Investors should brace themselves for a tug of war between bulls and bears that will result in high volatility for financial markets this year, said DBS Bank chief investment officer Hou Wey Fook.
Mr Hou made the forecast when he spoke to DBS Private Bank clients at a market outlook lunch yesterday, although he noted that equities were not facing the start of a bear market yet.
DBS chief executive Piyush Gupta also noted that such volatility offers investors opportunities to rebalance their portfolios and take up long-term positions.
Given the environment, DBS has weighted equities as "neutral" for this quarter, with bonds as "underweight", but it is "overweight" on alternative investments and cash.
Mr Hou said the bank is "overweight" on United States shares this quarter, favouring them over other equities on "the superiority of earnings by US companies, which are unparalleled in the rest of the world".
Asia ex-Japan equities are also "overweight", with Mr Hou noting: "Valuations are very compelling; they are actually at historical lows vis-a-vis global peers."
DBS is "neutral" on Japan itself and "underweight" on Europe.
Mr Gupta noted that the global economy was undergoing a slowdown but said it was part of a "normal cyclical slowdown that has been anticipated". He added that while the US Federal Reserve has said it will be "patient" with rate hikes, he expects one or two of them, noting: "There's good momentum in the economy, good job growth; they have the capacity to do rate hikes."
DBS expects growth momentum in the US to stay strong at 2.5 per cent this year, with inflation to edge up to 2.5 per cent, on the back of a full-employment economy.
Growth in Japan is expected to remain steady at 1 per cent, and inflation at 1.1 per cent.
Mr Hou said Asia is on a steady growth path despite an expected slowdown in China. DBS has Chinese growth at 6.2 per cent and inflation at 2.3 per cent for 2019.
Meanwhile, Singapore can expect growth of between 2.5 per cent and 3 per cent this year, said Mr Gupta. This is despite a slowdown in the property market due to last year's cooling measures, which shrank the bank's property loan segment by between 40 per cent and 50 per cent as opposed to the 20 per cent to 25 per cent initially anticipated.
Mr Hou was not as positive on Europe, which is blighted by rising populism and uncertainty over Brexit.
Germany, seen as a driver of euro zone growth, is also experiencing a slowdown, due in part to fewer exports to China, Mr Gupta said.
Europe is expected to grow 1.8 per cent this year, with inflation expected at a muted 1.4 per cent.
While the macroeconomic outlook is generally favourable, there are black swans out there for investors to keep a lookout for.
These include the possibility of a full-blown trade war, a potential impeachment of US President Donald Trump, a chaotic political landscape in Europe and an inflation upside surprise, which might send the Fed into further rate hikes.
Mr Hou also addressed the bank's investment themes for this year. These include the healthcare sector, seeking winners in the digital economy, and riding athletic-leisure consumer trends.
