RHB Group analyst Shekhar Jaiswal urged investors to be on the defensive as the Straits Times Index remains volatile due to uncertainties around China’s economic slowdown, coupled with the US interest rate outlook.
“We could see a re-rating in the equity market closer to the end of the year, supported by the services sector’s resilience, a likely pause in interest rate hikes, and manufacturing and exports sector revival. We continue to recommend investors hold a core defensive portfolio of higher quality companies or REITs that offer secular earnings growth and/or defensive dividends, with selective exposure to topical names and small-mid cap stocks that have strong earnings tailwinds,” Jaiswal stated.
Research by the RHB Economics and Market Strategy team suggests that they expect the US Federal Reserve’s Federal Funds Rate to increase 5.50% to 5.75% with the balance of risks skewed towards a print of 5.75% to 6% in 2023.
There are no FFR cuts expected into the first half of 2024. Meanwhile, the momentum of retail sales is expected to improve in the second half of this year due to seasonal factors such as Single’s Day Sale, Christmas shopping, Black Friday sale, and the F1 race.
Jaiswal added that investors should stick with industrial REITs as rotation into the REIT sector as in general, it will be time-sensitive. Investors must also invest in companies bound to benefit as Chinese tourists return to the Hong Kong and ASEAN regions.
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Moreover, investors must retain exposure to companies offering defensive earnings and dividends, as well as those buying into mid and small-cap companies with a promising growth outlook.
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