Market outlook good but don't expect 2017's stellar rally: OCBC

(From left) OCBC's senior portfolio counsellor Michael Tan, head of investment research Carmen Lee, senior investment strategist Vasu Menon and head of treasury research and strategy Selena Ling with moderator Mark Laudi at the OCBC investment semina
(From left) OCBC's senior portfolio counsellor Michael Tan, head of investment research Carmen Lee, senior investment strategist Vasu Menon and head of treasury research and strategy Selena Ling with moderator Mark Laudi at the OCBC investment seminar at Sofitel Singapore City Centre yesterday.PHOTO: OCBC BANK

The threat of nuclear warfare notwithstanding, 2018 promises to be a fairly good year for financial markets, according to OCBC Bank's investment experts yesterday.

They told a seminar that while the stellar rally in equities and bonds in 2017 is unlikely to be repeated, investors would do well to stay engaged in the markets this year.

Senior investment strategist Vasu Menon noted that global equities surged 19 per cent last year, while bonds rallied 7 per cent.

OCBC is more cautious on bonds and equities this year but still believes there are opportunities in emerging market investment-grade and high-yield bonds.

"The search for yield will continue. We don't see bonds falling off a cliff... Interest rates are still very low by historical standards," Mr Menon said at the event held at Sofitel Singapore City Centre.

"We also believe it's important to have a mix of equities and bonds in your portfolio... Multi-asset is the way to go."

Ms Selena Ling, the bank's head of treasury research and strategy, said the prognosis for global growth is encouraging and markets have digested the United States Federal Reserve's interest rate hikes well.

Corporate leaders are more confident about their business outlook, she added, noting that all these factors set the stage for a fairly steady 2018.

Geopolitical risk, which was heightened in 2017, seems less of a concern this year, despite current anxieties over US President Donald Trump's tweets taunting North Korean leader Kim Jong Un about his nuclear arsenal, she added.

"When Kim Jong Un fired his first missile test, markets reacted but with each subsequent test the market reactions got shorter and shorter and eventually didn't even last a day," Ms Ling noted.

That is not to say that there are no risks on the horizon, however.

Ms Ling warned that instead of black swans, investors should watch out for "grey rhinos" - risks on the periphery that everyone is well aware of, and could cause significant impact once they escalate.

Among these is inflation: "We've been accustomed to low inflation, low volatility and low interest rates but these are about to change," she said.

With oil prices rising, inflation will likely pick up, which could cause central banks to feel more urgency about raising interest rates.

OCBC's investment research head Carmen Lee said Singapore stocks will continue to rally in 2018, though not at the same rate as last year. The Straits Times Index rose 18 per cent in 2017.

She is especially upbeat about property stocks, noting the slew of collective sale deals over the past year worth "more than $6 billion". "It takes supply off the market and it also moves money into the market as (collective sale) sellers look for new homes," Ms Lee noted.

The developers that have land-banked the collective sale properties will also be sure not to sell future units for less than what they had paid and, judging by the prices shelled out over the last year, units priced at $1,800 to $2,000 per sq ft will be "the new norm", she said.

A version of this article appeared in the print edition of The Straits Times on January 05, 2018, with the headline 'Market outlook good but don't expect 2017's stellar rally: OCBC'. Print Edition | Subscribe