Hi everyone welcome back to our channel. So we took a short hiatus last year, we
hope you don't mind but we have
published our outlook for 2020 last week,
so I'm just here to very quickly run
through it with you. I'll leave the link
down below if you'd like to read more, or
you can find it on our website as well.
So we tried a different style of
publication this year and structured it into ten
different conversations or ten different
questions that we just couldn't avoid
for 2020. So first and foremost let's
look what happened in 2019. The global
economy is expected to grow at 3% in
2019, that's the slowest since the global
financial crisis in 2009. But equity
markets had a surprisingly good year,
with one of the best performances in the
last decade. The Nasdaq finished 38% up
from 2018, followed by the S&P at 33%
total returns. For 2020, global GDP growth
forecasts are coming in very divided
from as low as 1.2% all the way
up to 3.7%. On the equity markets
front, we think that the first half will
likely be positive, followed by some softening in the second
half as the US elections in November
potentially weigh... on investor
sentiments, and as phase 2 of the
US-China trade talks potentially resume.
Speaking of which, the trade war is far
from over - phase 1 is just about to be
signed, but we think that phase 2 could
get much uglier as the battles move
towards the tech and finance sectors, and
potentially also involving China's
economic and political structures as the
US tries to slow down China's growth.
In China itself we're already seeing
some slowing down worsened by higher
unemployment rates as well as higher
inflation due to skyrocketing pork prices.
However again, we see a completely
different picture in the financial
markets. The Shenzhen component index
delivered a 44.1% return followed
closely by ChiNext's 43.8% return. So to
better understand what's happening in
China though, we think that understanding their fiscal and
monetary policies is very crucial to be
able to chart where future development
or growth areas could be. So for 2020 we
believe that development efforts are
focused on gaining and maintaining
stability especially in areas of
employment, finance, foreign trade,
domestic and foreign investment, as well
as development targets. And as a plus
point, these efforts are positive news
for emerging markets, or EMs, which have severely underperformed developed
markets' equity benchmarks in the last
two years. EMs tend to be more
dependent on China's economy more than
the US economy and so they definitely
stand to benefit from China's rising
factory orders and industrial metal
prices. Among the EMS, we are most
positive on Taiwan given its exposure to
the critical semiconductor technology
sector. The upgrade from 3G to 4G in 2012
to 2014 saw a rerate in Taiwanese tech
stocks (ex TSMC) P/E valuations rose from
15x to 18x and so we expect
the ongoing upgrade from 4G to 5G to
provide a similar rerating for these
Taiwanese tech stocks. On the topic of
technology, we have concluded that we are not in a tech bubble, although yes, we
think that there is some overvaluation
relative to historical levels. We
therefore recommend investors to tread
lightly and invest very selectively as
risk to reward ratios are well elevated.
AI 5G and IOT or Internet of Things
will serve as the next drivers for tech
with cloud computing being the unifying
support infrastructure. So among the big
names, we lean towards Chinese big tech
such as Alibaba and Tencent as they continue to see favorable tailwinds from the
Chinese government as well as the
Chinese consumer. In the semiconductor
space we see scale becoming increasingly important, a similar trend apparent in
data centers as hyper scale data center
constructions continue to rise. And of
course, no tech conversation with us
will be complete without an AEM
recommendation. They recently raised
their earnings guidance and have since
gained about 10%. I think in our list of
top recommendations though, AEM does share
the spotlight with gold. So with sluggish growth low inflation
and low yields extending into 2020,
coupled with increasing geopolitical
tensions globally, we believe that the
need for a safe haven will always
remain, leading us to a target price of
about US$1,700 per ounce for gold.
Moving along, while we think that gold
has to be a key asset allocation for
every investor, we see forecasts for peak
oil demand being revised to earlier
dates continuously.
Overall we expect Brent oil prices to
remain within the range of US$60 to US$ 70
per barrel but with some
positive upward bias, as emerging markets
recover and the OPEC+ cuts
production. Therefore, we do still see
some short-term opportunities to invest
in oil and gas companies as we believe
that the oil price risk premium will not
only return but will be more persistent
this time around. But we must highlight
the need to be selective. This is
especially so as global concerns and
climate change propels shift towards
lower carbon intensity sources such as
wind and solar. Progress on ESG has been
stronger and faster than ever especially
as sustainability-aligned companies
start seeing positive effects on their bottom line and market performance. Along
with greater investor demand, we expect
only an upward trend for sustainable
companies as the European Union begins
to outline the world's first
comprehensive green financing rules. The rules and regulations are expected
to be solidified by the end of 2021, with
implementation and enforcement expected
by the end of 2022. But despite being only applicable in the
EU, we believe that it will create ripples
globally. Finally, to address the elephant
in the room, yes you can still buy REITs,
but please be selective. We are still
positive on our recommendations for EC World REIT
and Keppel DC REIT as they are underpinned by
fundamental growth trends. But we also
see much room for growth for those with
a lower gearing, as MAS looks to increase
leverage limits to about 50%. This will
no doubt be beneficial to REITs such as
CapitaLand Commercial Trust, SPH REIT
and Fraser Centerpoint Trust all of
which have debt levels below 30%. So
that's all from me today, if you'd like
to read more on our report, again, I'll
link it down below or you can find it on
our website. Thanks so much for watching
and we'll see you in the next one!
