💰 CIO Q4 Outlook: Earnings Above All
- 📈 Strong earnings growth overwhelms other factors: Economic and earnings growth remain robust, sufficient to offset the impact of rising bond yields. We remain positive on the outlook for equities through year-end and beyond.
- 🎯 1990s rate hikes offers a better parallel: Back then, central banks were hiking rates into strong economic and earnings growth, resulting in equity markets maintaining their pace of gains. While the recent hike and the period around the US midterm elections may bring volatility, we expect strong earnings growth to ultimately remain the dominant market driver.
- 💰 Maintain a preference for equities over bonds and cash: Oil prices have yet to reach “shock levels,” while the global economy is less oil-intensive than it has been historically. As long as nominal oil prices avoid an excursion into the USD 120-150/bbl range, the worst-case scenarios for economic growth and inflation can likely be avoided. Any further market pullback would represent an opportunity to add exposure, with the U.S. and Asia ex-Japan remaining our preferred equity markets.
- 💵 Take advantage of higher bond yields but cap duration: The US 10-year treasury yield is forecast to trade within a 5.0%-5.25% range over the next three months before easing to 4.75%-5.0% over the next 12 months. Corporate credit quality remains strong. We are overweight emerging-market USD bonds and recommend keeping bond duration within the 3-to-7-year range.
- 🧈 Gold to continue grinding higher: We believe Fed hikes are now excessively priced, hence the USD may gradually weaken thereafter, supporting further upside in gold, with a 12-month target of US$5,000.
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Note
*For offer details, please refer to Investment Fund Services Webpage
^For offer details, please refer to Securities Services Webpage
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Risk Disclosure Statement
- Investment involves risks. The prices of investment products fluctuate, sometimes dramatically and the worst case may result in loss of your entire investment amount. Past performance is no guide to its future performance.
- Investors should read the terms and conditions contained in the relevant offering documents and in particular the investment policies and the risk factors and latest financial results information carefully and are advised to seek independent professional advice before making any investment decision.
- Investors should consider their own investment objectives, investment experience, financial situation and risk tolerance level.