Economies, stock markets, bonds and equities were among the topics discussed at a question-and-answer session during a market outlook event for HSBC Premier Elite customers.

The panellists were Mr James Cheo, chief investment officer at HSBC Global Private Banking and Wealth (South-east Asia and India); Mr William Goh, portfolio manager for fixed income at HSBC Asset Management (Singapore); and Ms Lee Su Shyan, associate editor and senior columnist at The Straits Times. The moderator was Mr Jeffrey Yap, head of investments and wealth solutions at HSBC Global Private Banking and Wealth (South-east Asia).

Here are edited excerpts: 

Moderator: Here’s the question for Poll 1: What is your outlook for 2024?

a) Pessimistic – more trouble to come

b) Optimistic – better than 2023!

c) Cautiously Optimistic (Note: Highlighted answers show the audience’s main choice or choices)

The majority of the audience said they are cautiously optimistic on the outlook for 2024. What’s your take?

Mr Cheo: It is hard for 2024 to be much better than 2023 because in 2023, we had a bull market in the US. I’m cautiously optimistic. I think it’s likely to be an older bull in terms of the stock market for 2024.

Moderator: Here’s poll 2: What is the top risk for markets in 2024?

a) Inflation creeps back, central bank overtightens

b) Hard landing of global economy

c) Negative surprises from majority of the world’s elections

d) Geopolitics worsens (US-China tensions, military conflicts, et cetera)

e) China economy weakens further

What’s your take on the result? 

Mr Cheo: I wish there was a silver bullet that would solve the whole issue. But that’s not possible because the situation is extremely complex. What we can do is to build a diversified portfolio globally. We can tilt somewhat towards commodities as, if there are heightened geopolitical tensions, there will be a demand for critical commodities, especially those associated with transition energy, or even in semiconductors. A globally diversified portfolio has shown time and again over the years that it is able to be resilient when there are geopolitical risks.

Moderator: Some of the audience may be worried about China’s economy weakening further and the impact on the equity market. Do you agree? What should investors do? 

Mr Cheo: I think China is investable, but you have to be very selective to find areas of growth. There may be political uncertainty associated with China, but a lot of it is already priced in. Investors can look at certain sectors that are still looking quite bright – services and consumption still look good. For example, the EV (electric vehicle) sector is still looking solid despite a recent pullback in prices and earnings. There are opportunities in China and as the second-largest economy, it cannot be ignored.

Moderator: Now we come to poll 3: What is your top conviction for 2024?

a) US equities

b) China equities

c) Global investment grade bonds, longer duration

d) US tech sector

e) Globally diversified portfolio

f) Asean and India equities

What are your thoughts? 

Mr Cheo: HSBC came up with the theme AI, which stands for Asean and India, not artificial intelligence. When thinking about Asia, think about AI – India, and increasingly Asean and its areas of growth and opportunities.

Mr Goh: When we say “global investment grade bonds”, we are looking at the “longer duration” segment. Bonds is one of the ways to diversify your portfolio. The longer the duration, the larger your “multiplier” for capital appreciation if interest rates decrease and vice versa, because bond prices move inversely to interest rates and proportionally with duration.

When extending duration, having investment grade instead of high-yield bonds helps in reducing credit risk. Going “global” is another way of diversifying your portfolio. Consider going beyond one country, or even beyond simply Asia, to construct a globally diversified bond portfolio. 

Moderator: What’s your view on the Singapore economy?

Mr Cheo: Singapore’s economy this year should do better than last year. I think it can grow 2 per cent to 3 per cent.

We are seeing a recovery in the global electronics cycle. It’s still early days in the upturn because, remember, during the (Covid-19) pandemic, many people bought electrical goods such as television sets. It has been about four years since then and there are now people upgrading their phones. That could bring about a renewed electronics cycle and Singapore would benefit from it. The domestic economy is very resilient and consumption is strong. Hopefully, tourism should do better this year compared with last year. Overall, we should see fairly reasonable growth. 

Moderator: Here’s poll 4: Which South and South-east Asia country am I most bullish on for 2024?

a) Indonesia

b) Singapore

c) Malaysia

d) Thailand

e) Vietnam

f) India

What do you make of this finding? 

Mr Cheo: Indonesia and India are having elections this year, but we feel that these uncertainties may provide opportunities. If you look at the political dynamics, it seems like it’s still going to be very much status quo when it comes to policy continuity. If there are any pullbacks, it may be temporary because the growth potential for India and Indonesia remains strong.

Moderator: What if interest rates don’t fall as fast as people expect? How should an investor be prepared for it?

Mr Goh: It is important to revisit James’ (Mr Cheo’s) earlier point of having a well-diversified portfolio. When we say diversification, most people think of diversification between countries, sectors and issuers. Diversification across the duration spectrum could be useful too. This can be achieved by having exposure to both the long end and the short end of the yield curve, via a duration barbell strategy.

The short-tenor bonds (for example, portfolio duration of less than one year) in the “duration barbell strategy” provide compelling yields even if interest rates do not fall as quickly as the market expects. The long-tenor bonds (for example, portfolio duration of more than five years), on the other hand, would still provide capital appreciation when interest rates eventually decrease, albeit slower than previously expected, and in proportion to the duration “multiplier”. Hence, balance is the key, where we have a bit of both ends of the yield curve. 

Another benefit of having exposure to the short end is that there is a larger variety of issuers from different countries and sectors, compared with other longer-duration segments. This is because no matter what the original tenor of a bond was when it was issued, that bond’s duration gradually shortens as it “rolls down” towards maturity, and will eventually become shorter than one year.

Mr Cheo: The fact of the matter is that inflation has peaked and is falling; it’s just a question of how fast and when. When deploying cash, or when thinking about investments, it’s important to consider various strategies that suit your needs, including the barbell strategy that we talked about.

Moderator: From the audience, a question, what is your outlook on the Singapore equity markets, in general?

Ms Lee: Everyone I talk to tells me that the Singapore market is dead, but I am a great supporter of the Singapore market because I think it’s safe and we’ve got good governance.

Our currency is also strong, so it keeps the value of your stocks up. You may have put your money in other markets, but also lost on the currency exchange. We’ve got good Singapore companies. There are also many companies with their own geographical exposure.

Looking a bit more closely, I agree that the growth rate may not be as high as in some other markets. But keep the faith. If the Singapore market is undervalued, why not? Take the plunge.

Moderator: What is the current view on S-Reits (Singapore real estate investment trusts)? 

Ms Lee: I’ve always been in favour of the S-Reits because I’m a pretty conservative investor, and the S-Reits have definitely delivered over the past years. It’s a stable source of income in your retirement. So try not to look at the capital losses, and I’m confident that they will come back.

Quite a number of S-Reits are diversified in different sectors, geographies, and so on. The S-Reits still offer decent yields. You’ll get your exposure to your different countries, as well as the sectors. Maybe not so much of the office sector, and maybe not the US, but certainly you can get decent prospects in industrial and logistics.