Standard Chartered Bank sees equity market gains
The Standard Chartered Bank says it sees room for equity market gains to extend as cooling inflation brings bond yields lower and sustains central bank rate cut expectations for the rest of the year.
Advertisement
“We remain overweight equities in foundation allocations and indicated that, within this, we maintain our preference for US and Japan equities and EM US dollar bonds.
We remain reluctant to chase gold higher, given crowded investor positions. In opportunistic allocations, we add buy ideas on Taiwan equities and China-US dollar bonds and close US energy sector equity and US inflation-protected bond buy ideas,” it said in a notice to its priority clients.
On equities, the bank said, “We remain overweight equities and believe they can outperform bonds and cash in a soft-landing scenario.
We are overweight US equities. US Q1 earnings have been strong, with companies enjoying strong margins. We are also overweight Japan equities,” it added.
The bank said the earnings outlook was improving, with rising trend in share buybacks and an increase in dividends.
It said it saw a limited risk of significant JPY appreciation despite the end of the negative interest rate policy from the Bank of Japan.
Bonds
“We maintain a neutral view on Developed Market (DM) Investment Grade (IG) government bonds.
The softer-than-expected US April inflation data has alleviated concerns about the Fed being unable to cut rates this year. We adjust our three-month expectation for a US10-year government bond yield to 4.25-4.50% while keeping our 12-month view unchanged at 4%.
On forex (FX), the said, however, said it remained modestly bullish on the US dollar over the next 1-3 months.
It said while US bond yields have started to fall as inflation started to soften once again in April, the bank believes inflation expectations and bond yields are likely to fall at a gradual pace.
“Bouts of geopolitical risk are also likely to trigger periodic demand for the USD as a safe haven.
Together, this means that while softening bond yields are likely to cap US dollar gains, we expect the dollar to remain relatively resilient over the next one to three months. We retain our rangebound 12-month US dollar view, with a bearish bias.