a volatile start to q4...2 days ago · europe, are likely to complicate the q4 recovery path for...

A volatile start to Q4?

Global Market Outlook

(In-brief)

October 2020

Global Market Brief 2

IMPLICATIONS

FOR INVESTORS

• Global equities, credit and

multi-asset income

strategies are likely to

outperform government

bonds and cash over a 12-

month horizon

• Within equities, we have a

preference for Asia ex-

Japan and the US. We

would also sell equity

volatility for income

• Within bonds, we believe

DM HY, EM USD and Asia

USD bonds are attractive

• Gold is likely to perform

well amid capped bond

yields and a gradual

recovery in inflation

• USD weakness is likely to

resume against the EUR,

AUD, GBP and CNY

A volatile start to Q4? • US elections and associated risks, together with the rebound in COVID-19 infections in

Europe, are likely to complicate the Q4 recovery path for equities and credit. However,

economic and earnings expectations data are likely to be strong tailwinds.

• Within equities, we believe a combination of buying-the-dip and volatility-selling strategies

should help investors take advantage of Q4 volatility. Regionally, we prefer Asia ex-Japan

and US equities.

• Within credit, we see room for Developed Market and Emerging Market High Yield bonds

to lead the next stage of price gains. A return of risk appetite likely means a return of USD

weakness and gold strength. Capped bond yields should extend support for multi-asset

income strategies.

2020 risks vs. 2021 optimism

Over the past month, risky assets corrected amid a pullback in global equities and corporate

bonds. The USD rose and gold fell.

On a 12-month horizon, we believe the case for risky assets (equities and corporate/EM

bonds) remains strong. The market narrative is likely to shift beyond the US elections and

associated risks to focus on a likely COVID-19 vaccine and, hopefully, the post-COVID-19

economy. Fiscal and monetary policies are likely to remain highly accommodative.

The remainder of 2020, however, is likely to be characterised by a tug-of-war between event

risks and improving sentiment. Among near-term event risks, it is unclear if the US elections

will immediately yield a clear outcome, whether another US fiscal stimulus will be forthcoming

and if US-China tensions will escalate. A renewed COVID-19 surge, particularly in Europe,

has reintroduced the possibility of lockdowns, albeit limited and localised. Having said that,

economic data in most regions remains robust, with survey-based business and consumer

confidence, mobility and high-frequency activity data still expansionary.

Also, there has been a decisive upturn in earnings revisions, despite the equity market

correction. Thus, we would continue using market pullbacks as opportunities to add exposure

to equities and credit (USD-denominated bonds with yields above US government bonds).

2 Investment strategy


Fig. 1 Survey-based activity data continues to

strengthen and recent weakness in small business data

may be reversing

Fig. 2 Headline bond yields may appear low, but high

yield components have room to lead next stage of gains

US ISM manufacturing vs. small business net revenue Credit spreads – deviation from long-term median levels

Source: Bloomberg, tracktherecovery.org, Standard Chartered Source: Bloomberg, Standard Chartered; Data from Jan’00 (EM), Sep’05 (Asia)

A long-only or volatility-based approach?

We believe the pullback in equity markets represents an

opportunity to add exposure to equities on a 12-month

horizon, given our constructive long-term view on growth and

continued economic and earnings data improvements.

Having said that, volatility could remain elevated into Q4. One

way to navigate an attractive long-term view and near-term

volatility is to adopt a balance between buying equities on dips

and selling volatility on spikes to generate income. Our model

suggests it is attractive to sell volatility, in our assessment,

especially if volatility jumps much further relative to the trend.

Fig. 3 Equity volatility higher than path indicated by

our model

VIX Index vs. path indicated by our Power Model vs. global equities

Source: Bloomberg, Standard Chartered

Regionally, we maintain our preference for the US and Asia

ex-Japan equities, the latter led by our preference for China

equities (both offshore and onshore). While we continue to

keep a close eye on China’s margin financing, we believe the

risks are somewhat mitigated by greater policymaker scrutiny,

economic stimulus and an improving earnings outlook.

Our case for US equities remains unchanged, noting that

earnings revisions have also turned strongly higher. However,

we lower our view on Euro area equities to a core holding as

we believe the case for the region’s outperformance relative

to global equities has weakened somewhat for two reasons:

1) the recent surge in COVID-19 cases raises risks of a

negative economic impact; 2) we downgrade the Euro area

financials sector (to a core holding), given long-term growth

concerns, event risks and low conviction on the resumption of

dividend payments. History shows it is difficult to expect Euro

area outperformance relative to the US without expecting

Euro area financials to outperform the US technology sector.

Credit increasingly dependent on High Yield

We continue to see value in credit (corporate and EM bonds)

and maintain our preference for EM USD government bonds,

Asia USD bonds and DM HY bonds. It is tempting to conclude

these asset classes have also become ‘expensive’ based on

ever-lower yields. However, the yield decline has been largely

driven by low US government bond yields; the yield premium

over US government bond yields remains close to or above

long-term median levels, suggesting there is still value in

bonds.

Within this segment, we continue to see relatively more value

in HY bonds across our preferred asset classes, setting them

up to lead the next leg of outperformance, in our assessment.

Retain convictions in weak USD, strong gold

The recent rebound in the USD and pullback in gold are

consistent with the temporary reduction in risk appetite, in our

view. Historically, gold has tended to hold up well in the initial

stages of an equity market pullback, but weakens thereafter.

However, we do not believe anything has changed from a

fundamental perspective. Our view of capped bond yields and

a continued recovery in growth and inflation expectations

should provide support to gold. A return of risk appetite is also

likely to mean a resumption of USD weakness, especially if a

second US fiscal stimulus package helps release more

liquidity into the US and the global economy.

-20

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VIX MSCI ACWI index (RHS) Power Model

2


Fig. 4 Our tactical asset allocation views (12m) USD

Asset class Sub-asset class Relative outlook Rationale (+ Positive factors II – Negative factors)

Multi-asset Strategies

Multi-asset income ▲

+ Bond yield capped, still-wide credit spreads || - Equity volatility

4-5% yield remains achievable by a diversified allocation, in our view

Multi-asset

balanced ◆ + Diversification benefits || - Equity volatility

Equity tilt risks near-term volatility, but long-term equity valuations a help

Alternatives ◆ + Diversifier characteristics || - Equity, corporate bond volatility

Diversifier characteristics help amid volatility

Equities

Asia ex-Japan ▲

+ Low bond yields, weak USD || - Geopolitics

China consumption, weak USD are positives, but US-China tensions a key risk

US ▲

+ Low bond yields, growth rebound || - Elections, COVID-19

Exceptional policy response bearing fruit, but COVID-19, elections are risks

Euro area ◆

+ Low bond yields, policy support || - Geopolitics, weak USD

Weak USD may support inflows, but outlook for financials sector a risk

Japan ◆

+ Low bond yields, high cash levels || - Reduced buybacks

High corporate cash a positive, but few catalysts for sustained rally

Other EM ◆

+ Global growth recovery || - COVID-19

Growth recovery positive for commodities, but trade uncertainty a key risk

UK ▼

+ Attractive valuations || - Brexit, lagging earnings rebound

Valuations remain attractive, but Brexit a key event risk

Bonds

DM HY corporate ▲

+ Attractive yield, attractive value || - Credit quality

Yields and valuations attractive, but higher-than-expected defaults is key risk

EM government

(USD) ▲ + Attractive yield, attractive value || - Sentiment to EMs a risk

Higher yields than local currency peers illustrate attractive value

Asia USD ▲

+ Moderate yield, low volatility || - Risk of slower China recovery

High credit quality, low volatility are attractive, but China exposure a risk

EM government

(local currency) ◆ + Moderate yield, weak USD view || - FX volatility

Supportive policy, weak USD positive, but falling yields have reduced value

DM IG corporate ▼

+ Policy support || - Deteriorating credit quality, value

Central banks very supportive, but better value available elsewhere

DM IG government ▼

+ High credit quality, policy support || - Low yields

Rebound in growth, inflation expectations a risk

Currencies

AUD ▲

+ Growth rebound, exports || - Geopolitics

AUD remains good proxy for China growth rebound

EUR ▲

+ Policy stimulus, growth rebound || - Geopolitics

EU-wide stimulus, ECB policy support are key positives

GBP ▲

+ Undervaluation, eventual Brexit deal || - Brexit deal failure a risk

Currency remains undervalued, but Brexit a key source of uncertainty

CNY ▲

+ Attractive yields, growth rebound || - Geopolitics, debt risk

High real bond yields, recovery growth likely to drive inflows

JPY ◆

+ Safe-haven demand || - Japanese foreign asset demand

JPY caught between global safe-haven status and outflows seeking returns

USD ▼

+ Safe-haven demand || - Falling rate differentials, Fed liquidity

Rising confidence in global recovery likely to reduce demand for USD

Source: Standard Chartered Global Investment Committee

Legend: ▲ Preferred ◆ Core holding ▼ Less preferred || Green indicates an upgrade while red indicates a downgrade from our prior view

2


As part of our Investment Philosophy, we strive to achieve diversity of insights by constantly monitoring a wide array of investment

views and analysis. This part of our process is what we call the Inside View, where we gather lots of research and analysis,

consider the specifics of the situation, and combine them with our analysis of historical probabilities - the Outside View – to

create scenarios for the future.

The below charts show the percentage of investment research (broker and independent) houses and asset management

companies who are Overweight, Underweight and Neutral on different asset classes.

Cash OUR VIEW Government bonds OUR VIEW

UW UW

Credit OUR VIEW Equities OUR VIEW

OW OW

Alternatives* OUR VIEW Gold OUR VIEW

N OW


*Alternatives represent a combination of views on liquid and private alternative strategies, as well as real estate

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4 Major brokers’ and investors’ views


Fed policy shift reinforces our preference for

income generation and inflation protection

strategies

In August, the Fed confirmed its intention to do everything it

can to support the US economy and push inflation higher by

shifting its policy goals towards achieving an average 2%

inflation target over the medium term. While Chair Powell did

not specify how the Fed plans to achieve this, it will likely lead

to downward pressure on all, not just government, bond yields

towards 0%.

The global response to any significant economic slowdown

since the 1980s has been to reduce the economy’s funding

costs. Initially this meant cutting interest rates sharply, but as

interest rates approached zero, other measures were

pursued. During the Global Financial Crisis, this involved

quantitative easing, whereby the Fed printed money to buy US

government bonds. In the recent crisis, the Fed has extended

this to corporate bonds, not just those issued by highly rated,

‘strong’ companies, but also those with lesser ability to service

their debt. Yields, as a result, have fallen sharply.

Fig. 5 Anybody seen a trend around here?

US 10y government bond yield and the Fed Funds target rate

Source: Thomson Reuters, Standard Chartered

These moves have arguably led to a vicious circle. Lower

funding costs and economic stress, when combined, have

increased the incentive for companies to borrow more to

bolster near-term cash flows and ensure their short-term

survival. Meanwhile, governments borrow more to fund tax

relief and spending programmes. Unless this debt is paid

down when the economy is strong, this potentially makes the

economy more sensitive to any rise in interest rates and bond

yields, which increases the incentive for central banks to keep

funding costs low (the alternative, of course, is to let the

economy weaken significantly).

Unintended consequences

This vicious circle has potentially huge implications on how we

invest. Historically, for income-seeking investors, it was

conventional wisdom that one should increase the allocation

to low-risk government bonds as you get older. When US

government bonds offered a yield of 4-5%, this made sense

as it would provide sufficient income at limited risk.

However, government bond yields around the world have

fallen dramatically over the past 40 years. While this has

generated very strong returns, the low yields are detrimental

to income and returns one can expect from investing in bonds,

going forward.

Falling bond yields have also had a knock-on impact on other

asset classes, such as real estate and equities. While some

investors have been confused by the recent strong

performance of equities in the face of economic fragility, the

strongest areas of the market have typically been those

companies with strongest long-term growth outlooks.

The outperformance of growth areas of the market can be at

least partly explained by the fact that ultra-low interest rates

mean equity investors can justify high valuations for these

companies. To arrive at stock valuations, analysts take their

expectations for future profits and then discount these using a

discount rate, which is based on a measure of long-term

interest rates. As interest rate expectations fall, this reduces

the impact of this discounting, raising potential valuations

even if the earnings outlook has not changed.

What does this mean for investors?

Against this backdrop, how do we assess the future

implications of low rates? Many investors highlight that major

asset classes, on traditional metrics, are overvalued and that

focusing on relative valuations – for instance equities looking

cheap relative to expensive bonds – is a recipe for disaster.

However, the unpalatable alternatives are to either 1) spend

all your money (ie. not save for retirement) or 2) keep it on

deposit, which is an almost sure way to lose its real value

(relative to things you may want to purchase in the future),

given inflation is, in most economies, above the deposit rate.

Perhaps a better way of looking at the current predicament is

to ask what is going to change. Are authorities likely to throw

in the towel, let the economy weaken sharply and allow a

default cycle to develop? Or is inflation going to rise sharply,

requiring a significant tightening of policy? Of course, neither

can be totally ruled out, but they do not appear likely, at least

in the coming 12-18 months.

0

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Jan-80 Mar-90 May-00 Jul-10 Sep-20

%

US 10-year government bond yield US Fed Funds target rate

19 Theme 1: Converging on zero


The Fed’s latest policy pivot towards targeting an average 2%

inflation rate over an extended period suggests that the US

central bank is highly unlikely to throw in the towel. Indeed, we

are heading in the opposite direction of attempting to reflate

the economy further to generate higher inflation over the

medium term. That said, we believe inflation will take some

time to rise given the huge excess capacity created by the

COVID-19 crisis.

Recipe for higher valuations

This interpretation suggests that asset valuations may get

more expensive – higher-yielding corporate bond yields falling

further and equity P/E ratios rising higher. While this naturally

reduces long-term return on assets (a trend that has been in

play for several years – see chart), it suggests that these

returns may be ‘front-loaded’. In turn, this means investors

have to trade-off 1) being patient and waiting for cheaper

valuations and 2) acknowledge the risk that this may not

happen for the foreseeable future and, in the meantime, they

miss out on attractive returns.

The reality is nobody knows exactly what the future has in

store for us and therefore the ideal investing style is to try to

prepare for different potential scenarios. Therefore, a prudent

investor would still hold some high-grade bonds, despite their

very low yields, in case the economy does falter in a

meaningful way.

However, the Fed’s policy shift increases the probability of

inflation rising in the coming years. Therefore, increasing your

allocation to assets that protect you against a modest rise in

inflation probably makes sense. Such assets would include

equities, assets with yields significantly above the level of

inflation – for instance high yielding bonds – and income-

generating assets which are inflation-protected.

Fig. 6 Declining long-term expected returns largely

caused by the front-loading of returns

Potential seven-year forward-looking geometric returns for different

asset classes

Source: Mercer, Standard Chartered

0

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IG bonds* EM sovereignbonds

DM equity EM equity

%

2012 2016 2020


September marks the first significant decline in global equities since they bottomed

in March. Global equities were down over the month, while credit – USD bonds that

pay a yield in excess of US government bonds – has been relatively resilient. US HY

and IG bonds declined by less than 2%, a considerably smaller magnitude relative

to history during comparable equity drawdowns.

Interestingly, the recent performance of traditional safe havens has been mixed.

During the sharpest stage of the decline in September, US government bonds

posted negative returns, while returns on gold, the CHF and US inflation-protected

government bonds were flat or negative over the month. Of all the safe havens, only

the USD and JPY gained, but even here, the returns were insufficient to significantly

balance the decline in equity markets.

Diversification alternatives are increasingly difficult to find

For the last two decades, DM government bonds, especially US Treasuries, have

reliably played the role of an ‘anti-fragile’ asset. What is an anti-fragile asset?

According to Nassim Taleb, who popularised this term, it is something that gains,

and indeed thrives, in stress and disorder. DM government bonds have historically

been one such asset, usually uncorrelated to other risky assets, while delivering

attractive gains during periods of market stress. This role is now being challenged in

the post-COVID-19 world where more than 24% of DM government bond nominal

yields are in the negative territory.

Fig. 7 Mixed performance from traditional safe havens in the most recent equity market pullback

Periods of decline in US equities

Traditional hedges New anti-fragile

S&P 500 Swiss Franc

Japan Yen

DXY Index

US 10yr TIPS

US 10y Treasury Gold

MSCI World IT

MSCI ACWI Gold

Miners China

CSI 300

MSCI World Alt Energy

Sep '20 -10% -1% 1% 2% -1% 0% -4% -11% -10% -4% -3%

Jun '20 -7% 1% 1% 1% 2% 3% 4% 0% 8% 3% -6%

Feb-Mar '20 -34% 0% 0% 3% 0% 9% -4% -31% -26% -13% -36%

Dec '18 -11% 1% 2% 0% 1% 3% 3% -9% 8% -4% -6%

Jan-Feb '16 -6% 3% 5% -3% 2% 4% 15% -7% 37% -8% -7%

Aug-Sep '15 -7% -1% 3% 0% -1% 0% -1% -6% -16% -15% -15%

Apr-Oct '11 -19% -6% 6% 9% 10% 16% 7% -15% -18% -49%

Apr-Jul '10 -16% 1% 7% 4% 3% 8% 4% -17% -21% -23%

Jan-Mar '09 -27% -7% -7% 10% -1% -3% 5% -19% 21%

May-Nov '08 -47% -14% 11% 20% -11% 9% -17% -50% -50%

Jan-Mar '08 -13% 11% 10% -5% 9% 6% 16% -17% -17%

Mar-Oct '02 -34% 12% 7% -9% 14% 18% 9% -50%

May-Sep '01 -26% 11% 5% -3% 6% 2% -43%

Nov '00-Apr '01 -23% 3% -13% 0% 9% -5% -54%

Average -20% 1% 3% 2% 2% 6% 2% -23% 0% -14% -18%

Outperformance vs. S&P 500 21% 23% 22% 21% 26% 23% 4% 21% 16% 4%

Hit rate 57% 86% 57% 58% 86% 64% 7% 50% 18% 0%

Source: DataStream, Standard Chartered, shaded areas indicate positive absolute return and outperformance against the S&P 500 index

20 Theme 2: Anti-fragile assets


Deeply negative bond yields needed

During an equity market drawdown, government bond yields

would need to go into deeply negative territory in order to

generate the returns requires to offset losses from equities.

For instance, the US 10-year government bond yield would

need to decline to -1.4% in order to offset a 20% equity loss

in a simple allocation of 60% in US equities and 40% in US

government bonds. These sorts of moves are unrealistic, in

our view, which makes US government bonds less effective

as a hedge today. As such, investors will increasingly need to

seek alternatives.

Fig. 8 Significant yield moves needed to offset losses

in a 60/40 allocation

Where the 10-year local bond yields would need to fall to fully offset

a10/20% decline in local equity markets assuming a 60% allocation

to equities and 40% allocation to bonds

Source: Refinitiv, Standard Chartered

The new anti-fragile asset?

At the time of writing this piece, there are four asset classes

that have made fresh highs and more than recouped their

losses from the March selldown. They are global technology,

alternative energy, gold mining sector equities and Chinese

onshore equities, which benefitted from the stimulus-induced

liquidity, and are potentially emerging as new anti-fragile

candidates.

• Technology stocks – a potential hedge to fears of a re-

emergence of the pandemic/further lockdown restrictions.

• Alternative energy stocks – a prime beneficiary of

government spending. A second wave could encourage

more spending in this area.

• Gold and precious metal – historically an asset that could

be used against currency debasement and very relevant

considering today’s massive monetary stimulus and

government spending

• China assets – benefits from its increasing inclusion to

global equity and bond indices, and increased allocation to

the CNY as a reserve currency, especially if US reserve

currency status and the US dollar were to weaken

significantly.

Fig. 9 Gold miners, Technology, Alternative energy

sector equities and China CSI 300 index the new market

leaders for this decade?

Total return of Gold miners, Technology, Alternative energy and

China CSI 300 equities rebased to 100 on 31-12-2019

Source: Refinitiv, Standard Chartered

As with all new bull markets, there is an interesting story

behind them that captures investors’ fascination. While these

assets have delivered strong returns in recent times, they are

ultimately equities and have similar volatility characteristics to

this asset class (in many cases they are actually more volatile

than global equities). Therefore, we should emphasise that

they are clearly not a direct replacement for bonds.

Investors should still consider having bonds as part of a

diversified allocation, despite the diminished returns ability to

provide offsetting returns. Given how low bond volatility is, and

is likely to remain given policy support, an allocation to bonds

would still help dampen the overall portfolio volatility, making

it more likely for investors to have greater staying power when

it comes to investing.

Fig. 10 New anti-fragile candidates may enjoy structural tailwinds; however, they do come with equity-like volatility

Source: DataStream, MSCI, CSI, Standard Chartered

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US Germany Japan UnitedKingdom

Australia

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Yield to offset -10% equity drop Yield to offset -20% equity drop Current Mid Yield

60

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100

120

140

160

31/Dec 29/Feb 30/Apr 30/Jun 31/Aug

S&P 500 World Alt. Energy World Tech

Gold Miners CSI 300

99% 100% 87% 93% 105%115%

100% 97% 91% 104% 101%114% 115% 126%

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Investing in climate change – another false

start or time for a serious look?

Is green the new black in the world of sustainable investing?

Sceptics will say that the concept of investing in climate

opportunities is not new, and early investors in areas such as

solar energy have not realised the gains that have been

promised to them by what was touted as a huge macro trend.

So, what has changed since the early 2000s, and why should

investors be taking a second look at investing in climate

change?

Understanding key terms in the context of potential

impact to the global economy and financial markets

Navigating and making sense of the terms associated with

climate change can be overwhelming. A basic knowledge of

key terms within the context of risks and opportunities will be

useful for investors.

• 1.5°C: This is the figure provided by the Intergovernmental

Panel on Climate Change (IPCC), warning of the impact of

1.5°C global warming above pre-industrial levels. Limiting

warming to 1.5°C would reduce the number of people

frequently exposed to extreme heatwaves by about 420m.

Extreme weather is already affecting businesses.

Cambridge University’s Climate Change Business Risk

Index estimates that climate change can add over USD

100bn of loss each year to the global economy. This

includes disruptions in business operations and supply

chains globally.

• Decarbonisation: This is the process by which countries,

individuals or companies aim to achieve a zero fossil

carbon existence, and typically refers to a reduction of the

carbon emissions associated with electricity, industry and

transport. It is estimated that the world needs to spend

USD 2.4tn every year until 2035 to limit global warming to

1.5ºC1.

• Transition to a low-carbon economy: Transition refers

to the process of changing from one state or condition to

another within a given period. A low-carbon economy is

one based on low-carbon power sources. Opportunities

exist in the development of new technologies, products

and services for both, which could capture new markets

and sources of funding.

1Source: United Nations International Panel on Climate Change

• Transition risks: These are risks that occur when moving

towards a greener economy, where some sectors of the

economy face either higher costs of doing business or a

significant depreciation in their assets. Transition risks

include policy changes, reputational impacts, and shifts in

market preferences, norms and technology. Based on a

2019 Climate Disclosure Project report, the world's 215

biggest companies, representing nearly USD 17tn in

market capitalisation, value the climate risks to their

businesses at a collective c.USD 1trn.

Why is now the time to look for investment

opportunities related to climate change?

Significant government spending post COVID-19 on

sustainable development

We expect that policy will continue to support the energy

transition, despite any potential near-term delays due to the

COVID-19 pandemic. The pandemic has altered national

policy priorities and budgets, and some of these will

accelerate the shift towards decarbonisation. For example, in

unveiling its EUR 1.85tn European Recovery Plan, the

European Union (EU) has put ‘accelerating the shift towards

a lower-carbon, more sustainable economy’ at the heart of its

post-pandemic stimulus strategy.

Beyond the EU, we also see momentum in many Asian

countries. China is playing an increasingly important role in

driving sustainable decarbonisation. In its New Policies

Scenario, renewables are a key area of focus in meeting its

growing energy needs. Both the People’s Bank of China

(PBoC) and Monetary Authority of Singapore (MAS) are Asian

founding members of the Network for Greening the Financial

System, working together to develop and share best practices

to enable mainstream finance to support the transition to a

sustainable economy. Even amid the COVID-19 pandemic,

China and Singapore continued to make strides in green

financing, despite daily number of new cases hitting fresh

highs globally.

Increased support and actions taken by large corporates

Beyond policy makers, we see businesses across sectors

launch ambitious commitments around achieving zero carbon

emissions (commonly termed net zero).

More and more companies are not just looking at their own

emissions and what they can control, but also carbon

emissions from the use of their products and services, such

as mobile phones, washing detergents and supply chain

activity.

23 Theme 3: Investing in climate change


Big technology companies have announced plans to achieve

net zero emissions across their entire business, including

manufacturing supply chain and product life cycle.

The same is seen in the fast-moving consumer goods

industry, where an industry leader recently announced USD

1.2bn of investments to help its suppliers adopt technologies

to eliminate the use of fossil fuels in the production of cleaning

products by 2030. This is the first large investment in the

sector looking to replace oil in its production process with

ingredients derived from wood or microbial fermentation, or

even recycled carbon from other industries.

In the entertainment space, some theme parks are making

investments in renewable energy across their operations,

leveraging both geothermal and solar energy to power their

theme parks and resorts.

Where are the investment opportunities in a

low-carbon world?

The focus on decarbonisation is here to stay, but the nature

and speed of transition vary across companies and sectors,

and there is often a spectrum in terms of readiness and

progress.

Three key areas stand out as opportunities.

• Renewable energy: The shift to renewable energy

continues to accelerate, and with technological innovation,

solar and wind energy are now cheaper than fossil-fuel

energy sources. In fact, solar and onshore wind are now

the cheapest new sources of electricity in several

countries, including the US, China and India – the three

largest in terms of electricity consumption.2 When it comes

to clean energy innovation, Europe typically leads nascent

technologies, while Asia tends to take the lead once costs

come down and manufacturing gains scale. Right now,

Asia is very much the hub for battery production, led by

companies in China and Korea.

Fig. 11 The cheapest sources of new energy (H1 20), USD/megawatt-hour

Source: BloombergNEF

2Solar and Wind Cheapest Sources of Power in Most of the World, Bloomberg, 28 April 2020, https://www.bloomberg.com/news/articles/2020-04-28/solar-and-wind-

cheapest-sources-of-power-in-most-of-the-world?sref=Vefqd1fk

Onshore wind

Utility PV – fixed axis

Utility PV – tracking

Coal

U.S. $37

U.K. $45GERMANY $50

BRAZIL $30

SOUTH AFRICA $50

AUSTRALIA $39

INDIA $33CHINA $38

JAPAN $71


• Electrification: The electrification of energy consumption

will open new opportunities within transportation, heating

and industrial processes. Cleaner transport and logistics

are among one of the focus areas in the EU Green Deal,

including the installation of one million charging points for

electric vehicles (EV) and a boost for rail travel and clean

mobility in cities and regions. In Asia, China continues to

be a global leader in EV, producing over 50% of EVs

worldwide. The expansion of electric mobility in China is

leading to lower EV prices and increasing accessibility.

• Resource efficiency: While renewables and electrification

are more commonly associated with decarbonisation,

driving resource efficiency is as important in the transition

journey. At the most basic level, resource efficiency

captures the notion of 'doing more with less' - from energy

to water and material efficiency. As an example, material

efficiency strategies, including recycling, can reduce

emissions from materials and operational energy in

housing by up to 70% in India and China3. Opportunities

will be found in technologies enabling this, alongside

recycling and waste management.

Two key questions investors can ask themselves when

thinking about opportunities in climate transition are:

• Does the company or sector stand to benefit from a

sustainable transition?

• For individual companies, do they seem to have the

resources, capabilities and management support available

to catalyse the change?

Decarbonisation will rise to structural growth opportunities

across many sectors, from industrials to utilities, energy,

technology, materials, chemicals and automotive sectors.

Leading companies across the value chain, from makers of

components, to service providers, to end product distributors

stand to benefit from this trend as they capture opportunities

in this shift towards a low-carbon world.

3Resource Efficiency and Climate Change: Material Efficiency Strategies for a Low-Carbon Future, UN Environment Programme, International Resource Panel,

https://www.resourcepanel.org/reports/resource-efficiency-and-climate-chang


Key themes

Our Global Investment Committee expects the world economy to sustain its recovery through the next 12 months. Coordinated

fiscal and monetary stimuli across the US, Europe, China and Japan, many of which are being extended into 2021, could

potentially make this year’s recession one of the shortest on record. China is leading the rebound, with economic output already

recouping Q1’s pandemic losses. The US and Euro area, which started their recoveries in Q3, are likely to regain most of the

lost output by end-2021. Our Committee assessed the recent slowdown in activity as European countries re-imposed restrictions

to stem a resurgence in COVID-19 cases. We determined that continued job support programmes and monetary stimuli, amid

subdued inflation, are likely to offset any short-term economic disruption. Another global pandemic wave remains a key risk, as

is the upcoming US election, but pro-growth policies of both candidates give us confidence that the recovery will sustain.

Key chart

Fig. 12 The pace of rebound in major economies from H1’s recession is normalising,

but expectations for a strong recovery in 2021 remain intact

Economic surprises index trends and 2020-21 GDP growth estimates for the US, Euro area and China

Our Global Investment Committee

expects the global economy to

recover in 2021 most of the ground

lost this year as economic

restrictions are eased and

monetary and fiscal stimuli are

expanded further

Source: Bloomberg, Standard Chartered; GIC = Standard Chartered Global Investment Committee

US The US economy is emerging in H2 from the deepest recession since WWII amid easing restrictions on activity

and record fiscal and monetary stimulus. Another fiscal stimulus package is likely since both presidential

candidates are pro-growth. 3rd pandemic wave, US-China tensions, Biden’s tax and regulation plan are key risks

● Growth ◐ Inflation ◐ Monetary policy ○ Fiscal policy

Euro area The Euro area is likely to return to growth in H2, although a 2nd pandemic wave has dampened the pace of the

recovery. Governments have extended their record fiscal stimulus into 2021 and we expect the ECB to ease

monetary policy further. We believe the EUR 750bn recovery fund has cemented the economic union

● Growth ◐ Inflation ○ Monetary policy ○ Fiscal policy

China China, which bounced back to growth in Q2 20, is likely to emerge as the only major economy to report a y/y

expansion in 2020. Government-led infrastructure investments to lead the recovery in H2, while its “dual

circulation” policy bolsters the domestic economy, services and consumption. US-China tensions are a key risk


Japan

Japan to see a slow recovery from a prolonged contraction following last year’s sales tax hike and the pandemic

on the back of gradual rebound in global activity. New PM Suga likely to continue with Abe’s reflationary policies


UK

The UK faces near-term uncertainty as a 2nd pandemic wave forces localised lockdowns and as 31 December

Brexit deal deadline approaches. However, sustained fiscal and monetary stimulus to support growth in 2021

● Growth ◐ Inflation ○ Monetary policy ○ Fiscal policy


Legend: ○ Easier/lower in 2021 | ◐ Neutral | ● Tighter/higher in 2021

-400

-300

-200

-100

0

100

200

300

Sep-19 Dec-19 Mar-20 Jun-20 Sep-20

Ec

on

om

ic s

urp

ris

es

in

de

x

US Euro area China

-9.0

-6.0

-3.0

0.0

3.0

6.0

9.0

2020median

2021median

2020median

2021median

2020median

2021median

US Euro area China

% y

/y

GIC June forecast GIC Sept forecast Consensus forecast

4 Macro overview – at a glance


Key themes

Credit – bonds that offer a yield premium over government bonds – remain a preferred holding as valuations generally remain

attractive. Our base case for a continued global growth recovery, supportive monetary policies and low interest rates should

support a further decline in yield premiums and help credit outperform government bonds, especially in the current low-yield

environment.

DM HY bonds are preferred as valuations remain attractive and the reduction in the pace of rating downgrades and defaults may

indicate the worse of credit quality concerns may be behind us. EM USD government bonds also offer attractive yield premiums,

and our expectations for an EM recovery, weaker USD and fund inflows should support the asset class. Asian USD bonds remain

preferred given attractive valuations relative to US corporate bonds, large exposure to China and their continued low volatility

characteristics.

Key chart

Fig. 13 Valuations for credit remain attractive despite the recent performance and offer

room for capital appreciation and income generation

Left chart: Despite healthy

returns in Q3, DM HY and EM

USD bond returns remain in

negative territory YTD

Right chart: Apart from US IG

corporates, yield premiums

remain substantially higher

than start of the year

Source: Citigroup, J.P. Morgan, Barclays, Bloomberg, Standard Chartered. As of 25 September 2020

Pre

fere

nce o

rder

DM HY corporate

▽ ◇ ▲

We view DM HY bonds as a preferred holding as their attractive yield and somewhat cheap valuations

should help them outperform. Higher-than-expected defaults is the key risk.

● Attractive yield ● Valuation vs. govt bonds ○ Credit fundamentals

EM USD government

▽ ◇ ▲ ▲

EM USD government bonds are a preferred holding, owing to their attractive yield and valuations.

Greater-than-expected growth slowdown due to the pandemic is a risk for EM bonds.

● Valuation vs. govt bonds ◐ Macro factors ◐ Rates policy

Asia USD

▽ ◇ ▲

We view Asia USD bonds as a preferred holding given their relatively attractive relative valuation,

moderate yield and defensive characteristics. A slower-than-expected recovery in China is a risk.

● Credit fundamentals ◐ Macro factors ● Valuation vs. govt bonds

EM local currency

▽ ◆ △

EM local currency bonds are a core holding as their reasonable yield, supportive EM central bank policies

and our expectation of EM FX strength are balanced by higher volatility and less attractive valuations.

● FX outlook ◐ Macro factors ◐ Rates policy

DM IG corporate

▼ ◇ △ △

We view the asset class as less preferred. In our assessment, supportive central bank policies and

reasonable valuations are offset by the deterioration in credit fundamentals and better value elsewhere.

◐ Valuation vs. govt bonds ○ Credit fundamentals ◐ Macro factors

DM IG government

▼ ◇ △

DM IG government bonds are less preferred. Their high credit quality and supportive central bank policy

are offset by the low yields they offer. A renewed growth slowdown is an upside risk for this asset class.

◐ Rates policy ◐ Macro factors ○ Valuation

Source: Standard Chartered

Legend: ▲ Most preferred | ▼ Less preferred | ◆ Core holding | ○ Not supportive | ◐ Neutral | ● Supportive | ▭ Key driver

-6%

-4%

-2%

0%

2%

4%

6%

8%

DM IG

govt

EM local

currency

DM IG

corp

DM HY EM USD

govt

Asia USD

%

YTD return QTD return

132

442

571

338

0

200

400

600

800

1,000

1,200

1,400

US IG corp

bonds

EM USD govt

bonds

DM HY bonds Asia USD

bonds

Ind

ex

End-2019 Current

5 Bonds – at a glance


Key themes

We remain positive on the 12-month outlook for equities. However, the Global Investment Council (GIC) believes asset markets

are likely to weaken moderately ahead of the US presidential election on 3 November. This would create an opportunity to add

to equity holdings, in our opinion.

The Fed’s guidance for “lower-for-longer” interest rates is a powerful signal which, if combined with a COVID-19 vaccine and

unprecedented fiscal stimulus, is likely to lead to a multi-year US economic expansion and strong equity returns.

Asia ex-Japan and US equity markets are ranked as “preferred”. We have reduced Euro area equities to a core holding on the

back of increased uncertainty surrounding the outlook for Euro area financials in the near term.

Key chart

Fig. 14 Global equities are witnessing a sharp recovery in earnings growth estimates

MSCI All-Country World 12m ahead earnings forecasts

2020 earnings expectations

slumped sharply but are

expected to see a strong

recovery in 2021. COVID-19,

and the consequent contraction

in activity, is the driver of 2020

weakness. Optimism around a

vaccine drives the 2021

recovery

Source: MSCI, Bloomberg, Standard Chartered; as of 28 September 2020

Pre

fere

nce o

rder

Asia ex-Japan equities

▽ ◇ ▲

Asia ex-Japan is a preferred holding. A weaker USD and increased China consumption should support the

region in the coming quarters. Both China (onshore and offshore) and Korea are preferred in the region

◐ Bond yields ● Fund flows ○ Geopolitics

US equities

▽ ◇ ▲ ▲

The US is also a preferred holding. Low bond yields are supportive of growth and lead indicators are

responding to monetary and fiscal stimulus. Earnings are expected to rebound to 27% in 2021, in our view

● Bond yields ◐ Fund flows ○ Geopolitics

Euro area equities

▽ ◆ ◇ ▲

Euro area is a core holding. Increased uncertainty over the outlook for financials has weighed on the

outlook for the region. A weaker USD could support foreign inflows

◐ Bond yields ◐ Fund flows ◐ Geopolitics

Japan equities

▽ ◆ △

Japan is a core holding. Cash levels among corporates are the second-highest across the five regions in

our universe. The BoJ’s plans to increase purchases of exchange-traded funds is supportive


EM ex-Asia equities

▽ ◆ △

EM ex-Asia is a core holding. A recovery in global growth in 2021 should help support the commodity-

heavy EM-ex Asia index. We are monitoring the impact of COVID-19 infection rates on growth


UK equities

▼ ◇ △

The UK is less preferred. UK equities have underperformed global equities YTD. While the market is

emerging from the downturn, Brexit negotiation uncertainty looms large on investors’ radars

◐ Bond yields ○ Fund flows ○ Geopolitics


Legend: ▲ Most preferred | ▼ Less preferred | ◆ Core holding | ○ Not supportive | ◐ Neutral | ● Supportive | ▭ Key driver

-5

0

5

10

15

20

Jan-15 Nov-15 Sep-16 Jul-17 May-18 Mar-19 Jan-20 Nov-20

12m

fw

d E

PS

g (

%)

6 Equity – at a glance


US industrials upgraded to preferred

US equity sector

Industrials – preferred holding

The US industrials sector is likely to be a key beneficiary of

the wide availability of a COVID-19 vaccine and acceleration

in economic activity in 2021. An increase in travel and tourism

will likely benefit the transport industry group. A brighter

economic outlook is likely to result in increased investment

and, in turn, demand for capital goods. The sector is also a

beneficiary of the proposed infrastructure bill that both

presidential candidates support. The YTD performance

reflects an overly gloomy economic outlook that is not

supported by indicators such as the PMI, which is historically

positively correlated with the industrial sector’s performance.

Fig. 15 Divergence between PMI and industrial sector

likely to reverse once a vaccine is widely available

Euro area PMI and industrial sector performance y-o-y change

Source: FactSet, MSCI, Standard Chartered

Information technology – preferred holding

The US information technology sector remains a preferred

holding given its strong fundamentals and continued growth in

sales and profits during the COVID-19 pandemic. While there

remain concerns over tighter regulatory oversight after the

inauguration of the next US president, its prospects remain

much more attractive than the broader market, in our opinion.

The accelerated adoption of cloud technology, convergence

of old and new business models and broad-based adoption of

subscription services models are new earnings drivers for the

sector. The 12-month ahead P/E ratio of 27x is above the

long-term average but supported by above-average earnings

growth, in our assessment.

Europe equity sector

Consumer staples – preferred holding

The European consumer staples sector is upgraded to a

preferred holding. The sector’s defensive characteristics and

inverted correlation to bond yields are supportive, in our view.

Exports of food and beverage products outside Europe have

recovered sharply as Chinese consumers start spending once

again. Sector valuations are elevated compared to long-term

averages, but we expect a pick-up in earnings growth to

support valuations in the coming months.

China equity sector

Healthcare – preferred holding

The China healthcare sector remains a preferred holding.

Similar to other defensive sectors, performance is negatively

correlated to bond yields, which we expect to fall further as

policymakers stimulate the economy via monetary and fiscal

measures. Improved health awareness and the rise in

healthcare spending since the COVID-19 crisis are positives

for the sector and earnings growth. The 12-month ahead P/E

is above long-term average but supported by earnings growth.

Information technology – preferred holding

The China information technology sector remains a preferred

holding. The outlook for the sector is among the best in the

market, in our view. Structural drivers include rising

consumption and high penetration of e-commerce and

subscription services. The adoption of new technology during

the COVID-19 crisis should reinforce the long-term structural

demand for cloud services, 5G equipment and big data

Fig. 16 Our sector views and changes since June 2020

US Euro area China

Industrials (+) Cons. staples (+) Cons. discretionary

Technology Utilities Technology

Healthcare Healthcare Healthcare

Cons. discretionary Industrials Cons. staples

Cons. staples Cons. discretionary Real estate

Financials Financials (-) Materials

Utilities Energy Industrials

Real estate Real estate Comm. services

Materials Materials Utilities (-)

Energy (-) Technology Energy (-)

Comm. services Comm. services Financials

Source: Standard Chartered; +/- sign indicates change since June 2020

Legend: Preferred Core holding Less preferred

-50%

-30%

-10%

10%

30%

50%

70%

-20%

-10%

0%

10%

20%

30%

Sep-00 May-07 Jan-14 Sep-20

% y

/y

% y

/y

MSCI Industrial relative performance y/y ISM PMI y/y

7 Equity sector strategy


Key themes

We believe the USD has entered a structural and cyclical decline. The Fed’s recent policy shift signals negative real interest

rates for longer, and expected rising budget and trade deficits may worsen after the US election.

We look for a broad USD fall of around 7% over the coming 12 months. The EUR, GBP and AUD are likely to be the main initial

beneficiaries, but we see potential for Asian currencies to “catch up” if the US foreign and trade policy changes after the election.

The coming weeks are likely to see some corrective gains for the USD and rising volatility as the US election process dominates

market sentiment. Elevated levels of short USD speculative positioning could see USD rallies. These would be viewed as

opportunities for investors to buy currencies that will benefit from the weakening USD once the near-term correction is over.

Key chart

Fig. 17 US twin deficits expected to weigh on the USD as it moves into a structural

decline

USD index (DXY), sum of the US current account and government budget deficits (% of GDP; RHS)

The USD impact from negative real

interest rates and narrow real rate

differentials will be exacerbated

once global growth improves. The

outlook for a deteriorating twin

deficit suggests a multi-year USD

decline may lie ahead if global

USD liquidity remains plentiful


USD (DXY)

▼ ◇ △ ▲

The USD lower on negative real rates, rate differentials, ample USD liquidity, rising twin deficits and improving

global growth

○ Relative interest rates ○ Relative growth rates ○ Flows and sentiment

EUR/USD

▽ ◇ ▲

Undervalued EUR to strengthen as a liquid USD alternative; “Fed” fiscal policy and ECB rate support are key

● Relative interest rates ◐ Relative growth rates ● Flows and sentiment

GBP/USD

▽ ◇ ▲

The GBP is undervalued provided a Brexit trade deal is agreed; both sides should be driven towards a deal

◐ Relative interest rates ◐ Relative growth rates ● Flows and sentiment

USD/CNY

▼ ◇ △

Fiscal stimulus, recovering growth and attractive yields are driving inflows; US foreign and trade policy may weigh

○ Relative interest rates ○ Relative growth rates ○ Flows and sentiment

USD/JPY

▽ ◆ △

The JPY will likely be caught between bouts of safe-haven inflows and Japanese investors’ return-seeking outflows

○ Relative interest rates ◐ Relative growth rates ◐ Flows and sentiment

AUD/USD

▽ ◇ ▲

TOT are positive and exports are strong; domestic stimulus expected, but the RBA is wary of strong AUD deflation

effect

◐ Relative interest rates ● Relative growth rates ● Flows and sentiment

Source: Standard Chartered

Legend: ▲ Bullish view | ▼ Bearish view | ◆ Range view | ○ Not supportive | ◐ Neutral | ● Supportive | ▭ Key driver

-20

-15

-10

-5

0

5

60

80

100

120

140

160

Mar-70 Jan-87 Nov-03 Sep-20

%

DX

Y

DXY Twin deficits* (% of GDP) (RHS)

9 FX – at a glance


Key themes

The returns (simulated) of our Asia-focused balanced and global multi-asset income allocations have been 25.2% and 24.9%,

respectively, since the March lows and 2.6% and -2.1% since our Outlook 2020.

Over the next 12 months, we remain constructive on risk assets on the back of ultra-supportive monetary and fiscal policies, a

weaker USD and the increasing likelihood of a COVID-19 vaccine. That said, potentially mixed macroeconomic readings, the

recent rebound in COVID-19 cases in several parts of the world, rising trade tensions and geopolitical risk from the upcoming

US election advocate for a diversified investment approach. Such an approach, as represented by our diversified multi-asset

income allocation, currently yields an indicative 4.6%, which is well within our 4.0-5.0% income target.

On a tactical basis, we are taking advantage of the recent equity pullback to add risk to our global/Asia-focused balanced and

global multi-asset income allocations by increasing equity exposure marginally at the expense of the bond allocation, for which

we continue to prefer credit to rates. Within rates, we favour a moderate average maturity profile (5-7 years). Our allocation to

gold remains important as we approach the US election, in our opinion.

Key chart

Fig. 18 Performance comparison of Asia-focused balanced and multi-asset income

allocations

Total returns (ann.) and volatility (ann.) between 2014 and 2020 as of 1 October 2020

A diversified allocation remains

the prudent investing approach

in this period


Fig. 19 Target yield of 4-5% remains achievable

Source: Bloomberg, Standard Chartered Global Investment Committee. Yield data as of 30 September 2020

Volatility of Asia focused balanced

allocation (ann.)

Total return of Asia focused balanced

allocation (ann.)

Volatility of Multi-asset income

allocation (ann.)

Total return of Multi-asset income

allocation (ann.)

7.0%

1.3%

8.9%11.1%

-0.3%

11.7%

-2.1%

5.8%

1.4% -1.3%

6.9%

13.7%

-3.1%

10.6%

2.6%

4.7%

5.4% 5.4% 7.4%2.6%

9.6%

5.8%

16.3%7.9%

5.8%7.1%

7.3%2.4%

9.1%6.6%

16.9%

7.5%

Period2014- 20192014 2015 2016 2017 2018 2019 2020

0.9 1.02.3

5.9 5.8

3.9

5.1 4.84.2

3.6

5.9 6.1

4.4 4.35.2 5.2

4.6

0

2

4

6

8

10

12

DM

IG

DM

IG

Sov

DM

IG

Co

rp

DM

HY

Le

vera

ged

lo

an

s

Asia

US

D

EM

HC

Go

vt

EM

LC

Govt

Glo

bal H

DY

US

HD

Y

Eu

rope

HD

Y

Co

ve

red

Ca

lls

Glo

bal R

EIT

s

Asia

RE

ITs

Pre

ferr

ed

Co

Co

s

Multi-

asse

t In

co

me

Yie

ld (

%)

Max - Min range since 2014 Yield as of end June 2020 Current yield (with labels)

12 Multi-asset allocation – at a glance


12-month view ASIA FOCUSED GLOBAL FOCUSED

Summary View Conservative Moderate Moderately Aggressive Aggressive Conservative Moderate

Moderately Aggressive Aggressive

Cash ▼ 10 3 1 0 10 3 1 0

Fixed Income ◆ 66 39 30 8 66 39 30 8

Equity ▲ 24 42 54 81 24 42 54 81

Gold ▲ 0 7 7 6 0 7 7 6

Alternatives ◆ 0 9 8 4 0 9 8 4

Asset class

USD Cash ▼ 10 3 1 0 10 3 1 0

DM Government

Bonds ▼ 3 2 1 0 4 3 2 1

DM IG Corporate

Bonds ▼ 8 5 4 1 11 7 5 1

DM HY Corporate

Bonds ▲ 9 7 5 1 16 10 8 2

EM USD Government

Bonds ▲ 17 9 7 2 12 7 5 2

EM Local Ccy

Government Bonds ◆ 12 7 5 1 9 5 4 1

Asia USD Bonds ▲ 17 9 7 2 13 7 5 1

North America

Equities ▲ 15 14 18 26 16 23 29 43

Europe ex-UK

Equities ◆ 3 7 9 13 2 3 4 7

UK Equities ▼ 1 1 1 2 1 1 1 2

Japan Equities ◆ 1 2 2 3 1 2 2 3

Asia ex-Japan

Equities ▲ 6 16 20 30 5 10 13 20

Non-Asia EM Equities ◆ 0 3 4 7 1 3 4 7

Gold ▲ 0 7 7 6 0 7 7 6

Alternatives ◆ 0 9 8 4 0 9 8 4

All figures in %. Source: Standard Chartered.

Note: (i) For small allocations we recommend investors to allocate through broader global equity/global bond solutions; (ii) Allocation figures may not sum to 100%

due to rounding effects.

Legend: ▲ Most preferred | ▼ Least preferred | ◆ Core holding

14 Asset allocation summary


Term Definition/explanation

AUD Australian dollar

AxJ Asia ex-Japan

bbl barrels

bn billion

BoE Bank of England

BoJ Bank of Japan

bps basis point; 0.01%

CNY Chinese yuan (onshore)

CoCos Contingent Convertibles

DM Developed Market

dMA x-day moving average

DXY US dollar index

EBITDA Earnings before interest, tax, depreciation and amortisation

ECB European Central Bank

EM Emerging Market

EUR Euro

ETPs Exchange Traded Products

FOMC Federal Open Market Committee

FX Foreign Exchange

GBP British pound sterling

GICS Global Industry Classification Standard for equities

HC Hard currency

HDY High dividend yield

HY High Yield

IG Investment Grade

INR Indian rupee

JPY Japanese yen

LCY Local currency

LTV Loan-to-value

M&A Mergers and acquisitions

m/m month-on-month

Mark-to-Market

Measure of the fair value of a particular asset; Reflection of current market levels

Term Definition/explanation

mMA x-month moving average

m million

Neutral rate Fed’s estimated benchmark interest rate at which real

US GDP is expected to grow at its trend rate and

inflation is expected to remain stable

OPEC Organisation of the Petroleum Exporting Countries

Outside

view

A learning based on data from a class of roughly

similar previous cases

oz ounces

P/E Price-earnings

PMI Purchasing Managers’ Index

q/q quarter-on-quarter

RBA Reserve Bank of Australia

RSI Relative Strength Index

Senior

floating rate

loans

A debt financing obligation issued by a bank or similar

financial institution to a company or individual that

holds legal claim to the borrower’s assets above all

other debt obligations. Yields may vary based on

changes in benchmark interest rates

SGD Singaporean dollar

Terms of

trade (TOT)

The ratio of an index of a country’s export prices to an

index of its import prices

trn trillion

Twin deficit Current account and fiscal deficit

USD US dollar

VIX CBOE Volatility Index

wMA x-week moving average

y/y year-on-year

YTD Year-to-date

Understanding the terminology on our asset class preferences

Preferred Assets which the Global Investment Committee

expects to outperform the asset class benchmark

index in the next 12 months

Core Assets which the Global Investment Committee

expects to perform in line with the asset class

benchmark index in the next 12 months

Less

Preferred

Assets which the Global Investment Committee

expects to underperform the asset class benchmark

index in the next 12 months

Glossary


Source: MSCI, JPMorgan, Barclays, Citigroup, Dow Jones, HFRX, FTSE, Bloomberg, Standard Chartered

*All performance shown in USD terms, unless otherwise stated

*YTD performance data from 31 December 2019 to 1 October 2020 and 1-month performance from 1 September 2020 to 1 October 2020

0.1%

-2.9%

4.6%

4.2%

1.6%

-1.2%

2.9%

-2.8%

4.8%

2.3%

0.3%

25.6%

-33.1%

24.1%

-2.1%

-45.2%

-4.6%

-12.8%

4.4%

1.2%

0.8%

1.1%

6.2%

2.7%

-4.1%

-0.3%

8.2%

8.9%

7.0%

-18.2%

-4.8%

8.7%

2.1%

27.7%

-3.8%

6.6%

-22.2%

-43.4%

1.1%

20.8%

14.5%

4.6%

-2.6%

16.4%

-5.7%

-36.0%

-27.9%

-20.1%

5.7%

-10.5%

-0.8%

-3.6%

-8.6%

-11.0%

7.6%

-0.9%

2.3%

-10.0%

1.9%

-60% -40% -20% 0% 20% 40%

Year to Date

-1.6%

-0.1%

0.2%

-0.2%

-0.3%

-0.1%

0.4%

-3.7%

-1.4%

-2.5%

0.5%

-3.3%

-11.0%

-6.3%

-6.4%

-11.5%

2.7%

-4.4%

-0.6%

-2.5%

-0.9%

-1.3%

-1.0%

0.0%

-2.2%

-2.4%

-0.7%

0.0%

-0.5%

-1.2%

0.9%

-4.9%

-2.4%

-4.6%

-1.3%

-1.2%

-5.0%

-13.5%

-1.0%

-2.6%

0.8%

1.8%

1.0%

-4.6%

2.1%

-8.9%

-8.8%

-2.6%

-2.6%-3.8%

1.0%

0.7%

-2.8%

-0.3%

-3.9%

-3.0%

-3.4%

-2.2%

-3.3%

-15% -10% -5% 0% 5%

1 month

Global Equities

Global High Div i Y ield Equities

Dev eloped Markets (DM)

Emerging Markets (EM)

US

Western Europe (Local)

Western Europe (USD)

Japan (Local)

Japan (USD)

Australia

Asia ex-JapanAf rica

Eastern Europe

Latam

Middle East

China

India

South KoreaTaiwan

Alternatives

FX (against USD)

Commodity

Bonds | Credit

Equity | Country & Region

Equity | Sector

Bonds | Sovereign

Consumer Discretionary

Consumer StaplesEnergy

Financial

Healthcare

Industrial

IT

Materials

Telecom

Utilities

Global Property Equity /REITs

DM IG Sov ereign

US Sov ereign

EU Sov ereign

EM Sov ereign Hard Currency

EM Sov ereign Local Currency

Asia EM Local Currency

DM IG Corporates

DM High Yield Corporates

US High Yield

Europe High YieldAsia Hard Currency

Asia ex-Japan

AUD

EUR

GBP

JPY

SGD

Composite (All strategies)

Relativ e Value

Ev ent Driv en

Equity Long/Short

Macro CTAs

Div ersif ied Commodity

Agriculture

Energy

Industrial Metal

Precious Metal

Crude OilGold

15 Market performance summary*


OCTOBER 2020

15 2nd US presidential election debate

15-16 G20 Finance Ministers and central bankers’ meet

22 3rd US presidential election debate

29 BoJ policy decision

29 ECB policy decision

NOVEMBER 2020

03 US presidential and Congressional elections

05 FOMC policy decision

05 BoE policy decision

08-12 APEC Summit in Malaysia

21-22 G20 Summit in Saudi Arabia

DECEMBER 2020





31 End of Brexit transition period

JANUARY 2021

20 US presidential inauguration day




FEBRUARY 2021


MARCH 2021





APRIL 2021




MAY 2021


JUNE 2021





X – Date not confirmed | ECB – European Central Bank | FOMC – Federal Open Market Committee (US) | BoJ – Bank of Japan | BoE – Bank of England

16 Events calendar


ANNUAL

OUTLOOK

annually

GLOBAL

MARKET

OUTLOOK

monthly

The Annual Outlook highlights our key investment themes for the

year, the asset classes we expect to outperform and the likely

scenarios as we move through the year.

Our monthly publication which presents the key investment

themes and asset allocation views of the Global Investment

Committee for the next 6-12 months.

WEEKLY

MARKET

VIEW

weekly

GLOBAL

WEALTH

DAILY

daily

Our weekly publication which provides an update on recent

developments in global financial markets and their implications for

our investment views.

Global Wealth Daily is an early morning update of major economic

and political events and their day-to-day impact on various assets

classes the previous day.

MARKET

WATCH

ad hoc

360

PERSPECTIVES

ad hoc

Market Watch focuses on major events or market developments

and their likely impact on our investment views. 360 Perspectives provides a balanced assessment of the outlook

for an asset class. It presents both the positives and negatives of

the asset class, as well as the major drivers, instead of offering a

specific view.

INVESTMENT

BRIEF

ad hoc

Investment Brief explains the rationale behind our views on an

asset class, incorporating the fundamental and technical drivers.

17 Wealth management

24

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