At this point, the CIO prefers bonds to cash due to their 5% yield, which provides consistent cashflows into a portfolio.
“Stay with investment grade (IG) bonds with [an] average portfolio duration within three to five years [given the inverted yield curve],” says Hou, noting that these should be rated A and/or BBB corporates. Investors can also have a “measured” exposure to BB+ rated credits.
Furthermore, bond coupons and capital gains can provide higher total returns compared to cash deposits, he adds.
The equity rally also looks set to broaden. Unlike the rally in 2023, which was mainly dominated by counters in big tech, other sectors are expected to join in the fun as rates trend down.
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In Hou’s view, laggard sectors such as energy and healthcare are set to benefit.
Globally, the bank is keeping its “overweight” call on Asia ex-Japan stocks as the “beaten down market” is starting to “show signs of improvement”.
In other assets, gold also continues to offer favourable risk-reward with tailwinds such as persistent central bank buying, lower rates, and US dollar weakness.
