Reserve is likely to raise policy rates two or three more times this year after an increase of 25 basis points last month, Chen said, adding that the US dollar could see a modest rebound this quarter on the back of rate hike expectations.
The banking group is also confident about high-quality companies in the global financial and consumer discretionary sectors, as well as European companies that are beneficiaries of robust domestic recoveries in Europe, he said.
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