Strategic Allocation Across Equities, Bonds, Currencies, and Gold

​Identify the best investment strategies amid China’s equity undervaluation, EM local bond yield advantages, USD/SGD currency divergence, and gold’s dominance as a safe-haven asset. Learn where to position across sectors, geographies, and asset classes to protect capital and capture growth.

​Key Points

• Global equity markets are shaped by undervaluation in China, strong YTD performance and shareholder returns in Japan, and rising investor interest in emerging markets, while policy uncertainty and weak demand pose ongoing financial pressures, prompting investors to favor defensive plays in the US and Singapore alongside selective opportunities in EMs and hedge fund strategies.
  
  
• Global bond markets face duration and credit risks from high US yields and inflation, but opportunities exist in Eurozone long-duration bonds, short-term US and Singapore government securities, and EM local currency debt, with China’s short-term bonds and Asian investment-grade credit offering resilience amid market volatility.
  
  
• The SGD faces mild weakening against higher-yielding currencies like USD and VND, while maintaining relative strength against weaker Asian currencies such as MYR and THB, with Singapore’s resilient equity market and the DXY’s stability helping to keep USD/SGD range-bound.
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• Gold’s 26.5% YTD and 41.4% YoY surge reflects strong safe-haven demand amid persistent US inflation, China-driven Asian demand, and Eurozone rate cuts, making it a highly effective hedge for SGD investors against inflation and currency volatility.

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​Chinese and Japanese Equities Lead Market Recovery Amid Valuation Gaps

Global equity performance is driven by valuation gaps and policy support

• Chinese equities remain undervalued (P/E 13.0 vs. S&P 500 at 22.7), supported by RMB800bn liquidity injections.
• US equities show resilience, recovering after early April sell-off despite S&P 500 YTD -3.7% and NASDAQ -7.2%.
• Japanese equities outperform YTD by 5% in USD terms with low corporate leverage (10%) and attractive valuations (Price-to-Book 1.4x, Dividend Yield 2.5%).

Asia ex-Japan equities attract capital inflows driven by structural reforms and sectoral optimism

• Asia ex-Japan forward P/E stands at 14.0, backed by China’s fiscal stimulus.
• Technology, consumer discretionary, and renewable energy sectors are key beneficiaries, supported by China’s RMB800bn stimulus and policy incentives for green energy.
• Emerging markets delivered a 14.4% one-month return; Mexico leads with strong fundamentals and policy easing, including 175bp rate cut expectations and robust FDI inflows.

Trade Uncertainty and Consumer Weakness Are Increasing Equity Market Volatility

• July tariff deadline looms, heightening market volatility, as seen by the 12.7% y/y jump in US imports from stockpiling behaviors.
• US consumer sentiment hits lowest level since mid-2022, confirmed by the University of Michigan Sentiment Index.
• Tight IG credit spreads and widening high-yield spreads signal rising credit risk, evidenced by high-yield spreads widening on cooling consumer confidence.
• Singapore and Hong Kong trade sectors face downside risks; Vietnam’s export industries weaken post-tariff, with Vietnam’s export growth driven by a temporary 90-day tariff suspension.

Investors Should Target Defensive Plays in Singapore and Growth Sectors in China and Japan

• Investors should focus on defensive sectors and undervalued markets.
• Prioritize Chinese large-cap equities and CSI 300 ETFs, supported by direct RMB800bn policy-driven liquidity injections.
• Japanese equities remain attractive with strong fundamentals and low leverage, ROE improving to 10%, double the pre-Abenomics average.
• Mexico and Brazil offer compelling EM opportunities; Mexico’s macro stability is supported by robust fiscal balances and nearshoring trends.
• In Singapore, favor REITs and essential services; US technology and AI sectors act as defensive plays amid ongoing policy uncertainty.

​US Duration Risks Rise While Eurozone Bonds Offer Capital Gain Opportunities

Bond markets present contrasting opportunities and risks based on regional policies

• US 10-year Treasury yields remain elevated at 4.36%, increasing duration risks.
• Eurozone bonds offer capital gain opportunities as ECB rate cuts approach, with rates forecasted to decline from 2.50% to 2.00% by 2Q25.
• China’s rising sovereign bond supply pressures yields; total social financing data shows increased government bond issuance alongside weak private sector demand.

Persistent Inflation and Trade Policy Risks Keep Credit Markets Under Pressure

• US inflation remains sticky at 3.0%, pushing yields higher.
• High-yield credit spreads widen amid global policy uncertainty and signs of weakening consumer confidence.
• Vietnam and Hong Kong face elevated credit risks, with Vietnam’s refinancing rate at 4.50% and unresolved trade tensions.

Focus on Short-Duration Bonds and EM Local Currency Debt for Stability and Yield

• Long-duration Eurozone bonds offer capital gain potential as ECB prepares for rate cuts to 2.00%.
• Short-duration US Treasuries (~3.86%) and Singapore bonds provide defensive positions amid volatile markets.
• EM local currency bonds from Mexico, Philippines, and Indonesia offer strong yields, with policy rates holding at 5.75%.
• Private credit remains attractive for long-term resilience, offering higher returns through illiquidity premiums.

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​SGD Faces Modest Pressures While USD and Regional Currencies Drive Divergence

Currency markets show divergence driven by interest rate differentials

• SGD faces pressure against USD and VND due to higher policy rates (USD 4.50%, VND 4.50%).
• MYR and THB remain weak against the SGD; JPY struggles despite rising yields, as seen by JPY at 145 per USD with a 10-year bond yield at 1.35%.
• DXY stability supports range-bound USD/SGD movements, with the DXY remaining flat despite inflation pressures.

Sticky US Inflation and Chinese Policy Easing Create Divergent FX Conditions

• US CPI remains at 3.0%, sustaining USD strength.
• China’s liquidity injections of RMB1tn weaken the CNY.
• VND volatility rises post-tariff suspensions; Vietnam’s export boom likely to reverse after the temporary suspension ends.
• SGD weakens on lower growth projections (0.0-2.0%) and fiscal easing.

USD Remains a Safe Haven While EM Currencies Offer Carry Trade Opportunities

• USD remains a safe-haven investment, with persistently high policy rates at 4.50%.
• PHP and IDR offer attractive carry trade returns with policy rates stable at 5.75%.
• EUR remains suitable for diversification despite the ECB's expected rate cuts, primarily because:
  • Capital Gain Potential: Rate cuts typically boost bond prices in the Eurozone, presenting early-entry opportunities for capital gains.
  • Lower Volatility: The EUR remains relatively stable compared to more volatile EM currencies, even with expected rate reductions.
  • Portfolio Diversification: Holding EUR-denominated assets provides balance for portfolios otherwise concentrated in USD and high-volatility EM currencies.
• TWD presents tactical appreciation opportunities with a 1.7% YTD appreciation; CNY offers undervalued equity asset plays despite depreciation risks.

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Gold Remains the Preferred Inflation Hedge as Prices Surge 41.4% Year-on-Year

Gold continues to outperform due to its safe-haven appeal and inflation protection

• Gold prices surged 26.5% YTD to USD 3,319 per ounce and 41.4% YoY.
• US inflation and high Fed rates sustain demand, with core CPI at 2.4% and the Fed maintaining a cautious stance.
• China’s liquidity support and Eurozone rate cuts enhance global gold demand, with Eurozone rates forecasted to fall to 2.00%.
• Singapore’s position as a gold trading hub improves liquidity access for SGD investors, offering better access and lower transaction costs.

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Geopolitical Risks and Central Bank Buying Support Long-Term Gold Demand

• Strong demand for gold is underpinned by geopolitical risks and central bank diversification.
• Gold remains the most effective hedge against market volatility, insulating portfolios against 90% of recent market weakness.
• Central banks, particularly in Asia, continue to diversify reserves into gold.
• Rising geopolitical tensions (US-China relations, Vietnam tariff risks) and inflation sustain long-term gold demand.
• Industrial metals like copper remain more volatile despite China’s pro-growth measures, with LME Copper rising 7.6% YTD.

Gold ETFs and Physical Gold in Singapore Offer the Best Hedging Benefits

• Investors should maintain gold as the core defensive asset while exploring complementary metals.
• SPDR Gold Shares (GLD), iShares Gold Trust (IAU), and SGX-listed ETFs are preferred for liquid exposure.
• Physical gold in Singapore offers liquidity and currency stability, benefiting from Singapore’s strong fiscal position and stable SGD.
• Silver and EM commodity producers in Brazil and South Africa provide diversification through strong export demand.
• Despite cyclical opportunities in industrial metals, gold remains the superior defensive hedge for SGD-based investors, with lower volatility and stable demand driven by central banks and retail investors.