CIOInsights 1 Q23

CIO
Insights
1Q23
Source: iStock
The Return of 60/40.

Recession Risks to Attractive Risk-Reward Upgrade Bonds to Stay with High Quality
Slow Rate Trajectory in 60/40 Overweight Equities
Expect a slower path of After an unusual year The wide bond-equity Expect the lower valuation
rate increases that will where both asset classes yield gap calls for an of equity markets to
terminate at 5%, as the fell sharply and in tandem, upgrade to Overweight mitigate impact from
Fed weighs recession this is an opportune time bonds. Investment Grade negative earnings growth.
risks. Inflation to slow but for balanced risk investors credit, with yields in Stay with wide-
not to the extent where to engage in a portfolio excess of 5%, provides moat companies that
the Fed will begin cutting comprising 60% equities a blend of income and demonstrate agility to
rates. and 40% bonds. safety. thrive in a fast-changing
world.
DBS CIO INSIGHTS | FIRST QUARTER 2023
Content
02 FOREWORD 118 THEMATIC STRATEGY
Cybersecurity 118
03 EXECUTIVE SUMMARY 136 GLOSSARY
05 INVESTMENT STRATEGY
Asset Allocation 07
Macroeconomics 24
US Equities 38
Europe Equities 43
Japan Equities 48
Asia ex-Japan Equities 55
Global Rates 67
Global Credit 77
Global Currencies 85
Alternatives: Gold 99
Alternatives: Private Assets 104
Commodities 111
1Q23 CONTENT 1
Foreword
Dear valued clients,
2022 was not an easy time for many of us. Even as central banks
attempt to rein in inflation rates that have reached multi-decade highs,
their economies remain vulnerable to the recession amid weakening
geopolitical and macroeconomic fundamentals.
Yet, to borrow the words of American actor and filmmaker Robert Redford,
problems can become opportunities when the right people come together.
I’m happy to share that Global Finance has named us its ‘Best Bank
in the World’ for 2022. This latest win marks the seventh World’s Best
Bank award we have won within a span of five years, including wins from
UK-based Euromoney (World’s Best Bank – 2019, 2021) and Financial
Times publication The Banker (Global Bank of the Year – 2018, 2021),
and is a feat unmatched by any other bank in the world. Sim S. Lim
Group Head Consumer Banking
We’ve also picked up Global Finance’s accolades for World’s Most & Wealth Management
Innovative Private Bank and Best Private Bank in Asia-Pacific, awards
that make a nod to the tireless service of our private banking team.
Last year, we further augmented our regional footprint with the acquisition
of Citigroup’s consumer banking business in Taiwan, and we look forward
to serving you better with our expanded network.
In keeping with our ethos to be a Better Bank for a Better World, we’ve
also committed an additional SGD100 million to improving lives in Asia
through the DBS Foundation.
As we move into the year ahead, I would like to believe that Global
Finance, in its citation, said it best: “DBS knows how to navigate tough
times”. As your trusted banking partner, we remain committed to walking
this journey with you.
2 1Q23 FOREWORD
Executive Summary
Dear valued clients,
Very rarely in the history of financial markets do we see both risk assets
(equities) and safe haven assets (government bonds) falling sharply, and
in tandem.
2022 was a case in point, no thanks to the Fed pivoting sharply from the
view that inflation is transitory, leading to the Fed responding aggressively
by hiking rates from 0.25% at the start of 2022 to 4.5% today.
On the back of this huge and sudden shift in interest rates, the tried-and-
tested 60/40 portfolio construct was not spared.
With bond yields at above 5% today and equity valuations having mean-
reverted, we believe the window is now open to be engaged for the long
term, in a multi-asset portfolio of equities and bonds.
Hou Wey Fook, CFA
Chief Investment Officer
What is critical is for investors to build resilient portfolios that comprise
securities of high-quality companies that demonstrate traits of being
income generators, growth enhancers, and risk diversifiers.
Income generators include bonds and dividend equities; growth is

represented by I.D.E.A. companies representing Innovators, Disrupters,
Enablers and Adapters; while risk diversifiers point to Gold and Private
Assets.
In this publication, we feature Cybersecurity, an essential component for

the world undergoing digital transformation.
I wish you a steadfast year of investing even in the face of tremendous

change in the world today.
1Q23 EXECUTIVE SUMMARY 3

Never
Waste a
Crisis
Cautious Fed
A S S E T A L L O C AT I O N 1 Q 2 3
Heading into 2023, we expect the Fed to downshift its monetary stance
as economic momentum slows. Painful as it is, 2022’s selldown has
presented opportunities for investors to pursue a 60/40 portfolio.
Source: iStock
Investment
Summary 1Q23
Macro Policy Economic Outlook Equities

Inflation to decline in 2023, US inflation and growth may prove Earnings downgrades in 2023
but not to the extent where to be stickier. Household and to be partly offset by valuation
rate cuts are warranted. corporate debt ratios are low by support. Maintain preference
Expect US Fed Funds rate to historical standards, setting the for US and Japan over Europe.
reach 5% by 1Q23 and remain ground for surprising resiliency. Seek opportunities in China’s
unchanged through 2023. reopening.
Credit Currencies Rates

Investment grade credit to be Despite Fed’s policy moderation, DM central banks to reach tail end
a safe, liquid income generator USD strength to be supported by of tightening. Expect 5% terminal
for the 60/40 portfolio. Sweet growth and interest rate differential Fed Funds rate by 1Q23, followed
spot remains in A/BBB-rated over DM peers. Favour Asian by a less inverted yield curve as the
corporates with duration of 3-5 currencies on China’s reopening. economy slows.
years.
Alternatives Commodities Thematics

Stay with gold and private Prices to remain volatile amid Cyber-attacks are becoming
assets as portfolio risk demand headwinds and supply more prevalent as the
diversifiers. While not immune disruptions. Long-term demand world transitions to a digital
to a challenging macro from energy transition initiatives economy. This secular trend is
environment, private assets and a growing EV sector, set to drive the growth of the
are resilient in the long term. alongside the undersupply of cybersecurity industry.
base metals, remain in place.
1Q23 INVESTMENT SUMMARY 5

Theme: Cybersecurity
As we move towards an increasingly digital world, cyber-attacks are on the rise, leaving a
long trail of destruction in its wake: loss of confidential data, intellectual property theft, and
disruptions to business continuity are just a few of the unsavoury outcomes of cybercrime.
Cybersecurity offers an antidote to this growing problem. With a boundless addressable market
and fast-growing demand, we believe cybersecurity will become one of the most important
sectors in the future.
Source: iStock
6 1 Q 2 3 T H E M AT I C S U M M A R Y
01. Hou Wey Fook, CFA
Asset Allocation. Chief Investment Officer
Dylan Cheang
Strategist
Mea Culpa – Fed’s hawkish pivot and the export of • Opportunities: After the acute selldown of 2022,
monetary pain. The selldown of risk assets in 2022 what opportunities can investors seize in the new
marked a watershed moment for financial markets. year? It is an opportune time to pursue the 60/40
Never have equities and bonds corrected so acutely portfolio strategy.
in tandem. Not during the 1970s recession, and
certainly not during the Great Financial Crisis (GFC) • Risks: Will corporate earnings (and by extension,
of 2008. While it is easy to attribute this volatility equity prices) take a significant hit should a
to the Russia-Ukraine crisis and China’s Covid-19 recession transpire? Earnings decline to be partly
lockdowns, clearly, the biggest culprit is the US offset by valuation expansion.
Federal Reserve.
• Positioning: Inflation has remained sticky despite
After being caught wrong-footed in its “transitory falling commodity prices and easing supply chain
inflation” narrative for an unnecessarily prolonged pressure. Recession risk, however, is on the rise.
period, the Fed has frantically tried to salvage its How should investors navigate this High Inflation/
credibility through aggressive rate hikes which, Low Growth paradigm? Overweight bonds over
inevitably, exported monetary pain to the rest of the equities.
world (in particular, EMs and high growth equities).
And while the central bank has since expressed a
Peak dollar and bond yields on the cards
willingness to downshift to a slower pace of policy
in 2023
tightening, much will also depend on whether the
recent softness in CPI data is sustained. US Dollar Index (LHS) 5
UST 10Y yield (%, RHS)
In 2023, we expect two things to transpire over the 115

4
course of the year.
One, the Fed is set to downshift its monetary policy 105

3
as economic momentum decelerates and two, the

dollar to peak. Given the crosscurrents of peaking 2
bond yields and a slowing economy, the trajectory
95
for equity markets will be more complicated and
1
nuanced. The pointers below aptly summarise
the opportunities, risks, and how investors should
position for the year: 85 0
Oct-18 Oct-19 Oct-20 Oct-21 Oct-22
Source: Bloomberg, DBS
1 Q 2 3 A S S E T A L L O C AT I O N 7
Never waste a crisis – Opportune time to Acute selldown for 60/40 strategy in 2022
pursue 60/40 portfolio strategy. As the saying
goes: “Never waste a crisis”. For investors who 40% Returns for 60/40 Portfolio Strategy
bemoaned the lack of “value opportunities” in risk
30%
assets previously, the time has come. As painful
as 2022’s selldown has been, it has also surfaced 20%
fresh opportunities for investors to construct a
traditional “60/40 portfolio” (a portfolio consisting of 10%
60% equities and 40% bonds) with a great starting

0%
point.
-10%
Using the S&P 500 Index as proxy for equities

-20%
and the Bloomberg US Corporate Bond Index for
bonds, we worked on data stretching back to 1974 -30%
1974
1977
1980
1983
1986
1989
1992
1995
1998
2001
2004
2007
2010
2013
2016
2019
9M022
and our analysis suggests an attractive risk-reward
for a traditional 60/40 portfolio strategy now. Listed
below are the key findings:
• Sharp returns post selldowns: On a 9M22

basis (Jan-Sep), a 60/40 strategy would have Unlike past corrections, 2022 saw acute
lost 22.3% and this constituted the sharpest selldown in both equities and bonds
selldown since the GFC in 2008. But unlike
the GFC which saw equities losing 38.5% and Equities vs Bonds returns since 1974
bonds down only 4.9%, the losses this time 40%
round were evenly spread, with equities and
30%
bonds down 24.8% and 18.7% respectively.
20%
We observed that markets tended to rebound
10%
sharply after an acute selldown (defined as
Bonds
correction of 20% and above) in the subsequent 0%

year. Since 1974, there have only been two
-10%
such occasions: 1974 and 2008. In 1974,
a 60/40 strategy lost 20.2% before surging -20%
9M22
25.6% in the subsequent year. More recently in
-30%
2008, a 60/40 strategy would have lost 25.1% -50% -40% -30% -20% -10% 0% 10% 20% 30% 40%
before gaining 21.5% in the following year. Equities
8 1 Q 2 3 A S S E T A L L O C AT I O N
The precedence of a sharp market rebound Current 60/40 portfolio yield suggests
after acute selldowns underlines the attractive strong returns in 2023
risk-reward of a 60/40 strategy at this juncture.
Change in 60/40 yield* +1SD
+2SD -1SD
3
• Sharp returns post surge in portfolio yield: -2SD
Another way to measure the efficacy of a 60/40 2
strategy is from a “portfolio yield” perspective.
In our analysis, we assign a 40% weight to the 1
yield-to-worst for bonds and a 60% weight

0
to the earnings yield for equities. Given the
structural long-term downtrend in bond yields, -1
it is not logical to analyse this from an absolute

-2
yield perspective. Instead, one should look at
the annual change in portfolio yield and listed -3
here are the key findings from our analysis:
-4
1975 1984 1993 2002 2011 2020
» The median change in annual portfolio yield
through the past 50 years is largely flat. There *Consisting of bond yields and earnings yield
were six occasions where the change in yield
breached the +1 standard deviation mark: Meanwhile, note that these opportunities are coming
1977, 1979, 1981, 1988, 1994, and 2018. at a time when investors’ positioning has hit an
On those occasions, the change in portfolio extreme amid uncertainties over monetary policies
yield averaged +1.5%pts. and the global outlook. Data from EPFR Global, for
instance, shows cumulative inflows to money markets
» Should the change in portfolio yield exceed funds are ranging at all-time highs as investors seek
the +1 standard deviation mark, portfolio the safety of cash in the current volatility. Another
returns in the subsequent year tend to be indicator pointing to extreme investors’ bearishness
outsized. On those six occasions highlighted, is the AAII US Investor Sentiments Bearish Readings
portfolio returns in subsequent years index which stands at 40.2 (vs. long-term average of
averaged 19.2%. This is substantially higher 31.0), a level which suggests that peak bearishness
than the average returns of 9.1% registered is round the corner.
during 1974-2021.
The “contrarian” nature of the AAII US Investor
» On a 9M22 basis, the change in portfolio yield Sentiments index, coupled with the huge volume of
stood at +2.3%pts and this augurs well for funds sitting on the sidelines awaiting deployment,
the outlook of a 60/40 strategy in 2023. augurs well for the risk-reward of a 60/40 strategy
in 2023.
Huge funds sitting in money markets Upgrading Bonds to Overweight
2.0 Money Market Funds - cumulative flows (USDt) Strategies for a High Inflation/Low Growth
Paradigm. Despite easing energy prices and supply
1.5 chain pressure, inflation in the US remains high by
historical standards. This, coupled with moderating
1.0 macro momentum, suggests that we are currently in
a low growth/high inflation environment. Indeed, the
0.5 ISM Manufacturing has fallen by 13.5pts since March
2021 while US headline inflation, even though it has
0.0 likely peaked, remains elevated at 8.2%.
-0.5 From a historical perspective, bonds tend to perform

better than equities in a high inflation/low growth
-1.0 environment. For our analysis, we define “low growth”
Jan-07 Jan-10 Jan-13 Jan-16 Jan-19 Jan-22
as periods where US ISM Manufacturing registered
Source: EPFR Global, DBS three (or more) quarters of sequential declines while
“high inflation” is defined as periods where the
average CPI (for low growth periods) is higher than
Investors’ bearish sentiments have hit the long-term average of 3.3% (since 1914). Drawing
an extreme on data stretching back to 1977, listed below are the
key findings:
AAII US Investor Sentiment Bearish Readings
80 24-weeks moving average » Since 1977, there are nine such “low growth / high
70
Savings & Loans Global Finance Covid-19 / Russia- inflation” periods where the ISM Manufacturing
Crisis / Gulf War Crisis Ukraine Crisis
declined by 12.5pts on average while inflation
60
averaged at 5.6% (vs 3.3% long-term average).
50
» During those periods, bonds outperformed

40
equities 67% of the time, with gains averaging
30 6.6% while equities was down 0.1% on average.
20 The data underlines the relative attractiveness
of bonds over equities during low growth/high
10
inflation periods.
0
Dec-87 Dec-97 Dec-07 Dec-17
Performance of equities and bonds during High Inflation/Low Growth periods

Performance of
Change in ISM Change in Change in
Average inflation Bonds
S/No. Period Manufacturing Equities* Bonds**
(%) rel. to Equities
(pts) (%) (%)
(%pts)
1. 4Q78 till 2Q80 -30.2 12.1 +11.4 +9.0 -2.4
2. 3Q81 till 1Q82 -13.9 8.9 -14.7 +10.2 +24.9
3. 1Q84 till 3Q84 -19.9 4.4 +0.7 +7.0 +6.2
4. 1Q89 till 3Q89 -10.0 4.8 +25.7 -10.4 -15.3
5. 2Q90 till 1Q91 -9.2 5.5 +10.4 +12.9 +2.5
6. 1Q00 till 1Q01 -14.7 3.5 -21.0 +15.0 +36.0
7. 4Q05 till 2Q06 -4.8 3.7 +3.4 -0.1 -3.5
8. 3Q07 till 1Q08 -4.3 3.6 -12.0 +8.2 +20.2
9. 2Q11 till 4Q11 -5.4 3.5 -5.1 +7.4 +12.5
Average -12.5 5.6 -0.1 +6.6

* Proxied by S&P 500, ** Proxied by USD IG bonds
Bonds: A beautiful blend of income and safety. Cross-currents: Earnings Contraction vs

There is never a better time for investors to buy Valuation Expansion
bonds. With yields trading at current levels, the
bygone theme of “searching for yield” seems like Recession impact on earnings and valuations.
a distant memory now. But apart from the yield/ To recap, we have in our 4Q22 CIO Insights touched
income angle, bonds also provide investors with on how a recession will impact corporate earnings.
downside protection given its defensive qualities Using the US as proxy, our key findings were: (a)
and this is particularly important with rising recession Since 1980, US recessions have on average lasted
risks lurking on the horizon. 11 months and the average change in GDP growth
during those periods was -4.7 %pts and (b) While
Henceforth, given the favourable risk-reward for corporate earnings fell by an average of 11.6%, it
bonds, we are upgrading the asset class to an was however, partly offset by substantial valuation
Overweight in 1Q23 while staying Neutral on multiple expansion.
equities. The relative attractiveness of bonds is
evident in the bond-equity yield gap (bond yield vs Now, as we head into 2023, it is becoming clear
equity dividend yield) which is standing at the widest that:
level since the GFC. Within the bonds complex, we
favour US Treasuries and IG credit. • A recession, should it eventually transpire, will
likely be mild given the strong labour market
Bonds looking attractive and absence of systemic imbalances.
6.5 Equities - Est. Dividend Yield (%)*

Bonds - Yield to Worst (%)**
• Recent CPI data and Fed rhetoric suggest that
a peak in bond yields is on the cards next year.
5.5 Bond yields are poised to retrace if the Fed
moderates its pace of policy tightening.
4.5
Bringing all these macro dynamics into consideration,
we analyse how earnings will be affected in the event
3.5
of (a) A mild recession and (b) Bond yields starting
to retrace. Since 1980, there are three recessionary
2.5 periods that fit this profile and listed below are the
key observations:
1.5
Nov-09 Nov-13 Nov-17 Nov-21

* Proxied by DM dividend equities
** Proxied by US corporate bonds
» On average, the recessions lasted seven months The analysis suggests that the onslaught of a mild
and the change in GDP growth was -2.7 %pts. recession, coupled with moderating bond yields,
Decline in the US Treasury 10Y yield averaged will unlikely inflict significant negative impact on
0.5% during those periods. equity markets. While earnings are slated to fall,
this will be partly offset by valuation expansion in an
» Average decline in corporate earnings was environment of falling bond yields.
10.4%, but this was broadly offset by valuation
expansion of 7.0%.
Recession impact on earnings and valuations

Change in
Number of Change in Change in Change in
Period Events US GDP
months earnings (%) P/E (%) UST 10Y yield
(% points)
Jul-1990 to Savings & Loans Crisis

9 -3.4 -8.2 14.1 -0.4
Mar-1991 and Gulf War Recession
Mar-2001 to Dot-Com Crash and

9 -2.7 -17.5 11.4 -0.1
Nov-2001 September-11 Recession
Feb-2020 to
Covid-19 Recession 3 -1.9 -5.6 -4.4 -0.9
Apr-2020
Average 7 -2.7 -10.4 7.0 -0.5
Source: iStock
1Q23 Asset Allocation – The return of bonds

Equities Bonds
Score
Categories Indicators
Range DM DM EM
US Europe Japan AxJ
Govt Corp Bonds
PMI -1 to +1 0 -1 0 0 1 1 0
Economic surprise -1 to +1 0 -1 0 0 1 1 0
Inflation -1 to +1 -1 -1 0 0 0 0 0
Fundamentals
Monetary policies -1 to +1 0 -1 0 0 1 1 0
Forecasted EPS growth -2 to +2 1 -1 0 0 - 0 0
Earnings surprise -2 to +2 1 -1 1 0 - 0 0
Forward P/E -2 to +2 0 0 0 1 - - -
P/B vs ROE -2 to +2 0 -1 -1 1 - - -
Valuation Earnings yield - 10-yr yield -2 to +2 0 0 1 1 1 1 0
Free Cashflow yield -2 to +2 1 0 1 0 - - -
Credit spread -2 to +2 - - - - - 0 -1
Fund flows -2 to +2 1 -1 0 0 1 2 -1
Momentum Volatility -1 to +1 0 0 0 0 0 - -
Catalysts -2 to +2 0 0 0 0 0 0 0
Raw Score 3 -8 2 3 5 6 -2
Adjusted Score* 0.14 -0.38 0.10 0.14 0.45 0.38 -0.13
*Note: The “Adjusted Score” is calculated using the “Raw Score” divided by the maximum attainable score for each category. Source: DBS
Cross Assets – Preference for bonds over Momentum: Global equities registered net inflows
equities. The latest scoring on our CAA framework of USD30.8b in 4Q22 (as of 9-Nov), while bonds
suggests that bonds have become more attractive saw outflows of USD39.8b. This is broadly in-line
than equities from a multi-asset perspective (average with what we have seen in 2022 as equities inflows
composite score of 0.23 for bonds vs. 0.00 for totalled USD203.9b YTD, compared to outflows of
equities). USD256.5b for bonds.
Fundamentals: The Fed has made it clear that it is Equities: Outlook for Europe remains challenging;
willing to tolerate a recession to bring inflation under Maintain preference for US and Japan in DM.
control and this means potentially below-par growth Global equities were up 10.4% in 4Q22 (as of
for the US in the foreseeable future. Policy tightening 16-Nov) as sentiments were buoyed by a potential
measures implemented by the Fed have yet to fully Fed downshift and the easing of Covid-19 measures
work its way through the economy and the impact in China. On a geographical basis, Europe set the
will only be felt later. But in any case, should a pace with a 17.5% gain (vs 10.4% for US and 12.1%
recession eventually transpire, it will likely be mild. for Japan). But the strong showing for Europe
during the quarter does not have any bearing on our
On corporate earnings, the recent US reporting cautious outlook for the region.
season showed earnings surprise coming in at
c.69%. While this is marginally lower than the Equity flows saw stronger momentum
previous quarter, the situation is nonetheless not as than bonds in 2022
dire as anticipated despite prevailing dollar strength
and aggressive central bank monetary tightening. 30 Global Equities - Fund Flows (USDb, 3mma)
Heading into 2023, the outlook for earnings growth Global Bonds - Fund Flows (USDb, 3mma)
25
will be more subdued as global macro momentum
20
moderates.
15
Valuation: The gap between US earnings yields and 10
Treasury yields continued to narrow in 4Q22 and 5

the level of 1.5% (as of 16-Nov) is 48% lower than 0
the 10Y average. Given bonds’ defensive qualities
-5
especially in times of recession, the former is starting
-10
to look more attractive than equities from a valuation
standpoint. -15
-20
Jan-13 Jan-16 Jan-19 Jan-22
Source: EPFR Global, DBS
Inflation in Euro Area spiralling north Europe expected to register weakest

earnings growth in 2023
12 Euro Area inflation (%) Consensus earnings growth forecast for 2023
7%
10
6%
8
5%
6 4%
4 3%
2 2%
0 1%
-2 0%
Jan-97 Jan-02 Jan-07 Jan-12 Jan-17 Jan-22 Europe Japan Asia ex-Japan US
Source: Bloomberg, DBS Source: Bloomberg, DBS
Europe continues to grapple with the Russia-Ukraine USD3.2b. On a YTD basis, outflows from Europe
crisis and consequential economic fallout. Headline totalled USD37.4b (vs inflows of USD176.1b to US).
inflation stands at 10.7% in the Euro Area and this
is the highest on record. Domestic consumption will Heading into 2023, the earnings forecasts for most
inevitably take a hit under such challenging conditions markets are broadly subdued in the face of rising
and we do not expect the situation to improve until recession risks. Consensus earnings growth forecast
the geopolitical crisis reaches a resolution. for US and Asia ex-Japan are among the highest
at 6.5% and 6.0% respectively. But in the case of
The broad pessimism on Europe is reflected in Europe and Japan, the outlook is markedly more
investors’ portfolio positioning. In DM, fund flow downbeat with growth expected at only 1.4% and
data from EPFR Global shows USD32.6b going 1.5% respectively. We maintain our preference for
to US equities and USD0.9b to Japan in 4Q22 (as US over Europe in the DM.
of 9-Nov). Europe, however, registered outflows of
Bonds: Upgrade DM corporate bonds to Attractive yield play

Overweight; Favour 3-5Y duration for A/BBB
credit. The recent yield surge has increased
10 Bloomberg US Corporate Bond Index - Yield to Worst (%)
the relative attractiveness of bonds as an asset
9
class. Coming on the back of our upgrade of DM
government bonds in 3Q22, we are now upgrading 8
DM corporate bonds to an Overweight as well for 7
the coming quarter. Our optimistic view is premised
6
on the following factors:
5
• Current IG yield is substantially above its 10-year 4

average and the last time yield was trending at
3
such level was after the GFC; Attractive risk-
reward. 2
1
• Unlike governments, companies have not Aug-01 Aug-06 Aug-11 Aug-16 Aug-21
increased their corporate indebtedness in a

significant way and hence credit risks are well
managed.
• Current IG spreads are not far from average Alternatives: Attractive private market
recession spread levels; This suggests further opportunities despite macro challenges;
spreads widening will be limited should downgrading gold to Underweight. Private
recession hit. markets remained resilient despite the turbulence
seen in public markets this year and this is consistent
Fund flow data from EPFR Global is also suggesting with its past track record. But with mounting macro
a rebound in investor interest in DM corporate challenges and rising cost of capital, investors are
bonds. On a 9M22 basis, DM government bonds also increasingly switching to a more cautious stance
saw sharp inflows while both DM corporate and in the private space. Key concerns facing investors
EM bonds registered outflows. However, the trend include:
showed signs of reversing in 4Q22. While EM bonds
continue to face outflows, the DM corporate space 1. The exit environment has become increasingly
managed to register inflows of USD9.5b during the more challenging as the slump in IPOs has
quarter (as of 9-Nov). We expect this trend to persist negatively impacted the valuation for private
as more investors pivot towards the high-quality equity exits.
credit space.
2. The selldown in public markets has placed Ample dry powder awaiting deployment
venture-backed companies under greater in private equity
scrutiny and only those with genuine value-
5 Unrealised value Dry powder
adding propositions will be able to rise above
the fray.
4 1.2
3. Rising interest rates translates to higher interest
Private equity AUM (USDt)

1.3
cost for LBO deals. Mitigating this would 3
necessitate enlarging the equity base which in 1.1
turn dilutes equity returns. 1.0

2 0.9
0.7 3.4
0.6
Despite the challenges, we continue to see 0.5
0.6 0.6
2.6
opportunities in private markets in 2023 and the 1 2.2
1.6 1.7
themes to focus on are: 1.2 1.2 1.2 1.3 1.4
0
• Innovation: Projects focusing on new 2012 2014 2016 2018 2020
technologies and innovation hold the potential
Source: Preqin, DBS
for outsized returns. These projects need initial
funding from venture capital and growth equity
during the early years.
• Renewables: Infrastructure investments related

to energy-transition are expected to remain
strong, in particular from investors seeking
stable cash flows and inflation protection.
• Rising Rates: Private credit with floating base

rates will benefit in a rising rates environment.
In the meantime, we are downgrading gold to

Underweight. The precious metal is a non-interest
bearing asset and the plausibility of rising real
interest rates will weigh on its outlook. The weights
from gold exposure will instead be re-allocated to
our exposure to bonds.
1Q23 Global Tactical Asset Allocation
3-Month Basis 12-Month Basis
Equities Neutral Neutral
US Equities Overweight Overweight
Europe Equities Underweight Underweight
Japan Equities Overweight Underweight
Asia ex-Japan Equities Overweight Overweight
Fixed Income Overweight Underweight
Developed Markets (DM) Government Bonds Overweight Underweight
Developed Markets (DM) Corporate Bonds Overweight Neutral
Emerging Markets (EM) Bonds Underweight Neutral
Alternatives Overweight Overweight
Gold Underweight Overweight
Private Assets & Hedge Funds Overweight Overweight
Cash Underweight Neutral
Source: DBS
TAA breakdown by asset class (Balanced TAA breakdown by geography within

Profile) equities (Balanced Profile)
Cash Equities
Alternatives 1% 50% US
13% Asia ex-Japan 56%
24%
Fixed Income
36%
Japan
12%
Europe
8%
Source: DBS Source: DBS
TAA breakdown by bond types within TAA breakdown by segments within

fixed income (Balanced Profile) Alternatives (Balanced Profile)
EM Bonds
3% DM Government Private Debt Gold
Bonds 23% 15%
42%
DM Corporate
Bonds
56%
Hedge Funds
15% Private Equity
46%
DM Govt. Bonds Cash 1.0% US Equities 7.0%

Cash
30.0% EM Bonds Europe Equities 1.0%
20.0%
10.0%
Japan Equities 3.0%
AxJ Equities
4.0%
DM Govt.
Bonds
27.0%
DM Corp Bonds DM Corp. Bonds

50.0% 47.0%
CONSERVATIVE MODERATE
TAA SAA Active TAA SAA Active
Equities 0.0% 0.0% Equities 15.0% 15.0%
US 0.0% 0.0% US 7.0% 6.0% 1.0%
Europe 0.0% 0.0% Europe 1.0% 4.0% -3.0%
Japan 0.0% 0.0% Japan 3.0% 2.0% 1.0%
Asia ex-Japan 0.0% 0.0% Asia ex-Japan 4.0% 3.0% 1.0%
Fixed Income 80.0% 80.0% Fixed Income 84.0% 80.0% 4.0%
Developed Markets - Government 30.0% 30.0% Developed Markets - Government 27.0% 20.0% 7.0%
Developed Markets - Corporate 50.0% 50.0% Developed Markets - Corporate 47.0% 40.0% 7.0%
Emerging Markets 0.0% 0.0% Emerging Markets 10.0% 20.0% -10.0%
Alternatives 0.0% 0.0% Alternatives 0.0% 0.0%
Gold 0.0% 0.0% Gold 0.0% 0.0%
Private Assets & Hedge Funds* 0.0% 0.0% Private Assets & Hedge Funds* 0.0% 0.0%
Private Equity 0.0% 0.0% Private Equity 0.0% 0.0%
Hedge Funds 0.0% 0.0% Hedge Funds 0.0% 0.0%
Private Debt 0.0% 0.0% Private Debt 0.0% 0.0%
Cash 20.0% 20.0% Cash 1.0% 5.0% -4.0%
*Only P4 risk rated UCITs Alternatives *Only P4 risk rated UCITs Alternatives
Cash Cash 1.0%

US Equities US Equities
Alternatives 1.0%
28.0% Alternatives 33.0%
13.0% 16.0%
EM Bonds
1.0% EM Bonds
1.0%
DM Corp. DM Corp.
Bonds Bonds
20.0% 11.0%
Europe
Equities
DM Govt.
4.0%
Bonds
6.0%
Japan Equities Europe Equities
6.0% 10.0%
DM Govt. Bonds
15.0% AxJ Equities
AxJ Equities 16.0%
12.0% Japan Equities 6.0%
BALANCED AGGRESSIVE
TAA SAA Active TAA SAA Active
Equities 50.0% 50.0% Equities 65.0% 65.0%
US 28.0% 25.0% 3.0% US 33.0% 30.0% 3.0%
Europe 4.0% 10.0% -6.0% Europe 10.0% 15.0% -5.0%
Japan 6.0% 5.0% 1.0% Japan 6.0% 5.0% 1.0%
Asia ex-Japan 12.0% 10.0% 2.0% Asia ex-Japan 16.0% 15.0% 1.0%
Fixed Income 36.0% 35.0% 1.0% Fixed Income 18.0% 15.0% 3.0%
Developed Markets - Government 15.0% 10.0% 5.0% Developed Markets - Government 6.0% 4.0% 2.0%
Developed Markets - Corporate 20.0% 15.0% 5.0% Developed Markets - Corporate 11.0% 7.0% 4.0%
Emerging Markets 1.0% 10.0% -9.0% Emerging Markets 1.0% 4.0% -3.0%
Alternatives 13.0% 10.0% 3.0% Alternatives 16.0% 15.0% 1.0%
Gold 2.0% 5.0% -3.0% Gold 2.0% 5.0% -3.0%
Private Assets & Hedge Funds* 11.0% 5.0% 6.0% Private Assets & Hedge Funds* 14.0% 10.0% 4.0%
Private Equity 6.0% 2.4% 3.6% Private Equity 7.0% 4.9% 2.1%
Hedge Funds 2.0% 2.0% Hedge Funds 4.0% 4.0%
Private Debt 3.0% 0.5% 2.5% Private Debt 3.0% 1.1% 1.9%
Cash 1.0% 5.0% -4.0% Cash 1.0% 5.0% -4.0%
*Only P4 risk rated UCITs Alternatives *Only P4 risk rated UCITs Alternatives
Notes:
1. The above are based on three-month views.
2. Asset allocation does not ensure a profit or protect against market loss.
3. “TAA’ refers to “Tactical Asset Allocation”. “SAA” refers to “Strategic Asset Allocation”.
4. Based on the SAA model, the Aggressive model has the highest risk, followed by Balanced, Moderate, and Conservative, with Conservative being the least risky.
5. The investor type classification for the portfolio has no direct relationship with the Financial Needs Analysis customer risk profile types and the portfolios are not assigned any
product risk rating based on the bank’s proprietary risk rating methodology.
As Real
Rates
Rise
MACROECONOMICS 1Q23
After a year of historic rate hikes, 2023 will test the ability of US
households and companies to absorb a prolonged period of high
interest rates. In the Eurozone, we see receding risks of a deep
recession. Japan’s post-Covid recovery to moderate.
Source: iStock
02.
Taimur Baig, Ph.D.
Chief Economist
Radhika Rao
Macroeconomics. Economist
Ma Tieying
Economist
Suvro Sarkar
Analyst
United States
After a year of historic rate increases, 2023 will Global fixed income markets are pricing in that the
test the ability of US households and companies monetary policy cycle is not only close to peak, but
to absorb a prolonged period of high interest rates will be heading down in less than a year. These
rates. We expect the Fed Funds rate to reach 5% predictions are predicated on inflation and economic
by the end of the first quarter, and then the policy growth slowing substantially next year. We also
rate to remain unchanged till year end. This is largely expect both, but recognise that the balance of risk
consistent with the median forecast of the members is not overwhelmingly one-sided. Inflation may well
of the FOMC. It is widely expected that supply prove to be stickier, as could growth, as seen by US
and demand conditions are aligned for inflation to jobs and sales numbers in recent months.
decline in 2023, but not to the extent to make the
monetary authorities comfortable enough to begin
cutting rates. That would have to wait for 1Q24, in US short-term real interest rates
our view.
1.7%
As we expect a gradual decline in price pressures

through the course of the year, this would imply 0.4%
a substantial rise in real interest rates. As per our
forecasts, short-term real interest rates, calculated
as end-period Fed Funds rate minus average core
-0.5%
PCE inflation, will go from -0.5% at end-2022 to
-1.2%
+1.7% at end-2023. Will credit growth for personal
and business spending and mortgage financing
sustain under the envisaged 220 bps of real interest
rate increases within a year? We are doubtful. Such
-3.1%
high rates are bound to erode home affordability,
reduce corporate profitability, and impose pressure 2020 2021 2022F 2023F 2024F
on firms to reduce employment. The labour market,
still buoyant despite the outsized rate increases of Source: CEIC, DBS
Real rate calculated as the difference between end-year Fed Funds rate
this year, will eventually feel the pinch. We expect to
and annual average core PCE inflation
see unemployment rise from 3.5% to 4.5% in 2023.
1Q23 MACROECONOMICS 25
In 2023, there is a good chance the recent trend Eurozone

softening seen in the cost of shipping, manufactured
goods, energy, and food will persist, helping keep The last months of 2022 saw receding risks of a
inflation on a downward trajectory. Rising rates have deep recession, thanks to greater fiscal support
already had a chilling impact on home prices; rents, from national governments, easing gas prices, and
and their contribution to inflation, are about follow. the delayed onset of winter. This lifted 2022 growth
The job market ought to be the next shoe to drop, to 3.2% y/y, helped also by base effects.
with the downsizing trend already seen in Tech
spreading to a wider set of sectors. That should 2023’s outlook faces uncertainties. Besides
have a sobering impact on wages. tackling a high base on growth, resilience in domestic
demand will be necessary to deflect an unfriendly
But it would be premature to ignore a scenario global backdrop. Households are pushing for
under which jobs, wages, and prices do not sharper increase in wages as real purchasing power
weaken sufficiently and swiftly enough for the is eroded by elevated inflation (10.7% in October
market’s expectation of a late 2023 rate cut cycle 2022), and has yet to peak. Unemployment rate
to materialise. Household and corporate debt ratios is still at a record low, but additional tailwinds from
are low by historical standards, which could set the reopening buoyancy, the service sector reopening,
ground for surprising resiliency. That would put the fiscal support, and excess savings will be missing
Fed in a quandary, as it faces weakening growth and in 2023.
yet the need to hold onto its policy leash. 2023 may
well be the ultimate test of Fed credibility.
US inflation, various measures Wages & salaries – Euro Area (% y/y)
10% Urban CPI PCE 15 HICP adjustment

Core PCE Wages and salaries (current prices)
9%
8% 10
7%
6% 5
5%
4% 0
3%
2% -5
1%
0% -10
Jan-20 Oct-20 Jul-21 Apr-22 Jan-23 Oct-23 2016 2017 2018 2019 2020 2021 2022
Source: CEIC, DBS Source: Bloomberg, CEIC, DBS

Dotted lines denote projection
26 1Q23 MACROECONOMICS
Business surveys reflect caution, and hard data on ECB survey of professional forecasters
production and manufacturing activity are following (% y/y)
suit, with PMIs slipping deeper into contractionary
zone. Among the most impacted will be energy- 8.0
Next year (LHS) Long-term (RHS)
2.8
linked industries as supply concerns reign high.
Even as current gas reserves are above 90%,
coping with zero supply from Russia next year and 6.0 2.4
high demand for other countries’ supplies will keep
price pressures elevated. Beyond support from
the EU’s recovery fund, economic uncertainty over 4.0 2.0
the horizon, geopolitical risks, a tougher energy

situation, and tightening financial conditions will be a
dampener for investment interests over the next two 2.0 1.6
to three quarters.
0.0 1.2
Suspension of budget rules until end 2023 provides
2015 2017 2019 2021
latitude to maintain an expansionary policy (e.g.
recent energy related support measures). Drawing Source: ECB, CEIC, DBS
from the UK’s experience, national governments will
be wary of undertaking a broad-based and aggressive
Inflation is still to peak, even as an incremental lift
stimulus push, preferring instead to provide directed
from gas prices eases given the sharp correction
assistance. External demand outlook is a dominant
in spot prices and extension of fiscal subsidies by
concern as key trading partners in Asia already
governments. Price pressures have broadened out,
reflect slowdown in demand from Europe, besides a
besides a rise in inflationary expectations for the
likely delay in China’s reopening plans. These factors
immediate as well as long term. A gradual paring back
back our GDP growth forecast of -0.4% for 2023,
of price caps, increase in regulated energy prices,
followed by a lift to 1.5% in 2024.
and sticky core are likely to keep average 2023 pace
at 6% y/y.
The ECB stayed on the preferred path of frontloading Japan

rate hikes within 2022 and outlined plans to gradually
lower its asset portfolio (i.e. QT) from 1Q23 onwards, Japan’s post-Covid recovery is likely to continue
before growth begins to slow markedly. The process but lose some steam in 2023. We expect GDP
to pare back on the EUR3.25t worth of assets stock growth to decelerate to 1.2%, down from 1.5% this
is likely to start by lowering the volume of maturing year and 1.6% last year.
bonds. The tapering pace will be incremental, as
policymakers weigh this against the risk of driving Reopening will be an important growth driver in 2023.
up bond market spreads for indebted countries. As From October 2022, Japan reopened its borders
inflation recedes in late 2023, calls to reverse part to foreign individual tourists and scraped the daily
of the increase in benchmark rates are expected to arrival limit. This, combined with the yen’s weakness,
surface. will likely boost tourism revenue throughout 2023,
benefitting key services sectors including aviation,
hospitality, and recreation. We reckon that a 50%
ECB – net asset purchases (EURb)
recovery in tourist arrivals (to the pre-pandemic
Asset-backed securities purchase programme
levels) will create revenue worth JPY2.5t, equivalent
Public Sector purchase programme to 0.5% of GDP.
Corp Sector purchase programme
90 Covered Bond purchase programme
80
Reopening finally starts to gain momentum
70 in Japan
60
50 Japan: Visitor arrivals (Jan20=100)

100
Malaysia
40
90 Singapore
30 South Korea
80
20 Thailand
70
10
60
0
2015 2016 2017 2018 2019 2020 2021 2022 50
40
Source: ECB, DBS
30
20
10
0
Jan-20 Aug-20 Mar-21 Oct-21 May-22
Source: CEIC, DBS
On the other hand, a global slowdown is likely to Wage growth still behind inflation and
weigh on Japan’s goods exports and manufacturing inflation expectations
industry. Automobile demand is likely to soften in
Enterprises’ 1Y inflation expectation (%)
2023, as the rise in global interest rates increases 5
Consumers’ 1Y inflation expectation (%)
car loan costs and the rise in inflation erodes CPI (%)
4
consumers’ disposable incomes on durable goods. Wage growth (%)
Demand for chips, semiconductor equipment, and 3

materials is also likely to weaken, given the poorer
conditions in the global economy and the US’s more 2
comprehensive restrictions on semiconductor sales

1
to China.
0
Domestic wage-prices dynamics will be closely
watched in 2023. Wage growth has started to pick -1
up at a gradual pace, but has not yet reached the

-2
ideal level of 3% (to achieve a stable 2% inflation 1Q17 1Q18 1Q19 1Q20 1Q21 1Q22
rate and positive real consumption growth). As
consumers’ inflation expectation rose sharply, the Source: CEIC, BOJ, DBS
country’s largest labour organisation – Japanese

Trade Union Confederation – said that it will demand Better-than-expected wage negotiation results and
a 5% wage increase in 2023. On the other hand, bigger-than-expected BOJ leadership change could
the latest Tankan surveys show that Japanese result in earlier-than-expected monetary policy
enterprises expect inflation to rise moderately to normalisation. Possible measures include widening
2% over the course of the next one year. Whether the 10Y JGB yield band, shifting the 0% target
a sufficient pay rise can be achieved during next from 10Y to 5Y JGB yield, and ending the negative
spring’s labour negotiations remains to be seen. policy balance rate, among others. Chances remain
relatively low for the BOJ to completely abandon the
The BOJ’s monetary policy is another focus in 2023. yield curve control. A rapid rise in JGB yields could
Our base case forecast is for the BOJ to stand pat, for cause a series of undesirable effects, including
lack of sufficient evidence about a firm establishment further deterioration in public debt dynamics, sharp
of wage-prices dynamics and a stable 2% inflation reversal of USD/JPY, unwinding of yen carry trade,
outlook. The replacement of BOJ governor in April and heightened volatility in the global financial
could be a wild card. Our base case is for PM Kishida markets.
to pick a new BOJ governor with strong technocratic
expertise (e.g. from the incumbent and former
deputy governors), to ensure a smooth transition,
policy continuity, and market stability.
Source: iStock
Asia 2023). The US would be facing the lingering effects

of substantial policy tightening. As for the EU, the
The procession of outlook reports from multilateral energy price and sentiment shock emanating from
agencies underscores deep concern about the the Russia-Ukraine crisis is bound to drag growth
global outlook, with Asia being no exception. The down. These two economies will import less from
widespread view is that macroeconomic risks Asia even as the continent itself suffers from tight
remain unusually large, ranging from getting the US’s monetary policy.
monetary policy stance wrong to tightening global
financing conditions triggering EM debt distress. Not Typically, China is a critical balancing factor
to mention, a worsening of China’s growth dynamic during global cyclical weakening, but this time
around a weak property sector and continued it has its hand full, with a myriad of internal and
struggles with the pandemic. external headwinds. Demand side expansion will
come primarily from ongoing investment in utility
We recognise these risks and have incorporated infrastructure, while monetary policy will remain
them into our 2023/24 forecasts. Given Asia’s trade neutral. The economy will likely remain subdued
dependence, the outlook for US and EU is material. in 1H23 before recovery in 2H23, with real GDP
This year, we see growth slowing sharply in the projected to grow by 4% for the whole year. Retail
US (from 1.5% in 2022 to roughly flat in 2023) and sales is expected to grow at 6.4% on the back of
EU (from 3.2% in 2022 to a small contraction in a potential exit from China’s Covid-Zero policy
around mid-2023. Fixed asset investment growth
Policy rate increases by mid-2023 relative will improve marginally to 6.5%. Infrastructure
to end-2021 related construction work would remain robust while
property investment may remain sluggish. Benign
4.75 inflation would provide leeway for the PBOC to
4.00
keep policy supportive, with further rate cuts likely
3.46 3.50 in 2Q-3Q of 2023. We expect persistent structural
reform measures – promotion of policies on common
2.75
2.50
2.25
prosperity, decarbonisation, anti-monopoly, and
improvement of public systems.
1.25 1.25
0.75 In Asia ex-China, the prospects are mixed. Growth
will be subtracted by weak exports, which is already
in the making. But the region is in the middle of a
-0.25 strong reopening dynamic, with travel, tourism, and
events surging, all proving to be resilient despite the
China
India
Indonesia
Malaysia
Philippines
Singapore
S Korea
Taiwan
Thailand
Vietnam
US
sharp increase in cost of living. We attribute this to

relatively healthy household balance sheets in the
Source: CEIC, DBS region. Taken together, we expect ASEAN-6 growth
to ease to 4.8% in 2023, from a projected 5.8% .
Asia’s GDP growth projection in 2023 Oil: Demand side concerns gain force
minus 2022 GDP growth estimate
Bearish factors loom larger. A flurry of bearish
6.3
factors, including new Covid-19 spikes in China and
signs of continued lockdowns, have dragged down
oil prices towards USD80-85/bbl as we write, close
to the lowest levels since the Russia-Ukraine crisis
1.0 erupted back in February 2022. Despite the Russia-
0.6
Ukraine crisis dragging on and supply concerns still
-0.4 very much on the anvil, the pullback, which started
-0.9 -0.6
-1.1 -1.3 in 3Q22 on the back of Fed hikes and recessionary
-1.7 -1.8
fears, has gained momentum as earlier expectations
-4.5
of China reopening gradually from 2023 has come
unstuck. The increase in the US dollar index to fresh
China
HK SAR
India
Indonesia
Malaysia
Philippines
Singapore
S Korea
Taiwan
Thailand
Vietnam
highs has also put pressure on oil prices.
Thus, we have lowered our demand growth

Source: Bloomberg, DBS assumptions for 2023 to 1.0mmbpd from 2.0mmbpd
earlier, and now expect 2023 Brent crude oil price
All in all, we are projecting a sizable decline in to average around USD85-90/bbl, down from our
Asian growth in 2023, but we do not expect earlier expectations of around USD100-105/bbl.
lasting economic slowdown. We see a substantive However, we do not expect oil prices to fall off the
recovery in 2024 in China, India, and ASEAN-6 cliff despite lower demand projections. This is due
as US monetary policy eases and lowers cost of to supply side tightening by end-2022, supported
funding worldwide, China’s macro and public health from the release of strategic petroleum reserves
fundamentals undergo a rebound, and energy (SPR) tapering down after December 2022, and
markets see considerable easing of supply chain the EU ban on Russian oil imports in effect from
pressures. December 2022. With OPEC+ pre-empting a
demand slowdown in 2023 and cutting production
What are the chances of this narrative being wrong? by up to an estimated 1.0mmbpd, we think it is likely
Quite a bit, we’re afraid. Firstly, 2023 may turn out to oil prices will be well supported at USD80/bbl levels
be better than feared, as consumers, by virtue of their and further downside will be limited at current levels.
balance sheets being in better health than they were
during the 2008 GFC, may end up demonstrating China reopening trajectory will have a big role
a surprising degree of demand resilience despite to play going forward. Global growth will take a
higher rates. Meanwhile, 2024’s recovery narrative pause next year, with central banks acting to tame
may be undermined by the lagged effect of ongoing inflation. We expect growth slowing sharply in the
rate hikes, which the Fed will not be able to offset US (from 1.5% in 2022 to roughly flat in 2023) and
as its room to cut rates may be limited by -2% and the EU (from 3.2% in 2022 to a small contraction in
inflation. War, pandemic, and great power rivalry 2023), and even emerging economies will feel the
may be additional spoilers. brunt. Bright spots for oil demand would be China’s
Brent crude oil price has lost further recent key policy pivots and ultimate reopening,
momentum of late and we have factored this into our forecasts now.
However, further lockdowns remain a risk.
140 Brent (USD/bbl)
Impact on Russian supplies from EU ban will
130
be keenly watched. Russian production and
120 supplies have so far not been hit to the extent earlier
envisaged, with only around 1.0mmbpd decline
110
likely on average in 2022. We have seen limited
100 decline in Russian oil production so far as Russia has
diversified its export volumes to China, India, Turkey,
90
and Bangladesh, among others, albeit accepting
80 steep discounts on its oil. But in addition to the
EU ban on Russian crude and products’ imports
70
taking effect in December 2022 and February 2023
60 respectively, (affecting more than 2.0mmbpd of
Feb-22 Apr-22 Jun-22 Jul-22 Sep-22 Nov-22
supplies in theory and likely much less in practice),
G-7 countries are also exploring imposing a price
cap on Russian oil exports. There is no consensus
yet on price cap but a level of USD65-70/bbl has
been proposed by some countries, which would
not have any impact on Russian production or oil
revenue. Only if the price cap is below USD30/bbl
would it dis-incentivise some Russian production,
and lead to market distortions.
Quarterly average oil price forecast 2022/23 – revised DBS base case view
(USD per barrel) 1Q22A 2Q22A 3Q22A 4Q22F 1Q23F 2Q23F 3Q23F 4Q23F
Average Brent
98.0 112.0 97.5 90.5 93.0 84.5 87.5 82.5
crude oil price
Average WTI
95.0 108.5 91.5 84.5 88.0 79.5 83.5 78.5
crude oil price
Source: DBS
OPEC’s failure to meet output Overall, supplies will stay tight as SPR support
targets symptomatic of systemic tapers off, OPEC+ keeps production cuts flexible
underinvestment and open, and structural underinvestment trends
persist. OPEC+ recently agreed to cut production
Output target (mmbpd) Actual output (mmbpd)
27.0 by a headline 2.0mmbpd in October 2022 (actual
26.5 production cut over 12 months from November
26.0 2022 onwards likely to be around 1mmbpd at
most), despite US pressure to increase production.
25.5
We believe OPEC will retain the flexibility to further
25.0
intervene in the market should oil prices fall too far
24.5
away from desired levels (read: USD80-100/bbl). The
24.0 US SPR release is also stated to end by December
23.5 2022 and further extensions will be incremental at
23.0 best, given the midterms are behind us. Thus, while
22.5
we are projecting oil price to moderate in 2023 from
2022 levels, we think oil prices will remain elevated
22.0
Nov-21 Jan-22 Mar-22 May-22 Jul-22 Sep-22 compared to pre-Covid levels for years to come,
especially as the Russia-Ukraine situation shapes
up to be a multi-year conflict. The Iran nuclear deal
may be considered a wild card, but it will likely
have a knee jerk reaction on oil price rather than a
sustained one.
GDP growth and CPI inflation forecasts
GDP growth, % y/y CPI inflation, % y/y, ave
2021 2022F 2023F 2024F 2021 2022F 2023F 2024F
China 8.1 3.0 4.0 5.0 0.9 2.2 2.5 2.2
Hong Kong SAR 6.3 -2.5 3.8 2.0 1.6 2.2 2.0 2.0
India 9.0 7.2 5.5 5.8 5.1 6.8 5.4 5.1
India (FY basis)* 8.7 7.0 5.8 6.0 5.5 6.8 5.2 5.0
Indonesia 3.7 5.4 5.0 5.0 1.6 4.2 4.0 3.2
Malaysia 3.1 8.5 4.0 4.8 2.5 3.4 3.0 2.5
Philippines 5.7 7.4 6.3 6.5 3.9 5.8 4.4 3.2
Singapore 7.6 3.5 2.2 2.8 2.3 6.0 6.3 4.3
South Korea 4.1 2.7 1.8 2.4 2.5 5.3 2.8 2.0
Taiwan 6.6 2.9 2.3 2.8 2.0 3.0 1.8 1.4
Thailand 1.5 3.2 3.8 3.6 1.2 6.2 2.5 2.0
Vietnam 2.6 7.8 6.0 6.5 1.8 3.2 3.8 3.5
Eurozone 5.3 3.2 -0.4 1.5 2.6 8.3 6.0 2.5
Japan 2.1 1.5 1.2 1.0 -0.2 2.4 2.0 0.8
United States 5.7 1.5 0.3 1.7 4.7 8.1 3.8 2.8
* refers to fiscal years, i.e. 2020 represents FY21 - year ending March 2021. Source: CEIC, DBS
** new CPI series. *** eop for CPI inflation.
Policy interest rates forecasts, eop
4Q22 1Q23 2Q23 3Q23 4Q23 1Q24 2Q24 3Q24 4Q24
Mainland China* 3.65 3.65 3.55 3.45 3.45 3.45 3.45 3.55 3.65
India 6.25 6.50 6.50 6.50 6.50 6.25 6.00 5.75 5.75
Indonesia 5.50 5.75 5.75 5.75 5.75 5.50 5.25 5.00 5.00
Malaysia 2.75 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00
Philippines 5.50 6.00 6.00 6.00 6.00 5.00 4.50 4.50 4.50
Singapore** 3.28 3.58 3.58 3.58 3.20 2.98 2.68 2.28 2.28
South Korea 3.25 3.75 3.75 3.75 3.75 3.25 2.75 2.50 2.50
Taiwan 1.75 1.88 1.88 1.88 1.88 1.88 1.88 1.88 1.88
Thailand 1.25 1.50 1.75 2.00 2.00 2.00 2.00 2.00 2.00
Vietnam*** 6.50 7.00 7.00 7.00 7.00 6.50 6.25 6.25 6.25
Eurozone 2.50 2.50 2.50 2.50 2.50 2.25 1.75 1.75 1.75
Japan -0.10 -0.10 -0.10 -0.10 -0.10 -0.10 -0.10 -0.10 -0.10
United States 4.50 5.00 5.00 5.00 5.00 4.00 3.50 3.00 3.00
* 1-yr Loan Prime Rate; ** 3M SOR ; *** prime rate. Source: CEIC, DBS
Neither
Feast
Nor
Famine
US EQUITIES 1Q23
As recession risk looms, the interplay of earnings contraction and

valuation support will drive the trajectory of S&P 500. Prefer resilient
sectors of Healthcare and Technology over Materials and Consumer
Discretionary.
Source: iStock
03.
US Equities. Dylan Cheang
Strategist
Optimistic earnings forecast and subdued macro 2. Equity analysts are waiting further confirmation
outlook: A disconnect. As recession risk looms in on the economic outlook as well as guidance
the US, the trajectory for the S&P 500 in 2023 will from companies’ management before
be a case of earnings contraction and valuation downgrading their earnings. The 4Q22 reporting
expansion. In 4Q22 (as of 22 November), the street season will unveil greater details of how Fed
had revised down its forecast for US earnings monetary tightening has weighed on corporate
by 1.2% and the sectors which saw the largest earnings.
downward revisions include Financials (-6.2%),
Materials (-6.4%), and Consumer Discretionary We expect more earnings downgrades to take place
(-4.3%). in the early part of 2023 as analysts start to factor in
the eventuality of top-line weakness (as a result of
Despite the downgrades, there remains too much “mild” recession) and margin contraction (as a result
optimism prevailing in the market today. On a full- of lingering inflationary pressure) over the year.
year basis, the street is expecting earnings growth
of 7% for 2023 even though recession risks are on More earnings downgrades on the cards
the rise. As our analysis shows, in the event of a
“mild” recession, US earnings historically decline by 4%
QTD earnings revisions (as of 22 November)
10% on average.
2%
We believe the apparent disconnect between 0%

analysts’ forecasts and the economic reality on the
-2%
ground can be attributed to two factors:
-4%
1. While the Fed has embarked on aggressive
-6%
monetary tightening, the impact has yet to be
fully transmitted to the broader economy and -8%
US Materials
US Financials
US Cons. Dis.
US Comm. Serv.
US Technology
S&P 500
US Industrials
US Cons. Staples
US Healthcare
US Utilities
US Real Estate
US Energy
hence, there is still an element of “cautious

optimism” in the market.
1Q23 US EQUITIES 39
Flat returns for S&P 500 in 2023; earnings decline • Dovish pivot from the Fed as the US economy
to be broadly offset by valuation expansion. The moderates. Lower bonds yields and by
following table shows the earnings growth trajectory extension, a lower risk-free rate, will lead to
for US equities based on consensus forecast. valuation expansion.
While the broader market is expected to register
earnings growth of 7%, there is, however, significant • We assume mean reversion of the forward P/E to
divergence at the sectoral level. its 5-year average, and this translates to average
valuation expansion of 8% in the US (broadly
The likes of Consumer Discretionary, Financials, and similar to the average valuation expansion of 7%
Industrials are expected to register robust growth seen during periods of “mild” recession).
while analysts are pencilling in earnings decline for
Materials, Real Estate, and Healthcare. As further • Sectoral earnings growth currently average at
clarity on the US economic outlook emerges in the 8%, a level which is overly optimistic in our view.
coming months, downward earnings revisions are Now, assuming earnings decline by the historical
expected to gain momentum. average of 10% instead due to recession, the
pullback in earnings will be broadly offset by
On balance, the trajectory for the S&P 500 will valuation expansion.
be subjected to the cross currents of earnings
contraction and valuation expansion in 2023 and
listed below are our key assumptions:
US valuations and earnings

Change in consensus Change in valuation assuming mean
earnings forecast for 2023 reversion to 5-year average forward P/E
US Financials 19% -7%
US Technology 11% 4%
US Materials -9% 22%
US Industrials 15% 7%
US Cons. Staples 6% -8%
US Cons. Dis. 27% 12%
US Comm. Serv. 10% 20%
US Utilities 6% -2%
US Real Estate -6% 33%
US Healthcare -3% -1%

* US Energy is excluded due to volatility of data
40 1Q23 US EQUITIES
1Q23 US Sector Strategy – Focus on Manufacturing, and moderating economic

resilience momentum will translate to further downside
for the space. Based on consensus forecast,
Downgrading of Consumer Discretionary and earnings are expected to decline by 9% in 2023
Materials as economic headwinds gather pace. In (the sharpest decline in S&P 500). We believe
1Q23, we are downgrading Consumer Discretionary more downward revisions are forthcoming if
to Neutral and Materials to Underweight, and our macro data deteriorates in the coming months.
rationale is:
Among our Overweight calls, we maintain
• Downgrade of Consumer Discretionary: As a constructive view on Technology and
economic momentum moderates in the course Communication Services. These growth sectors
of 2023, domestic consumption is expected have undergone substantial de-rating as markets
to take a hit, and this is particularly so in the have priced in the impact of tightening financial
Consumer Discretionary space. The untimely conditions. But we expect the reverse to happen
combination of rising job cuts and spiralling as bond yields moderate over the course of the
inflation will result in consumers cutting back on year. Earnings momentum. Meanwhile, earnings
discretionary spending and increasing focus on momentum is expected to stay resilient as these
necessities instead. sectors possess strong operating margins.
Consensus is expecting earnings growth of 11% for
• Downgrade of Materials: Historically, US Technology and 10% for Communication Services
Materials exhibit close correlation with ISM in 2023.
Downside risks for US Materials as US Technology and Communication

macro momentum moderates Services possess strong operating
margins
US Materials (LHS) 35 S&P 500 - Operating Margin (%)
600 65
US ISM Manufacturing (RHS)* US Technology - Operating Margin (%)
30 US Comm. Services - Operating Margin (%)
550
25
500 60
450 20
400 55 15
350 10
300 50 5
250 0
200 45 -5
Jan-12 Jan-14 Jan-16 Jan-18 Jan-20 Jan-22 Nov-92 Nov-00 Nov-08 Nov-16

* Chart is truncated
1Q23 US EQUITIES 41
US Sector Allocation – 1Q23

Overweight Neutral Underweight
Technology Real Estate Utilities
US Sectors Comm. Services Energy Cons. Staples
Health Care Cons. Discretionary Industrials
Financials Materials
Source: DBS
US sector key financial ratios

Forward P/E EV/EBITDA
P/Book (x) ROE (%) ROA (%) OPM (%)
(x) (x)
S&P 500 Index 18.1 4.0 13.2 19.2 3.9 14.6
S&P 500 Financials 14.2 1.7 10.2 10.9 1.1 20.6
S&P 500 Energy 8.8 2.7 6.2 29.4 13.3 16.2
S&P 500 Technology 22.5 8.2 16.7 32.8 12.8 25.7
S&P 500 Materials 15.2 3.0 10.3 18.0 7.4 15.3
S&P 500 Industrials 20.9 5.3 14.8 20.6 5.2 11.3
S&P 500 Con. Staples 22.1 6.7 16.5 26.1 7.8 8.9
S&P 500 Con. Discretionary 26.8 8.3 14.8 28.1 5.9 8.6
S&P 500 Comm. Services 15.0 2.7 9.6 16.1 6.2 18.8
S&P 500 Utilities 19.6 2.2 14.1 9.5 2.4 15.1
S&P 500 Real Estate 31.9 3.0 20.6 11.3 4.5 23.6
S&P 500 Health Care 16.8 5.0 14.8 20.6 7.4 10.0
Source: Bloomberg
* Data as at 22 November 2022
42 1Q23 US EQUITIES
Frostbite
EUROPE EQUITIES 1Q23
The outlook for European equities remains cloudy given lingering

headwinds of high inflation and tight monetary conditions. Stay
underweight but engaged through resilient companies with underlying
strength. Bright spots can be found among Pharmaceuticals, Luxury,
Energy, Tech, and Industrial sectors.
Source: Unsplash
04.
Europe Equities. Joanne Goh
Strategist
2022 has been brutal for the European region, rocked Outlook uncertain
by high energy prices and geopolitical conflicts at
its door. The region’s equities hit a low at the end However, the outlook remains cloudy with the
of 3Q last year before recovering lost ground in 4Q. presence of lingering headwinds. Essentially, high
Its low valuations could normalise on an improved energy prices, inflation, and tightening financial
global risk appetite if the Fed pivots or China eases conditions are likely to drive a very muted growth
its lockdown. However, we think it is premature to in the coming quarters. Growth numbers forecasted
call for a broad-based recovery as uncertainties by IMF for the various Eurozone economies are as
remain high. Against this backdrop, we prefer to stay follows:
cautious on the region and engage through selected
companies that have proven resilient.
GDP growth forecasts
In 2022, the European economy avoided a recession
2021 2022F 2023F
with the Euro area growing quarterly at 0.6%, 0.8%,
and 0.2% in the first three quarters. This highlighted Euro area 5.2 3.1 0.5
the resilience of the Euro area economy to shocks
Germany 2.6 1.5 -0.3
such as inflation, supply chain disruptions, and the
Russia-Ukraine conflict. Italy 6.7 3.2 -0.2
Likewise, overall 3Q corporate earnings results France 6.8 2.5 0.7
did not fare as badly as initially anticipated with Spain 5.1 4.3 1.2
no major synchronised earnings cuts despite a
Source: IMF
weak macroeconomic backdrop. Such cuts had
Forecasts as of October 2022
been gradual over the first two quarters of 2022,
implying that companies had adjusted to the tough
environment. 12-month earnings growth was also Of the four core European countries Germany,
adjusted down from 10% to 6% since the beginning Italy, France, and Spain, the impact will be most
of 2022. pronounced in Germany due to the fallout of
manufacturing activity and high dependence on
The resilience of the economy and private sectors Russian energy supplies. Tourism-dependent Spain
can be attributed in part to the strong EU support and France might fare better. Being the weakest of
programmes implemented during the pandemic. the four, there are also concerns on Italy’s ability to
Two programmes – REPowerEU and TPI – were service its debt.
introduced to help support households, companies,
and sovereigns deal with high energy prices and
bond market volatility. The reactivation of fiscal rules
has also been delayed by one additional year to late
2023.
44 1Q23 EUROPE EQUITIES

Public debt and deficit are set to decline in 2023. Gain exposure in pharmaceuticals,
However, going into 2024, funding needs will luxury, energy, technology, and industrial
remain highly uncertain as inflation slows, real GDP sectors
growth softens, debt service cost climbs, and QE
reinvestment programmes conclude their run. We recommend investors to stay underweight
Countries with large public deficits, like Italy, may Europe on a portfolio basis but stay exposed to
need more funding if real growth continues to lag selected companies that have proven resilient. Bright
behind projection or if the energy crisis remains spots can be found in the pharmaceutical and luxury
protracted. sectors, with firms in these sectors beating earnings
expectations from time to time. Meanwhile, the
Low valuations’ cushion for earnings strong balance sheets of European technology and
industrial stocks place them in good stead to better
Market valuations are now at 1SD below its 10-year leverage their capital base and remain performance
average, which in our view, provides enough cushion focused during this period of adversity. These
for earnings downside. With the Fed pivoting and include companies within the structurally strong and
China’s Covid situation easing as potential triggers more disciplined subindustries such as Oil & Gas,
for improvement in risk appetite, low valuations Chemicals, and Manufacturing. Companies which
could normalise to average levels. However, we think are global price takers, such as Energy and Mining
it is premature to call for a broad-based recovery in companies, make them less sensitive to the weak
Europe equities despite the cheap valuations due to macroeconomic environment in Europe and can still
high macroeconomic uncertainties. ride on high oil and metals prices.
Europe valuations near -1SD Sound fundamentals among European

corporates
(x) Europe 12-month forward P/E Net debt to EBITDA
(x) Germany Eurozone France
24 14 Italy Spain
12
20
10
8
16
6
4
12
8 0
2011 2013 2015 2017 2019 2021 2004 2008 2012 2016 2020
1Q23 EUROPE EQUITIES 45

China’s reopening a wild card in 2023 Europe’s dependency on China
China’s reopening is not only good for global growth, (’000) China tourists to Germany, France, Italy (LHS) (EURb)
but the Eurozone stands to gain, given how China 2500
Imports from China (RHS)
60
Exports to China (RHS)
is its largest import source, and vice versa. China
receives a large share of the EU’s vehicle and 50
2000
aircraft exports while the EU imports manufacturing
goods such as telecommunications equipment 40
and computers from China. The EU has also been 1500
a key investor in China’s manufacturing industry. 30

Likewise, China is an important investor in the EU’s 1000
infrastructure, manufacturing, mining, and financial 20
services.
500
10
Supply chain constraints such as those in auto and

technology parts might ease off, improving Chinese 0 0
Dec-17 Dec-18 Dec-19 Dec-20 Dec-21
demand for machineries and autos.
Source: Bloomberg, Eurostat

Meanwhile, Chinese tourists who exact an increasing
influence on global tourism receipts, are likely to
make a positive impact. Around 28% of tourists by millennials - now in their prime spending years -
traveling abroad from China visit Europe every year as an expression of individuality, social status, and
and spent around EUR10b per year. This works out their aspiration.
to a conservative estimate of around EUR2,000 per
trip. This trend in luxury sales is also reflected in the
October 2022 exports data for Swiss watches:
Luxury sector runs contrarian to the
general economy i. Total exports have already surpassed 2019
pre-pandemic levels since last year, and grew
Companies in the luxury goods segment continue to 10% YTD;
beat expectations with strong sales figures posted
ii. Items in the higher price category (>CHF3,000)
in the latest result season. Appetite for luxury goods
generated most of the growth;
sales continue to rise as “revenge shopping”, a
weak Euro, and easing of Covid-related lockdowns iii. Steady growth is seen in high-share markets
help to fuel growth for the sector despite looming such as the United States (+16.7%), Japan
recession risks, sharply higher interest rates, and (+9.9%), and Singapore (+29.0%), while China
widespread inflation. These goods are sought-after (-18.1%) recorded negative growth;
46 1Q23 EUROPE EQUITIES

iv. Over half the growth came from watches made Energy sector
from precious metals (+11.0%).
The Energy sector is the only sector which performed
Hence, luxury sales are expected to continue well in 2022. We believe oil prices can be supported
climbing after China further eases its Covid at USD100/bbl as OPEC is not foreseeing much
lockdowns. Accordingly, it can be said that the demand destruction and is quite comfortable with
luxury sector is not a proxy for the general economy. prices at this level. It will thus retain the flexibility
It can be regarded as an inflation hedge with luxury to further intervene in the market should oil prices
goods that are capable of retaining their value. The fall too far from the desired level. We thus retain
demand for and prices of luxury goods are only our near-term positive view on oil and maintain our
going to get higher as inflation grows. For example, forecasts for Brent in the coming quarters. European
sales at Hermes grew 24% in 2022 despite a price oil majors which are upstream, as well as integrated
increase of 4%, giving the company the confidence oil plays shall continue to benefit from the positive
to announce price hikes of as much as 10% for the oil trend.
following year. The prices of Louis Vuitton items have
increased by 5-20% in the past two years. With such Europe’s technologically advanced
strong pricing power and persistent demand, we industries — Semiconductors and
expect the sector to outperform against a backdrop Pharmaceuticals
of looming, slower global growth.
We stay engaged in European Technology
Asia’s reopening to sustain growth in the sectors with quality names in semiconductor and
USD408b luxury goods market automation. The European pharmaceutical sector is
an advanced sector alongside that of the US, both
40 Luxury goods sales by region (%)
of which compete in technological advancements.
The global healthcare sector is recovering from the
30 effects of the coronavirus pandemic, which has
led to fewer diagnoses and prescription medicine
20 uptake. Other factors driving European growth
include the adoption of technology and artificial
10
intelligence throughout the drug industry supply
chain, as well as the growing role of hospitals in the
healthcare ecosystems as they improve their facilities
0
and develop specialised resources for advanced
Asia Pacific
Mainland China
Japan
South Korea
Taiwan
Hong Kong
Western Europe
North America
ME, Africa
Others
USA
diseases like cancer and Alzheimer’s.
Source: Bloomberg
1Q23 EUROPE EQUITIES 47

Uneven
road
A Yen
ahead
Play
J AJPAAPNA N
E QEUQI U
T II E
TSI E 2SQ12Q2 2 3
In the
Japan’s near term,
economy tailwinds
is likely include
to return private
to negative consumption
territory as omicrongrowth,
business
spreads, expansion,
hindering and a cheaper
the resumption yen amidactivities.
of economic China’s reopening.
The
We expect of
development earnings to recover in crisis
the Russia-Ukraine hospitality
wouldand retail,
also hurtas well as
the
consumer
nascent spending-related operations.
recovery.
Source: iStock
05.
Japan Equities. Joanne Goh
Strategist
Japan equities recovered in line with global equities in On a relative basis, Japan equities have proven to
4Q and demonstrated lesser volatility. Earnings beat, be resilient in yen terms. Buying into companies
a weak yen, and reopening news drove optimism, that will benefit from the weak yen and domestic
while rising inflation, PM Kishida’s falling popularity, consumption should drive further outperformance.
and a sharply falling yen eroded confidence.
Moderately higher growth next year
TOPIX returned flat in 2022 in yen terms vs world
equities and -16% in dollar terms. Normally, foreign For the first time in four quarters, the economy
investors would buy Japanese stocks when the yen unexpectedly shrunk in 3Q last year as a weak
is weak, thus driving the TOPIX up. However, foreign yen took its toll on the country’s import bills due to
investors have not been buying Japanese stocks higher energy prices, another local Covid wave and
recently due to weak risk appetite amidst global stringent lockdown in China. The latter headwinds
looming recession concerns where Japan will be should ease as Japan’s reopening from October
affected as it is an exports-oriented market. 2022 boosted domestic consumption growth, while
China’s relaxation of its Covid curbs eased supply
Foreign inflows yet to return despite chain disruptions and helped boost Japan’s exports.
weak yen The government has also unveiled JPY28.6t in new
spending to ease inflation pain for households and
(USDb) Cumulative net foreign flows (LHS) (USD/JPY) retailers, directly targeting energy prices with an
USD/JPY (RHS)
250 150 extension to curb gasoline prices. We expect the
economy to moderate slightly from 1.5% in 2022 to
140
200 1.2% in 2023, supported by private consumption
130 while exports slow down.
150
120
Narrower earnings surprise
110
100
According to Bloomberg’s analysis of 3Q earnings
100
result season for TOPIX index stocks, earnings grew
50
90 by 24% during the quarter, but it was a mixed bag.
Weaknesses were seen in i) financial sector, where
0 80
2013 2016 2019 2022
we believe it is a structural issue in a negative interest
rate and low growth environment, populated s banks
Shaded regions represent periods of high inflation.
1 Q 2 3 J A PA N E Q U I T I E S 49
and insurance companies with very low ROE; ii) Domestic consumption revival
Biotech & Pharmaceuticals, due to low demand
and drug approvals during Covid lockdowns but Many catalysts were in place for a blow-out 4Q22 for
should be a post-pandemic play. Strengths are seen private consumption as Japan reopened its borders
in Energy and Tech, with the latter posting a small in October 2022, just in time for the peak winter
earnings surprise. holiday season. Positive momentum is expected to
carry on into the new year for the following reasons:
Guidance for earnings remain positive with
companies expecting translation gains from a weak 1) Japan is a favourite travel destination for many
yen. Yen has averaged around 131 in 2022, with Asian countries who have also just lifted travel
most companies expecting 110 in the beginning of restrictions, either partially or fully
fiscal year. Conversely, a stronger yen will not reverse
earnings outlook as consensus forecasts have yet to 2) The cheap yen has made it even more attractive
factor in a weak yen. to travel and spend in Japan
3) The government subsidised domestic “Go-to-

Earnings past pre-pandemic levels Travel” programme drove a rush to utilise the
spending vouchers by the end of 2022
180 Japan TOPIX 12-month forward EPS 4) Restaurants and beer went hand-in-hand during
the 2022 World Cup season;
160
forecasts 5) Apparel retailers should benefit from the seasonal
140 change after two years of lockdowns
6) Domestic consumer sentiments were lifted by

120
supplementary budget to ease the negative
impact from high inflation
100
80
We expect earnings to recover in hotels, restaurants,
retail, travel, and consumer spending-related
60 operations. These will also include companies that
Jan -18 Jan -19 Jan-20 Jan-21 Jan-22 Jan-23 Jan-24 manage IT solutions for the sector as it is confronted
with labour shortage and the need for productivity
improvements, given Japan’s ageing population
Near term, stocks which are benefitting from: 1)

private consumption growth due to a rise in wages
and relief budget spending; 2) business expansion
as the economy continues to re-open; 3) cheaper
yen; 4) China reopening; and 5) strong pricing power
— should continue to register positive earnings
momentum.
50 1 Q 2 3 J A PA N E Q U I T I E S
Picking up from bottom Inflation hitting target level could shift

mindset
Japan tourist arrivals (%) Inflation Core inflation BOJ target
3.5 4
3.0
3
2.5
2
2.0
1
1.5
0
1.0
-1
0.5
0.0 -2
Jan-18 Jan-19 Jan-20 Jan-21 Jan-22 2016 2018 2020 2022
Source: CEIC, DBS Source: Bloomberg, DBS
Inflation beneficiaries 1) F&B restaurants as prices can easily be passed

on, supported by pent up demand amid
Japan’s headline inflation reached 3.7% and 2.5% government relief packages and wage growth
for core in October 2022, jumping to a 40-year high.
2) Pharmaceuticals and healthcare drugs and
Although Japan’s inflation has lagged and is lower
services have low price elasticity, and are
than other DM peers, inflation could be sticky judging
benefitting from post-pandemic demand
from the experience of other countries. Additionally,
should we see a 3% wage growth, inflation could 3) Electronic parts especially those engaged in
be sustainable enough to defuse the deflationary clean energy, EVs, autos, and high-performance
mindset in Japan and support price increases. computers where near term restocking demand
We think price hikes can cautiously proceed in the is strong for fear of supply shortages
following industries due to their strong pricing power:
4) Sectors to avoid include utility companies where
there are government regulations to cap price
increases
Source: iStock
Weak yen beneficiaries Japan exports growth stabilising at

higher levels
The risk of BOJ deviating from the yield curve
(%) Merchandise exports y/y
control (YCC) policy – keeping short rate at -0.1% 60
and maintaining 10Y bond yield at 0.25% through
50
quantitative easing – has risen, since core inflation is
40
now above the central bank’s target and a leadership
30
change is set for mid-2023. Widening US-Japan
yield differential had driven the yen to depreciate 20
21% in 2022. 10
Over the years, we believe a weak yen and low -10

interest rates have supported Japan’s stable -20
economic growth and its leadership in competitive -30
industries such as electric machinery and electronic
-40
parts/devices. FDIs into and exports from these Aug-16 Aug-18 Aug-20 Aug-22
sectors have consistently been rising. Moreover,
with growing trade friction between the US and
China, Japan as a destination for supply chain
diversification for high-tech electronic components
can be adequately justified with yen being cheaper
Auto sector sales projected at record
now. For example, US memory chip maker Micron
highs
has begun mass production of its new high-capacity
Auto sector sales (JPYb)
low-power 1-beta dynamic random access memory
Toyota Honda Suzuki Subaru
(DRAM) chips at its plant in Hiroshima, Japan. Nissan Mazda Mitsubishi
90
Autos to recover from supply shortages 80
70
Bloomberg Consensus have forecast record-high 60
profits for the Japanese automakers in both FY22 50
and FY23 due to pent-up demand post reopening, 40
the easing of semiconductor shortage, and the
30
major profits from the weak yen. Share prices
20
have not moved much in the past six months due
10
mainly to excessive concerns over global economic
0
slowdown, rate hikes, and production delay. The 15 16 17 18 19 20 21 22F 23F 24F
latter stood out as the main reason for profit misses
in the first half of the financial year. For example, Source: Bloomberg, DBS
Toyota lowered its production target because of a

persistent shortage of chips and lockdowns in China.
Further on, the company said that the supply chain

issues have passed its worst and they should be
able to deliver to waiting customers a workaround,
such as receiving one smart key instead of two.
Yen assumption was revised from 130 to 135. Input
costs such as material and logistics costs have also
passed their peak. The company has announced
share buybacks to stamp its confidence.
We note that the problems of semiconductor

shortages are not particular to Japan automakers
but the global auto industry. The price advantage of
weaker yen should make Japan more resilient than
others.
Recovery
from
Lows
A S I A E X - J A PA N E Q U I T I E S 1 Q 2 3
With the constructive Covid-Zero policy pivot, China should emerge as a

beneficiary of reopening from the pandemic. ASEAN economies will be
resilient amid the global economic slowdown as private consumption,
tourism, and investments recover. We reiterate our overweight stance
in China and AxJ.
Source: iStock
06. Yeang Cheng Ling
Asia ex-Japan Equities. Strategist
Joanne Goh
Strategist
Asia ex-Japan equities had a dismal showing As the majority of AxJ listed companies are export-
on a slew of headwinds, namely the strong USD, oriented, their earnings per share since the start
high inflation, strict pandemic policy in China, and of 2022 have declined nearly 20%, led by larger
ongoing geopolitical tension. reductions in China earnings as it struggled to
navigate difficulties arising from strict Covid-19
Signs of a potential slowing in US inflation and measures.
recent adjustment to China’s Covid-Zero policy in
November gave a boost to market sentiment which Southeast Asia governments distributed generous
saw the respective indices rebound from lows. fiscal subsidies in 2022 resulting in budget deficits
ranging from 4.5% to 7.0% of GDP. Entering 2023,
we believe emerging Asia will engage in some form
AxJ equities showing signs of recovery of fiscal consolidation to shrink their deficit, especially
when rates and funding costs are rising globally, and
Greater China Asia ex-Japan
China Japan
external demand is slowing.
10
ASEAN Taiwan
Nonetheless, corrections in equity prices have far
outstripped earnings downgrades. There is market
-10 dislocation between earnings expectations and
investor actions.
With a growing middle-income population and

-30
increasing reliance on domestic consumption to
drive growth, we anticipate policymakers to embark
on more proactive measures to spur growth and
protect their social-economic circles against further
-50
Dec-21 Mar-22 Jun-22 Sep-22 external shocks.
56 1 Q 2 3 A S I A E X - J A PA N E Q U I T I E S
Downgrades in forward earnings likely The region’s GDP to trough in 2022

tentative
60 AxJ EPS forecast (USD/share) AxJ GDP (y/y %)
20 China GDP (y/y %)
AxJ GDP 2022F-24F (%)
China GDP 2022F-24F (%)
15
50
10
40 5
0
30
Oct-12 Oct-15 Oct-18 Oct-21 -5

In 2022, the region faced persistently rising costs, be revitalised. It is possible that Asia’s growth will
the Russia-Ukraine conflict, central banks raising exceed those of US and Europe in 2023 as regional
rates, China’s slowing economic growth, policies free trade agreements and relocation of supply chain
against semiconductor imports to China, and a reset to Asia continues.
of expectations after two years of strong momentum
post pandemic. After encountering an exceptionally weaker-than-
expected 2022, China’s new administration is
North Asia economies need to overcome these expected to re-focus on supporting long-term
daunting challenges. If governments introduce growth emphasising quality and resilience. GDP in
stimulus measures, their domestic economies may AxJ and China are anticipated to expand in the range
of 4.5-5% in 2023 and 2024.
1 Q 2 3 A S I A E X - J A PA N E Q U I T I E S 57
Fertile ground for dividends Most sectors trading at historically low

valuations
AxJ high dividend yield (%) 70 Current fwd P/E (x) 5Y average P/E (x)
US10Y treasury yield (%)
6 China government 10Y bond yield (%) 60
50
5
40
4
30
3 20
10
2
0
1
AxJ
Cons Disc
Cons Staples
Financials
H.Care
Industrials
Materials
Real Estate
Telco
Utilities
Energy
Technology
0
AxJ stands out as a fertile ground for dividend distributed by China large banks, Singapore REITs
investing. The high and sustainable dividend yields and telecommunication firms are attractive.
Multiples at supressed levels by absolute And relative to global peers

value
AxJ P/B +1 s.d. AxJ vs Global Equities
2.0 -1 s.d. +2 s.d. Est. PER Price-to-book
1.1
-2 s.d.
1.0
1.8
0.9
1.6
0.8
1.4 0.7
0.6
1.2
0.5
1.0 0.4
Dec-10 Dec-13 Dec-16 Dec-19 Dec-10 Dec-13 Dec-16 Dec-19

While our constructive view on AxJ equities has China GDP forecast
taken longer than expected to pan out, we maintain
our constructive stance on the grounds of: 2022F 2023F
5.5
1. Meaningful recoveries tend to follow dismal

5.0
market performances
2. Earnings multiples in cyclical sectors are at

4.5
historical lows
3. Supportive forward ROE of 11%-12%, having
4.0
recovered from 10%
4. Depressed price-to-book valuations at -2 3.5

standard deviation
5. Steep discount to global peers 3.0

31-Dec 31-Mar 30-Jun 30-Sep
China – dynamic Covid-Zero policy Source: Bloomberg, DBS

pivot
After the first meeting of the Standing Committee Government to push for fixed asset
of the Politburo post Party Congress, the National investment
Health Commission announced 20 measures to
China infrastructure FAI, y/y %, 3-mma
further optimise Covid prevention and control work.
40 China FAI ex-rural housing, y/y %
This was recently followed by 10 calibrated measures
for partial reopening, one of which includes home 30
quarantine for non-serious cases. We believe this
key policy pivot will lead to economic recovery and 20
an upward re-rating of equity valuations.

10
All these have been largely in line with our -

expectations of an ultimate opening on a measured Jun-12 Jun-14 Jun-16 Jun-18 Jun-20 Jun-22
basis. -10
-20
GDP in 2022 fell short of the country’s annual target
of 5.5%. What interests the market is how the new -30
administration intends to steer the country back on
track to achieving its long-term goals.
We believe there is compelling upside potential for China: domestic business key to
China equities to re-rate from current levels, driven corporate revenue
by the ongoing introduction of government measures
Revenue mix of top-15 listed Chinese firms
to alleviate key concerns regarding Covid-Zero Domestic revenue Overseas revenue
policies, real estate sector problems, and economic 100%
10% 11% 12% 11%
goals, as mentioned in our previous report. These
positive catalysts are now falling into place as we 80%
had predicted. The market has lauded such moves
as evidenced by recent share price rebounds. 60%
China equities are trading at 11x forward PER and 40%

90% 89% 88% 89%
1.1x price-to-book. The subdued valuations – both

absolute and relative to global equities, and significant 20%
underweight allocations among investment funds –
will continue to act as a supporting factor to initiate
0%
a longstanding re-rating after the sentiment was 2019 2020 2021 1H 2022
suppressed over the past quarters.

We reiterate our stance to stay constructive on China

equities and the timing has materialised to dollar-
cost average down. Investment opportunities are China at trough valuations
emerging as China reopens; we stay constructive on
domestic oriented sectors which are at the forefront China equities est PER (x)
20 +1 s.d.
of the reopening ripple. These include A-shares, -1 s.d.
New Economy and e-Commerce platforms, China
18
consumer brands, beneficiaries of government
fixed asset expenditures, and high dividend-yielding 16
financials.
14
Evidently, Chinese policymakers have been humming
a different tune from other central banks. The PBOC 12
reduced the reserve requirement ratio for large banks

to 11.25% from 14.5% since the start of 2019 and 10
may ease it further. This allows it to supply liquidity to

8
the local financial system and extend credit support
Dec-18 Oct-19 Aug-20 Jun-21 Apr-22
to local businesses in a bid to toss the economy a
lifeline while simultaneously drive the beaten down
consumer confidence out of the woods. Source: Bloomberg, DBS
Source: Unsplash
Chinese enterprises performance China has been the world’s largest

semiconductor importer
We did a deep dive on the 15 largest listed companies
by index weight and concluded that approximately Semicon sales to China, 3mma (USDb)
20 Semicon sales to Americas, 3m ma (USDb) 800
90% of their revenue were derived locally. As such,
Asia semicon index (RHS)
initiatives to turnaround local consumption and
commercial activities will have the most impact on 15 600
earnings outlook.
This further enhances our stance to stay invested 10 400

in areas and sectors benefitting from the continued
revival of economic backdrop and domestic
consumption; namely middle-income spending, 5 200
online and physical retailing, government-driven

fixed asset investment, as well as financial services.
0 0
Mar-15 Mar-17 Mar-19 Mar-21
With the constructive policy pivot, China should
emerge as a beneficiary of Covid-19’s ‘reopening Source: Bloomberg, DBS
catch-up’.
We reiterate our investment recommendations and Research derived nearly one-third of their revenue
stay overweight in AxJ and China. from China in 2021.
US regulations impact China’s The total addressable market of semiconductor

technology sector components in personal computers and
smartphones are worth some USD300b a year,
The US export ban on semiconductor equipment to half of overall semiconductor chips sales. Most
China will adversely affect China’s plan to develop chips are assembled and manufactured by
homegrown technology capability. Termed as the Electronics Manufacturing Services and Original
Commercial Control List of the Export Administration Design Manufacturer plants located in China. The
Regulations, it restricts US-based firms from selling production activities require massive quantities of
selected grades of advanced chip equipment logic and memory chipsets, plus countless types
without obtaining licenses from the US government. of passive components along the supply chains.
This includes semiconductor equipment that are China has been the world’s largest importer
used to produce logic chipsets of 14/16 nanometer of semiconductor components, commanding
and below. one-third of global semiconductor sales in value.
It will adversely disrupt the earnings of firms China will work to shift its sourcing to suppliers in
that supply these equipment, chipsets, and other regions like Europe and Japan, while ramping
semiconductor raw materials. The world’s leading up its homegrown capability. An effective solution
equipment makers like Applied Materials and LAM for this situation is one of the crucial drivers for the
sector to return to its heydays.
Source: iStock
ASEAN — Think domestic

3. Energy and Commodity sector supported by
We expect ASEAN economies to be resilient amid past under-investments. We believe earnings
challenges from global economic slowdown due for the energy sector should be supported by
to its recovery in private consumption along with high commodity prices. We forecast oil price
tourism and a pick-up in investments. ASEAN is to average around USD85-90 for the next few
also a key beneficiary of China’s reopening, which quarters.
we believe could happen in 2023. Key drivers for
outperformance are: Slowing growth concerns have driven
expectations for metals demand higher, and
1. Tourism. Malls and hospitality REITs, prices lower. However, the long-term secular
hospitals catering for medical tourism and tailwinds of energy transition and electrification
non-Covid treatments, as well as air and land should be supportive of demand for metals such
transportation operators are key beneficiaries as nickel, copper, and lithium.
of private consumption and tourism revivals. In
this regard, we believe Thailand will outperform ASEAN’s oil, energy, coal, and metal mining
as strong momentum in tourism arrivals is set companies stay poised to benefit from higher
to continue in 2023. The potential relaxation of commodity prices.
travel restrictions in China, thus encouraging
outbound travels from China, should also assist 4. Singapore, Indonesia, and Thailand to
with the momentum. Note that China made up outperform. Given strong global headwinds
28% of total tourist arrivals to Thailand during from rising recession risks, sustained recovery
the pre-pandemic period in 2019, but only 4% in consumption remains key to offset exports
of total arrivals in 9M22. growth slowdown. ASEAN economies are
expected to stay buoyant as consumption
2. ASEAN banks stand to benefit the most from continues to recover from the reopening and a
rising interest rates. While the notion has been pro-growth public spending budget allocation
well-telegraphed, we believe earnings may still towards infrastructure spending. Drivers are
be underestimated and surprise on the upside thus intact for domestic sentiments to remain
for several reasons, such as lower provisions resilient. Our best picked markets are Singapore,
and fee income benefitting from a recovering Indonesia, and Thailand.
economy. Interest rates staying higher and
longer imply re-pricing of loans, such as fixed
rate mortgage loans, shall continue into next
year.
Singapore banks net interest income FDI inflows at record high in Indonesia
finally given a boost, with more to come,
following a decade of near zero interest
rates
(%) Singapore Banks net interest margin (LHS) (%) 4 FDI inflows - sectors (USDb)
2.4 Fed Funds rate (RHS) 5.5 Basic Metal Industry, Metal Goods
Chemical & Pharmaceutical
2.3
Real Estate, Industrial, and Business activities
4.5
2.2 3 Mining
2.1
3.5
2.0
1.9 2.5 2
1.8
1.5
1.7
1
1.6
0.5
1.5
1.4 -0.5 0
2013 2016 2019 2022 2019 2020 2021 2022
Source: Bloomberg, DBS. Source: Bloomberg, DBS. Forecasts in shaded area.

Forecasts in shaded area.
In Indonesia, considering sufficient pipeline Despite a dampened exports outlook and

interest in the base metals and processing risking risk of layoffs in the global Tech sector
industry, the momentum for Indonesia’s FDI is which will affect Singapore, government policies
likely to remain strong over the next 2-3years, to attract investments and talent remain intact to
alongside an increase in jobs creation, offset the global slowdown. The government’s
downstream activities, and export growth. pre-emptive property tightening policies have
safeguarded financial prudence in the banking
Thailand’s tourism sector drives close to 20% and property sectors in the face of rising interest
of the overall economy and is recovering from rates.
a very low base due to two years of pandemic
travel restrictions globally. The sector is poised
to recover with the continuation of government
support for the industry and global re-opening.
Thai consumer sentiment index and industry
sentiment index have risen for six consecutive
months since its reopening.
India’s high valuation limits upside India is twice as expensive than rest of
Asia
We maintain Neutral in India given its long-term
growth opportunities supported by favourable (x) India P/E (LHS) (%)
demographics, but headwinds of moderating growth 35 PE premium to Asia ex-Japan (RHS) 120
and high valuations could limit near term upside.

Equities have benefitted from the country’s resilient 100
30
growth profile vis-a-vis China’s slowdown. Domestic
80
liquidity via equity mutual fund subscription powers 25
the market ahead, despite waning foreign investors’
60
appetite for emerging markets. Top line revenue
20
growth is strong and sufficient to offset margin 40
pressure and deliver double digit earnings growth,
contributed mainly by banks. Credit impulses remain 15
20
strong despite rising interest rates. Going forward,
we believe private capex and job creation need to 10 0
2010 2013 2016 2019 2022
follow through for the economy to benefit from
demographics dividends. Banks should continue Source: CEIC, DBS
to benefit as intermediaries for “financialisation”
of household savings, democratisation of credit,
and digitalisation of consumption and services. We
recommend gaining exposure to selected diversified
domestic cyclicals to benefit from India’s structural
growth amid high valuations.
Moving
Away from
Stagflation
G L O B A L R AT E S 1 Q 2 3
Growth to prove more resilient as we move into a period of lower

inflation. Steepening to play out in the 5Y/30Y, 5/10Y, and eventually
the 2Y/10Y segments.
Source: iUnsplash
07. Eugene Leow
Global Rates.
Strategist
Duncan Tan
Strategist
2023 will likely mark an evolution of the themes The impact on DM curves is less clear, depending
that played out in 2022 – high inflation, recession on whether the pricing lurches into recession, or
worries, and central bank actions. The current Goldilocks, or both through 2023. The US economy
stagflation backdrop will give way to a period of has so far surprised on the upside, staying resilient
slower economic activity/lower inflation (recession) despite bouts of financial stress and much higher
with an outside chance that growth would prove rates. While there are reports of layoffs (especially
more resilient. Curve flattening was probably the in the tech sector), these have not impacted jobless
single biggest shift for 2022. Note that the 2Y/10Y claims or payrolls yet. Moreover, external factors such
bear flattened from around 80 bps at the start of as China reopening (plausible around mid-2023)
2022 to an inversion of around 75 bps in November also have considerable impact on global growth.
2022, levels not seen since the early 1980s. This Our suspicion is that stagflation would give way
could start to reverse as the market moves away to recession pricing first and potentially Goldilocks
from stagflation pricing. thereafter if the global economy holds up better than
expected in 2H23.
We suspect the combination of a hawkish Fed,
aggressive hikes, and very high inflation prints Steepening could play out in the 5Y/30Y, 5/10Y,
would fade in late 1Q/2Q. The Fed has already and eventually the 2Y/10Y segments (in that
indicated that it is poised to downshift in December. order). We also like holding on to receiving 2Y/5Y/10Y
By 1Q, we think that the terminal rate of 5% would be fly. The key motivation is that this economic cycle is
hit. At that point, the vantage point should be different slowing and rate cuts should feature in the 2Y to 5Y
and a pause would be needed to assess the impact tenors. However, if inflation is now structurally higher
to the economy. Across the DM, we might well find than the pre-pandemic era, longer term rates should
that many central banks would probably be close to be more buoyant. We should also be keeping an eye
the tail end of their respective tightening cycles. In on MBS sales in 2023. The extent of steepening in
the Eurozone, recession risks are particularly acute the German Bund curve would probably be more
and the ECB might well find itself having to cut rates limited. This is a function of the curve being less
in late 2023. Japan is the notable exception. There inverted and the fact that the ECB is likely to deliver
are lingering risks that the BOJ might opt to ease cumulatively less hikes than the Fed. Meanwhile, our
up on yield curve control around April when BOJ base case is for the JGB curve to stay flat with an
Governor Kuroda is set to step down. In any case, outside chance of steepening if Kuroda’s successor
a shift from stagflation into recession / Goldilocks changes tack.
points to lower yields (especially for belly tenors).
68 1 Q 2 3 G L O B A L R AT E S
Steeper DM curves in 2023 Manufacturing PMIs starting to bite
JGB German Bund UST 70 Japan US Eurozone

(% pa)
6
60
5
4
50
2 40
1
30
0
-1 20
1Y 4Y 7Y 10Y Dec-19 Jul-20 Feb-21 Sep-21 Apr-22
Tail end of CPI worries? Curve inversion pushing extremes
(% pa) US CPI Eurozone CPI Japan CPI bps 2Y/10Y

12 400
10 300
8 200
6 100
4 0
2 -100
0 -200
-2 -300
Dec-16 Dec-17 Dec-18 Dec-19 Dec-20 Dec-21 Jan-80 May-88 Sep-96 Jan-05 May-13 Sep-21
Source: Bloomberg ,DBS Source: Bloomberg ,DBS
1 Q 2 3 G L O B A L R AT E S 69
Source: iStock
Asia Rates
CNY rates: Upward trajectory Bottom in China interest rates is behind

us
CNY rates are clearly on an upward trajectory as 3.2 1Y CNY IRS (%) 5Y CNY IRS (%)
policymakers appear intent on relaxing Covid
measures and reopening the economy. The market 3.0
implications are that higher case counts may not

2.8
cause policymakers to re-tight restrictions and
hence, short-term pullbacks in CNY rates may be 2.6
shallow. 1Y-5Y swap curve is likely to stay steep,
with the 1Y better anchored by adequate liquidity 2.4
and some prospects of further easing, while the

2.2
5Y would be able to rise more on the back of an
improved cyclical outlook. As the markets turn 2.0
more optimistic on reopening and growth recovery,
we are likely to see a boost to foreign bond/equity 1.8
Jan-21 Jun-21 Nov-21 Apr-22 Sep-22
inflows and greater conversion of export proceeds/
FX deposits. This would be near-term bullish for Source: Bloomberg, DBS
CGB total returns. Further out, however, balance
of payments outlook could be weighed down by
expectations of higher imports (leading to lower
trade surplus) and resumption of outbound tourism.
IDR rates: Bullish on IndoGBs IndoGBs’ low yield differentials do not

deter us from being bullish
We are bullish on IndoGBs and see them as one
8.0 10Y ID-US yield differential (%)
of the EM bonds that could outperform in the next
7.5
three to six months. BI has turned more pre-emptive
7.0
and front-loaded against inflation and currency risks
and Indonesia’s fiscal balance is consolidating faster 6.5
than regional peers. This should assure foreign 6.0

bond investors that policymakers are credible 5.5
in terms of their normalisation efforts and are not
5.0
behind the curve. We expect a turnaround in foreign
4.5
bond flows and see inflows of USD3-7b in 2023.
4.0
Balance of payment dynamics are expected to
remain supportive for IndoGB total returns while 3.5
coal export prices stay high. Even though excess 3.0

2015 2017 2019 2021
domestic liquidity has declined materially this year
on BI’s hikes to reserve requirement ratios and a
pick-up in credit growth, levels of excess liquidity are
still considered comfortable and remain supportive
of locals’ bond demand.
1 Q 2 3 G L O B A L R AT E S 71
INR rates: Hike cycle still has room to Further RBI hikes could further flatten the
go curve
We have a pay bias on INR swaps and hold an
8.0 1Y INR OIS (%) 5Y INR OIS (%)
underweight stance on India GSecs. With inflation
proving to be sticky, RBI is expected to stay focused 7.5
on accommodation withdrawal and the hike cycle still 7.0

has room to go. Banking liquidity is also tightening,
and we could continue to see periods where call 6.5
rates temporarily deviate above the policy repo rate. 6.0

The type of measures RBI takes to manage the
liquidity situation would have significant implications 5.5
for INR Rates. On GSecs, now that index inclusion 5.0

has been delayed, bond yields could be more
4.5
sensitive and volatile to fluctuations in INR and oil
prices, as well as the ongoing heavy bond supply. 4.0
If restarted, purchases via open market operations Jan-22 Mar-22 May-22 Jul-22 Sep-22 Nov-22
could inject durable liquidity and also support locals’ Source: Bloomberg, DBS
bond demand.
KRW rates: Financial stability risks Tightening of financial conditions in

Korea
The BOK has explicitly linked the duration of its 4.5 3M CD (%) Policy Rate (%)
hike cycle to that of the US Fed, in an attempt to
support rate differentials and limit the passthrough 4.0
of KRW depreciation onto inflation and inflation

3.5
expectations. We think that prospects are raising
for the BOK, in 2023, to downplay the influence of 3.0
Fed hikes on its own policy rate trajectory. South
Korea’s economic data has been slowing for some 2.5
time already, and inflation data is also showing

2.0
signs of moderation. We think the gamechanger
would be the ongoing volatility and strains in local 1.5
money market, corporate debt, and government
1.0
bond markets, which have led policymakers to
Jan-22 Mar-22 May-22 Jul-22 Sep-22 Nov-22
announce a large number of stabilisation measures.
BOK tightening has undoubtedly contributed to the
tighter financial conditions and the resultant financial
stability risks could put some pressure on the BOK
to tone down its hawkishness.
72 1 Q 2 3 G L O B A L R AT E S
MYR rates: Bond supply stay elevated Malaysia’s bond yields have lagged the
rise in US yields
BNM has signalled that rate hikes are not on a 5.0 10Y Malaysia (%) 10Y US (%)
pre-set path and that decisions will data dependent,
balancing the risks to inflation and growth. This 4.5
suggests that BNM’s hike path will likely be more

4.0
measured and gradual, with relatively less influence
from US Fed hikes and any attendant depreciation 3.5
pressures on the ringgit. MYR swaps and MGS yields
lagged the rise in US rates in 2022, and unhedged 3.0
differentials could stay compressed in 2023, unless

2.5
BNM turns more hawkish. With limited consolidation
on fiscal, bond supply should stay elevated in 2023. 2.0
We see some risks around banks’ bond demand,
due to expected normalisation of statutory reserve 1.5
Jan-22 Mar-22 May-22 Jul-22 Sep-22 Nov-22
requirement. On the other hand, bond demand from
the Employee Provident Fund should improve on Source: Bloomberg, DBS
greater fund inflows, resulting in a strong anchor for
longer-duration MGS yields.
PHP rates: Large rate hikes Large rate hikes to support the peso and
respond to high inflation
The BSP has been one of the more aggressive
8 ON Lending Facility Rate (%)
central banks in the region, undertaking large rate ON Deposit Facility Rate (%)
hikes to support the peso and respond to high 7 Inflation (%)
inflation prints. The aggressive rate hikes, as well

as peso depreciation pressures from wide Current 6
Account deficits, have consequently resulted in

5
the underperformance of PHP rates and bonds.
Nonetheless, we hold a neutral stance on bonds, 4
largely because we think valuations are cheapening
quickly and there would be entry opportunities near 3
an eventual peak in yields levels and bottoming in

2
Current Account balance.
1
2020 2021 2022
1 Q 2 3 G L O B A L R AT E S 73
SGD Rates: SORA to peak out at 3.6% Swaps could be overpricing the forward
with upside risks outperformance of SORA
For this cycle, passthrough from US Fed hikes to
5.0 2Y SGD OIS (%) 2Y USD OIS (%)
short SGD rates such as SORA has been higher
4.5
than expected, due to tighter SGD liquidity and
4.0
periods of broad dollar strength. Going into 2023,
passthrough could moderate but stay somewhat 3.5
elevated. Singapore’s recent inflation prints have 3.0

continued to stay high, supporting some market 2.5
expectations that the MAS could remain on a policy
2.0
tightening bias and allow SGD rates more room to
1.5
rise. Therefore, while we expect SORA to peak out
at around 3.6% in 2023, we recognise that the risks 1.0
are tilted to the upside. 2Y SGD-USD OIS swap 0.5

differentials remain quite negative and is likely to 0.0
widen ahead, as we think swaps markets could be Jun-21 Oct-21 Feb-22 Jun-22 Oct-22
overpricing the forward outperformance of SORA Source: Bloomberg, DBS

relative to US Fed Funds.
THB rates: Staying low Thailand’s tourism recovery has been

gaining pace
With a greater focus on economic recovery and
(m) Tourist Arrivals into Thailand
inflation pressures driven more by supply side 4.5
factors, the BOT is expected to stay on a gradual
4.0
hiking cycle. Therefore, while THB rates are relatively
low, they can continue to stay low and need not 3.5
catch up, in the near term, to US or regional rates. 3.0

The BOT could also maintain its buying of bonds 2.5
via open market operations to anchor yields and
2.0
support liquidity. From the perspective of foreign
1.5
investors, low bond yields mean low coupons and
limited potential for price gains, implying that total 1.0
returns would be largely driven by the currency. 0.5

In the coming months, we expect to see larger
0.0
foreign inflows into bills and short-duration bonds, 2016 2018 2020 2022
as offshore plays the tourism recovery theme.
Domestic liquidity remains relatively comfortable Source: Bloomberg, DBS
and bond demand from locals should stay robust

in 2023.
74 1 Q 2 3 G L O B A L R AT E S
Rates forecasts
2023 2024
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q
3M SOFR OIS 4.88 4.88 4.88 4.50 3.88 3.38 2.88 2.88
2Y 4.60 4.40 4.10 3.90 3.70 3.30 3.10 3.10

US
10Y 3.90 3.80 3.60 3.60 3.50 3.50 3.50 3.50
10Y-2Y -70 -60 -50 -30 -20 20 40 40
3M TIBOR 0.07 0.07 0.07 0.07 0.07 0.07 0.07 0.07
2Y -0.05 -0.05 -0.05 -0.02 -0.02 -0.02 -0.02 -0.02

Japan
10Y 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25
10Y-2Y 30 30 30 27 27 27 27 27
3M EURIBOR 2.45 2.15 1.90 1.65 1.60 1.60 1.60 1.60
2Y 2.45 2.05 1.80 1.60 1.60 1.60 1.60 1.60

Eurozone
10Y 2.40 2.20 2.00 1.80 1.80 1.80 1.80 1.80
10Y-2Y -5 15 20 20 20 20 20 20
3M JIBOR 6.70 6.75 6.75 6.75 6.45 6.15 5.90 5.90
2Y 6.65 6.65 6.75 6.75 6.55 6.15 5.75 5.75

Indonesia
10Y 6.90 6.90 7.00 7.10 7.10 6.90 6.70 6.70
10Y-2Y 25 25 25 35 55 75 95 95
3M KLIBOR 3.70 3.60 3.55 3.55 3.50 3.45 3.45 3.45
3Y 4.10 4.00 3.95 3.90 3.80 3.70 3.65 3.60

Malaysia
10Y 4.70 4.70 4.60 4.60 4.50 4.50 4.50 4.50
10Y-3Y 60 70 65 70 70 80 85 90
3M PHP ref rate 6.00 6.00 6.00 5.50 4.75 4.50 4.50 4.50
2Y 7.00 7.00 7.00 6.40 5.55 5.20 5.20 5.20

Philippines
10Y 7.40 7.30 7.10 7.10 7.00 7.00 7.00 7.00
10Y-2Y 40 30 10 70 145 180 180 180
3M SORA OIS 3.58 3.58 3.58 3.20 2.98 2.68 2.28 2.28
2Y 3.40 3.20 2.90 2.80 2.70 2.50 2.50 2.50

Singapore
10Y 3.20 3.10 2.80 2.80 2.70 2.70 2.70 2.70
10Y-2Y -20 -10 -10 0 0 20 20 20
%, eop, govt bond yield for 2-year and 10-year, spread bps. Source: CEIC, Bloomberg, DBS
1 Q 2 3 G L O B A L R AT E S 75
2023 2024
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q
3M BIBOR 1.85 2.10 2.35 2.35 2.30 2.25 2.20 2.20
2Y 2.05 2.20 2.35 2.35 2.35 2.35 2.35 2.35

Thailand
10Y 3.30 3.45 3.50 3.60 3.60 3.60 3.60 3.60
10Y-2Y 125 125 115 125 125 125 125 125
1Y LPR 3.65 3.55 3.45 3.45 3.45 3.45 3.55 3.65
2Y 2.20 2.20 2.35 2.45 2.55 2.65 2.70 2.70

Mainland
China
10Y 2.85 3.00 3.05 3.10 3.15 3.20 3.25 3.25
10Y-2Y 65 80 70 65 60 55 55 55
3M HIBOR 5.68 5.68 5.68 5.00 4.38 3.88 3.13 3.13
2Y* 4.90 4.70 4.40 4.20 4.00 3.60 3.40 3.40

Hong Kong,
SAR
10Y* 4.20 4.10 3.90 3.90 3.80 3.80 3.80 3.80
10Y-2Y -70 -60 -50 -30 -20 20 40 40
3M CD 4.35 4.35 4.35 4.35 3.80 3.25 2.95 2.90
3Y 3.95 3.75 3.45 3.40 3.35 2.95 2.75 2.75

Korea
10Y 3.90 3.80 3.70 3.70 3.70 3.70 3.70 3.70
10Y-3Y -5 5 25 30 35 75 95 95
3M MIBOR 7.35 7.40 7.40 7.40 7.05 6.80 6.45 6.40
2Y 7.25 7.30 7.35 7.40 7.00 6.70 6.40 6.40

India
10Y 7.50 7.55 7.60 7.65 7.40 7.25 7.10 7.10
10Y-2Y 25 25 25 25 40 55 70 70
%, eop, govt bond yield for 2Y and 10Y, spread bps. *swap rates. Source: CEIC, Bloomberg, DBS
76 1 Q 2 3 G L O B A L R AT E S
Yield’s
the taper
Homecoming
GLOBAL CREDIT 1Q23
Investment grade credit to be a safe, liquid income generator for the

60/40 portfolio. Sweet spot remains with A/BBB-credit with portfolio
duration of 3-5 years.
Source: iiStock
08.
Global Credit. Daryl Ho, CFA
Strategist
It only took a global pandemic. It did not seem too Fed is no longer “behind the curve”
long ago that the investment world was lamenting the
perpetual lack of yields in the realm of fixed income. 4.5% Fed Funds rate (LHS) 10%
Fed no longer
Early start Fed Funds rate (LHS)
Yet the pandemic had upended the “lower for longer 4.0%
“behind the
curve”
CPI (RHS)
yields” narrative way before risk assets even got 8%
3.5%
wind of what was brewing beneath the surface. This
occurred as (a) unorthodox central bank-financed 3.0% Hypothetical start
of hiking
Fed Funds rate
6%
deficit spending was made the norm under the 2.5%
CPI y/y
notion of an emergency pandemic response and
2.0%
(b) supply chain bottlenecks revealed the fragility of 4%
the global system to geopolitical differences. Both 1.5%
developments simultaneously sustained demand 1.0%

2%
and diminished supply respectively amid a global
0.5%
recovery, setting the world up for an inflationary shock
that escaped even the most astute policymakers. 0% 0%
Mar-20 Sep-20 Mar-21 Sep-21 Mar-22 Sep-22
All caught up. This inflationary surprise had wrong- Source: Bloomberg, DBS
footed even the foremost central bank in the world
– the US Federal Reserve. In making up for lost time,
the Fed had to resort to a series of rapid outsized Credit yields on sale
hikes, leaving a trail of bloodied markets in its wake.
2022 may have been a wild ride for investors, but 3 2 1 10Y Mean Current
12%
the good news is that the Fed is no longer “behind
the curve”, seeing as the policy rate is now where 10%
9.0% 9.0%
it would have been had the Fed first started and
continued hiking with 25 bps at every meeting since 8% 7.4% 7.4%
March 2021 – when headline CPI first exceeded 2%.
Yield
6%
4.8%
4.4% 4.4%
Yields, yields everywhere. As central banks
4%
around the world hurried to raise rates to emulate
the Fed, bond markets bore the brunt of the flurry of 2%
hikes that ensued. As such, absolute yields from the
riskless all the way to the riskiest bond markets now 0%
range around 3 standard deviations (σ) above their Global Global US MBS EM Asia EM USD Securitised Global
IG HY AT1s
10-year averages, offering a plethora of high-income
generating alternatives to investors who were yield- Source: Bloomberg, DBS
starved once upon a time.
78 1Q23 GLOBAL CREDIT

The riskless rate was the most at risk. What is Companies more “creditworthy” than
atypical of the sharp rise in yields across global credit governments. This incredible adjustment does
markets in 2022 was that the risk-free component have a credible explanation. Governments, not
of treasury yields saw the far bigger adjustment as corporates, were the ones who had increased
compared to the risky component of credit spreads, indebtedness the most through deficit spending
which defies conventional logic in financial markets, during the pandemic. Companies had not
that risky constituents would always move with significantly expanded corporate leverage on
higher beta in rising volatility. While credit spreads aggregate – and many even refinanced and locked
are showing signs of elevated stress, it pales in in longer term borrowings at lower rates during the
magnitude when juxtaposed against the drawdown crisis – hence credit risks remain well-contained. Yet
observed in the benchmark US 10Y Treasury bond governments, despite higher indebtedness, do not
(UST). Notably, the massive -18.5% y/y decline typically face default risks due to the ability to print
in 2022 exceeded even that of 1980 when Paul currency. The “release valve” usually comes through
Volcker hiked the Fed funds rate to 20% to combat inflation/higher rates or currency devaluation, which
double-digit inflation in the US. sees more price risk in the duration/FX components.
This was precisely the duration-led correction that
we had observed for much of 2022 in the world of
Drawdown in 10Y UST exceeded the fixed income.
Volcker era
Glass half empty/full. If one were pessimistic,
1962 1972 1982 1992 2002 2012 2022 it could be argued that credit spreads have not
0%
widened sufficiently to reflect the risks associated
-2%
with the elevated costs of servicing debt, especially
-4%
Max y/y drawdown for 10Y UST
when recessionary expectations are building for

-6% 2023. However, we would prefer the more optimistic
-8% consideration; that the adjustment in the risk-
-10% free component means that higher yields are now
-12% available to the investors who wish to stay with
-14% quality Investment Grade (IG) credit – companies
-16% that are better positioned to weather a recession.
1980: -15.4%
-18% Moreover, with central banks seemingly having
-20% slowed the markets’ expectations of the future pace
2022: -18.5%
of rate hikes, it is likely that the largest moves in the
Recession Max y/y drawdown
risk-free rate are already behind us.
1Q23 GLOBAL CREDIT 79

IG spreads are more closely pricing in recession risks. The comparison between present and historical
valuations of credit spreads also suggests a preference for quality – IG over High Yield (HY).
Investment grade markets are historically cheap
Investment Grade Spread (bps) Time (months) % total
Average (1989 - 2022) 131 402
Recession only 209 30 7%
ex-Recessions 125 371 92%
Current 132
High Yield Spread (bps) Time (months) % total
Average (1989 - 2022) 496 347
Current 458
EM USD Spread (bps) Time (months) % total
Average (2000 - 2022) 377 268
Current 358

Credit spread movements are often characterised How does inflation impact spreads? As high
by extended periods of low volatility peppered with inflation had wreaked havoc among most financial
occasional spikes due to economic downturns. assets in 2022, it is natural to assume that credit
Looking at data since 1989, these spikes coincide would not be spared in an inflationary environment.
with recessionary periods that tend to last only 6-7% The data, however, seems to show otherwise.
of the time. Notably, present IG spreads of c.132 Looking at figures over the last 20 years, credit
bps are already above their long-term average levels spreads tend to behave better when inflation is
of 131 bps, and merely 77 bps away from average moderately high and is in fact more at risk with core
recessionary spread levels of 209 bps – indicating PCE inflation closer to 1% than at 5%. This could
that IG spreads may not have much further to widen be because low core inflation prints are usually
should a recession hit. HY spreads at 458 bps more representative of recessionary periods, which
however, remain below historical average levels of raises the risk of corporate defaults, whereas higher
496 bps, and could nearly double towards average inflation is usually characteristic of a strong underlying
recessionary spread levels of 830 bps should a economy. There is wider spread dispersion once
downturn be on the horizon. In this regard, investors core inflation exceeds 5% but given that median
may see better value and downside mitigation in IG expectations for core PCE remain between 3-4% in
credit going into an anticipated global slowdown. 2023, this encourages cautious optimism that credit
will remain in a sweet spot in the year ahead.
Credit spreads remain well-behaved Price adjustment offers a technical edge.

with elevated inflation Another effect of the significant upward shift in
rates in 2022 was the dramatic expansion of the
pool of global IG credit trading below par. Where
1,800 Global IG Global HY
the median price of such bonds ranged between
1,600 105-120 as at end-2021, it has since shifted to
1,400 a range of 80-90 at present. Experienced fixed
income investors would know that in terms of total
1,200
returns, one should be indifferent whether yield is
Credit Spread
1,000
derived more from coupons or the pull-to-par effect.
800
Current
Yet there usually is a psychological preference for
600 low-priced bonds because (a) the initial capital
Sweet spot
outlay is lower, (b) investors do not have to contend
400
with amortisation of a bond’s premium to par, and
200
(c) in a default scenario, bond premiums are a
0 disadvantage as residual value is based off of the
0% 1% 2% 3% 4% 5% 6%
Core PCE Inflation par value of the outstanding bonds. While these are
not major factors that would move the needle, they
are still small technical advantages that investors
Source: Bloomberg, DBS can exploit while opportunities remain aplenty to
trade in discount bonds.

Most IG bonds now trade below par The most unbalanced 60/40 portfolio
performance since 1871
Distribution of Global Corp. IG bond prices 60%
4,500
Current end-2021 Bonds down, Bonds and
4,000 equities up equities both up
3,500 30%
Equity annual returns

3,000
2,500
USDb
0%
2,000
1,500 YTD 2022

-30%
1,000
500 Bonds and equities Bonds up,

both down equities down
0 -60%
<60 60 to 70 to 80 to 90 to 95 to 100 to 105 to >120 -40% -20% 0% 20% 40%
70 80 90 95 100 105 120 Bond annual returns
Source: Bloomberg, DBS Source: Bloomberg, Jordà-Schularick-Taylor Macrohistory Database, DBS

Note: Data is for the US market. Equity and Bond returns are measured
using the S&P and long-term US Treasuries respectively.
The return of 40 in 60/40. With opportunities more contrarian in their interest rate expectations,
having resurfaced in high quality fixed income, it is considering that perhaps a (a) likely growth slowdown,
now time to consider bonds more favourably in a (b) moderation of supply chain bottlenecks, (c) still
balanced portfolio. We had opined back in 1Q21 high debt levels and (d) inflation base effects would
that investors needed to rethink the use of risk- limit the extent of how high interest rates can go in
free government bonds as a balancing allocation the years ahead. Anticipating a reversion to more
to a portfolio of equities, seeing as 10Y UST yields normalised levels of rates could mean a window of
languishing below 1% at that time gave little wiggle- opportunity in fixed income today that may be more
room for downside protection, while the likelihood of transient than most expect.
higher rates could disproportionately hurt the overall
portfolio. The dramatic rise in 10Y rates by more Bonds would resume their portfolio-hedging
than 300 bps since then – akin to a bursting of the advantages. For one, a moderation of inflation
sovereign debt “bubble” – had proven us right to be towards the levels of the post-2000 era (CPI y/y
cautious. average = c.2.5%) would see bonds regain their
properties of having negative correlations to equities
Time to change our minds. Today however, with – recovering their role as an efficient portfolio hedge.
inflation fears and hawkish policy expectations at While there are fair arguments that inflation could
all-time highs, it would not hurt an investor to be average higher in this decade than in the last, the

US Fed remains committed to pursuing their 2% advantage of respectably high income generation,
inflation targets to restore credibility in the near term, giving investors certainty and stability of returns that
and we ultimately believe that they have the tools to mitigates portfolio volatility.
moderate demand to achieve those ends. As bonds
regain their negative correlations to equities, they Opportunities in riskier credit markets. For
would warrant a higher allocation than that of the investors with a much larger risk appetite, it may be
low-yielding years following the pandemic. enticing to venture beyond the confines of safety
in IG towards the riskier segments, seeing as there
Being well-compensated for a risk hedge. are select opportunities for yields that could even
Moreover, the rapid readjustment in rates in 2022 exceed 10%. There is an apparent bifurcation in
now sees low-risk global IG markets yielding close credit markets at present, with the large swathe
to 5%, opening a yield gap over equities to levels of high-quality credit and treasury markets trading
not seen in more than a decade. We are cognisant between 4-5%, while riskier EM/HY markets trade
that stock investors are not always focused on yield; at nearly double the yield at 8-10%. Clearly, the
after all, equities retain a superior advantage when market is demonstrating a strong bias for quality as
it comes to growth prospects. However, the role of the world negotiates a downturn, which is a stance
bonds as a risk hedge now comes with the added that we would favour as well.
Lower inflation, superior diversification IG Credit now has a significant yield

pickup to equities
100% 2-year correlation of monthly returns 6% Global Equities est. dividend yield
Global IG credit yield
80%
60% 5%
Bond-Equity Correlation
40%
4%
20%
0%
Yield
3%
-20%
-40% 2%
-60% Pre-2000s (CPI y/y avg. = 5.0%)
-80% Post-2000s (CPI y/y avg. = 2.5%) 1%
2022
-100%
-2.0% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 0%
CPI y/y 2012 2014 2016 2018 2020

The great quality divide Opportunities remain with short-dated

credit
10 US BBB-rated Credit US A-rated Credit UST
Global HY
9 6.0%
Global AT1s
8 EM USD (ex-Asia)
5.5%
Asia USD
7
6 5.0%
Yield (%)
Global IG Corp Securitised US MBS

5
Yield
US Treasuries 4.5%
4 Credit spreads are
wide between
3 4.0% 5-10Y tenor
2
3.5%
1 1-2Y remains the steepest point
on UST curve
0 3.0%
10 20 30 40 0 5 10 15 20 25 30
Cumulative notional amount outstanding (USDt) Tenor
Opportunities in AT1s. However, we opine that risk- In summary, we believe that high grade credit
seeking investors could start to look for opportunities markets would once again perform a strong role of
in the bank AT1 capital markets, given valuations a strategic portfolio hedge in a 60/40 portfolio. IG
that are too cheap to ignore. The banking sector, markets are more accurately pricing in a slowdown in
unlike prior crises, are showing some of the strongest the year ahead, and we believe spreads have limited
capital positions they have had in recent years, having room to widen in a recessionary outcome, unlike HY
also benefitted through higher net-interest margins markets. Core inflation expectations of 3-4% in 2023
in this rising rate environment. Should a recession would also be a goldilocks environment for credit
materialise, we believe that banks would therefore not spreads, if history is any guide. In addition, bond-
be part of the problem, but part of the solution as a equity yields are showing their widest gap in more
conduit for liquidity to flow in a crisis. than a decade, suggesting strong income generation
in a portfolio’s allocation to bonds. Although the
With yields close to 9%, one could argue that steepest point on the UST curve remains at the
recession/extension risks may already be in the price. 1-2Y mark, we note that credit spreads remain wide
However, investors must be cautioned that these between the 5-10Y duration segment. On balance,
AT1s are not safeguarded against volatility should we hence opine that the sweet spot remains with the
a hard landing arise. To mitigate risk, we prefer 3-5Y duration segment for A/BBB credit. Investors
bank capital papers which have greater exposure who wish to adopt a more pro-risk approach could
to the wholesale/consumer franchises that benefit bottom fish in the AT1 markets, noting however that
from higher interest margins, rather than pure-play volatility is expected to remain high while growth is
investment or private banks that may see headwinds forecast to slow in 2023.
from market volatility.

Returning to
Relative Value
GLOBAL CURRENCIES 1Q23
A broad-based pause in monetary policy will be the major theme

for currencies outlook. Favour Asian currencies on China’s
reopening.
Source: iiStock
09.
Global Currencies. Philip Wee
Strategist
Our outlook for currencies to recover in 2023 hinges Developed Markets economies will slow much
heavily on Fed hikes pausing and the world economy with the EU and UK in recession. Other major
averting a hard landing without a financial crisis. By central banks will likely pause their hikes with or
October 2022, it was evident that the USD was soon after the Fed. America will end up with the
very expensive relative to its peers. In November, highest policy rate vs its DXY peers, i.e., EU, UK,
the USD Index (DXY) plunged 5% after the Fed Japan, Canada, Sweden, and Switzerland. A broad-
telegraphed a smaller 50 bps hike to 4.25-4.5% in based pause should also relegate monetary policy
December. Effectively, the market was removing the as a major theme and return focus to relative value.
risk premium that propelled the DXY to a 20-year Investors should prefer currencies in Emerging
high from the four “jumbo” 75 bps Fed hikes in Asia, the region providing critical support for world
June-November. Assuming US inflation becomes growth. There will be fewer countries with weaker
less elevated, we see the Fed Funds rate peaking current account and fiscal balances. However, the
at 4.75-5% via two 25 bps increases in 1Q23. The external outlook is weak and central banks will want
odds of Fed hikes pushing into 2Q23 are unlikely to replenish the foreign reserves depleted in 2022
because of an imminent fight between the White to defend their currencies. In 2H23, assuming the
House and Republican lawmakers to lift the federal global economy turns the corner amidst inflation
debt ceiling before the US Treasury Department runs cooling from elevated levels, currencies could benefit
out of funds by June. from the traditional pick-up in exports led by festive
demand. It will be a bonus if China relaxes its Covid-
Zero policy and starts reopening its borders by
mid-year.
USD became very expensive and Emerging Asia to underpin world growth
overvalued from aggressive Fed hikes as Developed Markets falter
20 BIS REER, % change, Oct 2022 vs Dec 2021 8 Real GDP growth outlook for 2023
15 Emerging Asia Developed Emerging Asia Developed Markets

Markets
6
10
5
4
0
-5 2
-10
0
-15
-20
-2 BB consensus for AU, NZ, CA and UK
HKD
SGD
IDR
INR
THB
MYR
PHP
TWD
USD
AUD
CHF
EUR
CAD
GBP
NZD
KRW
CNY
JPY
PH VN IN ID MY CN HK TH TW SG KR AU NZ JP CA US EU UK
Source: Bloomberg DBS Source: Bloomberg DBS
86 1Q23 GLOBAL CURRENCIES

The USD Index should consolidate after The Canadian dollar is likely to stay
its surge from jumbo Fed hikes resilient within a rang
120 DXY index 120 1.50 USD/CAD 1.50
DBS forecast
115 115 Consensus
Monetary policy 1.45 1.45
110 convergence 110
105 105 1.40 1.40
100 100
1.35 1.35
95 95
1.30 1.30
90 90
85 85 1.25 1.25
80 80
Monetary policy DBS forecast 1.20 1.20
75 Consensus 75
divergences
70 70 1.15 1.15
2010 2012 2014 2016 2018 2020 2022 2024 2015 2017 2019 2021 2023
Source: Bloomberg DBS Source: Bloomberg DBS
The odds are for the USD to depreciate in 2023 after We look for the CAD to stabilise around 1.30-1.40 per
a very strong year. The Fed delivered a smaller 50 USD in 2023-2024. The central bank (BOC) is seeking
bps hike to 4.5% in December after four 75 bps hikes to balance tightening too little to control inflation and
in June-November. We forecast the Fed Funds Rate tightening too much to avert a recession. Between
peaking at 5% via two 25 bps hikes in 1Q23. The March and November, the BOC delivered seven rate
Fed should refrain from more hikes in 2Q23 because hikes totalling 400 bps to 4.25%. The central bank
the US Treasury Department is estimated to run out (BOC) dialed down rate hikes from 100 bps in July
of funds by June 2023. After regaining control of the to 75 bps in September and 50 bps in October-
House of Representatives at the November mid-term November, in line with the fall in CPI inflation from its
elections, Republicans will push for spending cuts 8.1% y/y peak in June to 6.9% in October. However,
and entitlement reforms as conditions for lifting the the BOC expects inflation to slow to 3% in 2023
USD31.4t debt ceiling. Given President Joe Biden’s and return to its 2% target in 2024. In November,
opposition to entitlement reforms, expect a bitter Bloomberg consensus a technical recession for the
fight to avoid a government shutdown and the risk Canadian economy in 1Q23 and 2Q23. Although
of a debt default, factors that will weigh on the the BOC predicted growth slowing to under 1% in
USD in 2Q23. However, we also see the USD’s fall 2023, it did not rule out a short-lived recession. Apart
slowing against its Developed Market peers. First, from a weaker global economy, higher borrowing
the US economy is likely to avert the recessions in costs have slowed housing activities and softened
the Eurozone and the UK. Second, other central consumer and business spending. Markets believed
banks are likely to pause with or soon after the Fed, the Bank of Canada ended back-to-back hikes at its
leaving the US with the highest interest rates in the meeting on 7 December. However, BOC Governor
advanced economies. Tiff Macklem clarified that the central bank was more
concerned about not hiking enough to cool inflation
than hurting the Canadian economy with too many
hikes.
1Q23 GLOBAL CURRENCIES 87

EUR has scope to consolidate in a 1.00-1.10 range GBP could hold a 1.20-1.30 range in 2023 and 2024.
in 2023-2024. In September, the EUR bottomed at The deleterious UK mini budget on 23 September
0.9536 (-16.1% YTD vs USD) after the central bank sank the GBP to a new lifetime (intra-day) low of
(ECB) delivered a 75 bps hike, matching the Fed’s 1.0350 (-23.5% YTD) on 26 September. In October,
commitment to return elevated inflation to its 2% GBP rebounded to 1.16 after Jeremy Hunt replaced
target. According to the Commitment of Traders Kwasi Kwarteng as Chancellor and dismantled the
Report, the net short non-commercial positions in the mini budget, and later, Rishi Sunak replaced Liz Truss
EUR turned positive in late September. Speculators as prime minister. According to Moody’s, the Autumn
proceeded to unwind more gross short EUR positions Budget Statement on 17 November delivered the
after the Fed started paving the way for a smaller 50 conservatism needed to restore some of the credibility
bps hike to 4.5% in December. EUR subsequently undermined. However, the GBP’s rally to 1.20 in
recovered to 1.04 in November. In December, the ECB November was driven more by the Fed heralding a
will lay out the key principles for reducing the bond smaller hike to 4.5% in December. In 1Q23, GBP
holdings of its asset purchase programme portfolio, should struggle between Fed hikes pausing at 5%
a prelude to quantitative tightening in early 2023. and a UK recession that started in 3Q22. Prospects
In 1Q23, we see the EUR caught between a mild for a GBP recovery in 2H23 hinge on the UK economy
recession in the Eurozone and markets positioning for exiting recession amidst a meaningful easing in the
Fed hikes to pause at 5%. In 2Q23, the EUR should cost-of-living crisis. However, the economy has yet to
fare better from the EU economy exiting its technical shake off worries of more interest rate rises, tax hikes,
recession and a bitter fight in the US Congress to lift and fiscal spending cuts. Political stability remains
the federal debt ceiling. All said, EUR is not immune to elusive after three Tory prime ministers in 2022. At
volatility from the same uncertainties (i.e., the Russia- the time of writing, eight Tory MPs have announced
Ukraine war and China’s Covid-Zero policy) extending that they are stepping down at the next election due
stagflation. before January 2025.
The Euro has returned into its previous The British pound has rebounded from
price channel its mini budget crisis
1.40 1.40 1.50 GBP/USD 1.50
EUR/USD DBS forecast
1.35 1.35 1.45 Consensus 1.45
1.30 DBS forecast 1.30 1.40 1.40

Consensus
1.25 1.25 1.35 1.35
1.20 1.20 1.30 1.30
1.15 1.15 1.25 1.25
1.10 1.10 1.20 1.20
1.05 1.05 1.15 1.15
1.00 1.00 1.10 1.10
0.95 0.95 1.05 1.05

2014 2016 2018 2020 2022 2024 2016 2017 2018 2019 2020 2021 2022 2023 2024

We see scope for JPY to recover within a range USD/CHF has been fluctuating in a 0.93-1.02
of 125-140 per USD in 2023-2024. Our outlook range since April 2022; we expect the band to
heavily depends on Fed rates peaking at 5% in remain intact in 2023. USD/CHF rose to the ceiling
1Q23 for the rest of the year. We do not rule out the whenever the Fed turned hawkish and fell to the floor
Bank of Japan (BOJ) tweaking its loose monetary each time markets discounted a dovish Fed pivot.
policy after Governor Haruhiko Kuroda’s term ends Overall, CHF was more resilient than the JPY. The
in April 2023. Although we expect Japan’s growth Swiss National Bank (SNB) ended CHF’s pressures
to slow to 1.2% in 2023 from 1.5% in 2022, it will from monetary policy divergences when it joined the
be faster than the 0.3% growth in the US amidst a global tightening cycle with a surprise 50bps hike
mild recession in the Eurozone. If the global economy to -0.25% in June. The next 75bps hike to 0.50%
suffers a hard landing, JPY could appreciate faster matched the Fed’s jumbo hikes and ended negative
as a haven. We consider JPY very cheap after its rates in September. In December, SNB should match
depreciation on monetary divergence. At its worst the Fed with a smaller 50bps hike. Consensus sees
level on 21 October, JPY depreciated 24% YTD to SNB raising rates to 1.5% in 1H23 and returning CPI
152 per USD, a level not seen since 1990. According inflation (October was 3% y/y) into the 0-2% target
to the Bank for International Settlement, the JPY real in 2H23. The Swiss economy will not be immune to
effective exchange rate depreciated 11.4% in the first the Eurozone and UK recessions. In 1H23, USD/CHF
ten months after its 10% fall in 2021. In September- will probably vacillate between markets positioning
October 2022, Japan intervened, for the first time for a Fed hike pause and flat-to-negative growth in its
since 1998, to support JPY around 140-150 per economy. On a positive note, 2023 could be the first
USD. In November, the US Treasury Department year since 2019 that Switzerland reports surpluses
considered Japan’s forex operations transparent. in its current account and budget balances which
should further underpin its AAA debt rating.
The worst is likely to be over for the The resilient Swiss franc did not weaken
Japanese yen past parity
USD/JPY 1.05 1.05
150 150 DBS forecast
USD/CHF
Consensus
140 140
1.00 1.00
130 130
120 120 0.95 0.95
110 110
0.90 0.90
100 DBS forecast 100
Consensus
90 90
0.85 0.85
80 80
70 70 0.80 0.80
2011 2013 2015 2017 2019 2021 2023 2024 2014 2016 2018 2020 2022 2024
Source: Bloomberg, DBS Source: Bloomberg DBS

Source: iiStock
The Australian dollar recovered into its The New Zealand dollar rebounded into
old price channel its old price channel
0.85 AUD/USD 0.85 0.85 0.85
DBS forecast
Consensus
0.80 0.80 0.80 DBS forecast 0.80
NZD/USD Consensus
0.75 0.75 0.75 0.75
0.70 0.70 0.70 0.70
0.65 0.65 0.65 0.65
Extended
price chan
0.60 nel 0.60 0.60 Extended price cha 0.60
nnel
0.55 0.55 0.55 0.55
0.50 0.50 0.50 0.50

2015 2017 2019 2021 2023 2015 2017 2019 2021 2023
We see AUD recovering in a 0.64-0.70 range in NZD returns inside a normal 0.60-0.66 range. The
2023-2024. Assuming Fed hikes peak and pause in Reserve Bank of New Zealand (RBNZ) delivered a
1Q23, we do not expect a stronger USD to pressure jumbo 75bps hike to 4.25% in November after five
the AUD this year. The Treasury forecast the Australian 50bps rises. The RBNZ sees CPI inflation rising
economy slowing to 1.5% in FY2023-24 from 3.25% from 7.2% y/y in September to 7.5% over the next
in FY2022-23, higher than the sub-1% growth seen couple of quarters from acute labour shortages and
for the US. The Labour government’s first budget high wage growth fuelling inflation expectations. The
on 25 October was considered responsible and RBNZ forecasts inflation slowing to 3.8% in the year
complemented the central bank’s (RBA) fight against ending March 2023 and returning within its 1-3%
inflation. The Treasury projected a windfall from high target only in 2H24. Based on its real neutral rate of
commodity prices, significantly narrowing the budget 0%, the RBNZ expects the official cash rate to peak
deficit for the year ending June 2023 to AUD36.9b higher in 2023 at 5.5% instead of the 4.1% projected
from its pre-election estimate of AUD77.9b. To in August. With higher borrowing costs hurting
control inflation amidst a weaker outlook, the central the housing sector and softening consumer and
bank (RBA) dialled down from four 50 bps hikes in business spending, RBNZ expects GDP growth to be
June-September to three 25 bps rises in October- negative from 2Q23 into 1Q24. For now, the RBNZ
December. The RBA expects CPI inflation to keep was not overly concerned about the 11.5% fall in
rising from a 32-year high of 7.3% y/y in 3Q22 to house prices from its November 2021 peak because
8% by end-2022 and does not see inflation returning of the 15% rise in household wealth since end-2020.
to its 2-3% target in 2023. Hence, we see the RBA Nonetheless, there is little room for complacency
delivering three 25 bps hikes and holding rates at regarding overheating, given the wide current account
3.60% from March. We will become more optimistic and budget deficits. Prime Minister Jacinda Ardern
about the Oz if the Chinese economy and the relations will likely call a general election in late 2023 because
between Beijing and Canberra show more progress. of the recession and the cost of living crisis.

Asia Currencies
CNY The worst is likely to be over for the

Chinese yuan
USD/CNY is back inside its 2018-2019 trade
war range of 6.70-7.20. We are guarding against 7.60 7.60
excessive pessimism in the CNY. After President Xi USD/CNY
7.40 7.40
Jinping secured an unprecedented third term last
October, the government refined its Covid-Zero 7.20 7.20
Policy and announced a 16-point plan to rescue the
property sector. The central bank (PBOC) issued 7.00 7.00
new regulations, which will take effect in 2023, to

6.80 6.80
enhance the attractiveness of China’s bond market to
foreign institutional investors. The Xi-Biden meeting 6.60 6.60
at the G20 Summit in Bali was considered positive.
6.40 6.40
Both leaders agreed to improve dialogue and avoid
conflict to resolve issues, starting with a visit to Beijing 6.20 DBS forecast 6.20
by State Secretary Antony Blinken early next year. Consensus
President Biden did not believe China would invade 6.00 6.00
2015 2017 2019 2021 2023
Taiwan, and both leaders opposed the use of nuclear
weapons in Ukraine. At the G20 Summit, European Source: Bloomberg, DBS
Council President Charles Michel also affirmed that
the EU would seek to engage China more “to develop
a better mutual understanding.” Investors viewed the
meeting between President Xi and Australian Prime
Minister Anthony Albanese as a first step to thawing
relations.
HKD The Hong Kong dollar has recovered

within its convertibility band
We are confident in the HKD peg to the USD. In
November, the central bank (HKMA) reaffirmed 7.90 USD/HKD 7.90
the exchange rate system in its current form. More
importantly, USD/HKD fell in December into the DBS forecast
Consensus
lower half of its 7.75-7.85 convertibility band on
7.85 7.85
the Fed’s signal to slow the pace of rate hikes. We
see the Fed Funds rate rising 50 bps in 1Q23 after
its aggressive 425 bps surge in March-November.
7.80 7.80
Despite the global slowdown and higher borrowing
costs weighing on its property sector, the Hong Kong
SAR economy will emerge from its recession in 2023.
The pace of the recovery will depend on when the 7.75 7.75
territory fully reopens its borders and when China

relaxes its Covid-Zero policy meaningfully. The HKD
peg is backed by a strong current account surplus 7.70 7.70
of 7-8% of GDP. Despite falling from USD500b to 2018 2019 2020 2021 2022 2023 2024
USD417b in the first ten months, foreign reserves

exceeded nominal GDP. We expect the budget deficit
to reverse into a surplus of 1.1% of GDP in 2023.
Unless the global slowdown turns into a hard landing,
we expect USD/HKD to fluctuate in the lower half of
the convertibility band in 2023-2024.

KRW The South Korean won will likely return

into its old price channel
KRW to recover inside its price channel in 2023-2024.
The KRW depreciated 17.5% YTD to 1442 per USD 1500 USD/KRW 1500
in October on aggressive Fed hikes. Not surprisingly,
the currency rebounded to 1293 in early December 1400 1400
l
ahead of the Fed’s for smaller 50 bps hike on 14 lf a c hanne
d by ha
December. At the time of writing, USD/KRW returned Exten
1300 1300
into its decade-long price channel but we see some
volatility ahead. The export-led Korean economy will
1200 1200
not be spared from the global slowdown. We see
growth slowing to 1.8% in 2023 from 12.7% in 2022
1100 1100
and CPI inflation falling to 2.8% from 5.3%. According
to a survey by the Korea Development Institute, most DBS forecast
1000 1000
economists believe the economy is in a crisis and Consensus
needs a new medium to long-term growth strategy.

The Yoon government wants to reduce the country’s 900 900
2011 2013 2015 2017 2019 2021 2023
trade dependence on China by helping Korea Inc to
expand supply chains in ASEAN, not just Vietnam. Source: Bloomberg, DBS
That said, the KRW should find support from the
current account surplus widening to 3.4% of GDP in
2023 from 1.6% in 2022 and the budget deficit almost
halving to 2.7% from 5.3%. Household debt, which
hit a record high of KRW1871 trillion in September,
will remain a concern.
SGD The Singapore dollar is supported by its

strong currency policy
We expect USD/SGD to consolidate with a downside
bias in 2023-2024. The next policy decision in April 1.48 1.48
will be data-dependent. The Ministry of Trade of USD/SGD
1.46 1.46
Industry forecasts the Singapore economy to expand
at a slower 0.5-2.5% pace in 2023 compared to a 1.44 1.44
projected 3.5% in 2022. The central bank (MAS) sees 1.42 1.42
CPI All-Items inflation slowing from 6% this year to
1.40 1.40
4.5-5.5% in 2023 or 5.5-6.5% after factoring in the
1.38 1.38
1% increase in the GST starting on 1 January 2023.
Given the slower growth and inflation outlook, the 1.36 1.36
SGD NEER should back off from the ceiling to 0-1% 1.34 1.34
above the mid-point of its policy band. Based on the
1.32 1.32
experiences of the Covid-19 recession in 2020, the DBS forecast
Consensus
SGD NEER will only slide into the band’s lower half 1.30 1.30
on a hard landing in the global economy. Under this 1.28 1.28

situation, USD/SGD can rise into a 1.45-1.50 range. 2015 2017 2019 2021 2023
Unlike 2022, we do not expect the SGD to achieve

new record highs against the MYR, the EUR, and the
GBP in 2023. According to the Bank for International
Settlements, the SGD’s real effective exchange rate
appreciated 8.2% YTD in October, significantly more
than the average 1.7% depreciation in the Asian
currencies, excluding the JPY and the HKD.

INR The Indian rupee will likely lag the

recovery of its Asian peers
We see USD/INR consolidating between 80 and 84
over the next two years. USD/INR likely peaked at 84 84
USD/INR
a record high of 83 on 19 October, at the top of its
82 82
price channel. We do not consider the INR a weak
currency. During the USD’s surge in 2022, the central 80 80
bank (RBI) kept the INR aligned with the depreciation 78 78

in the Asia ex-Japan currencies on an indexed basis
76 76
via currency interventions and positive interest rate
differential against the US. The Bombay Sensex DBS forecast
74 Consensus 74
also hit a record high of 62,448 on 25 November. In
72 72
June-September, RBI delivered three 50 bps hikes to
5.90%. We believe USD/INR will be slow in returning 70 70
to the lower half of its price channel. First, the RBI
68 68
will want to replenish its war chest. After falling by
USD109b to USD525b in the first ten months, 66 66
2018 2020 2022 2024
foreign reserves recovered to USD545b by 11
November. Second, the global economy will slow in Source: Bloomberg, DBS
2023, and India’s export growth has turned negative
amidst record trade deficits. India must balance
between supporting growth and returning inflation to
its 2-6% target while guarding against complacency
regarding the USD and the Fed. We project the RBI
and Fed policy rates peaking at 6.50% and 5%,
respectively, in 1Q23.
The Indonesian rupiah will likely track a
IDR modest recovery
We expect USD/IDR to stabilize in a 15000-16000 17000 17000
range in 2023-2024. Externally, the USD has 16500 USD/IDR 16500

stabilized in 4Q22 on expectations for smaller Fed 16000 16000
hikes before US rates peak in 1Q23. In 2023, the
15500 15500
central bank (BI) targets lowering CPI inflation to its
2-4% target and USD/IDR to around 15000. We 15000 15000
forecast the policy rates in Indonesia and America 14500 14500
peaking in 1Q23 at 5.75% and 4.75-5% (from
14000 14000
3.75-4% in September), respectively. In August-
DBS forecast
November, BI delivered four rate hikes totalling 175 13500
Consensus
13500
bps to 5.25%to cushion the IDR’s depreciation from a 13000 13000

strong USD while addressing inflation. Parliament 12500 12500
has approved President Joko Widodo’s budget to
12000 12000
lower the fiscal deficit to 2.8% of GDP, below the 2015 2017 2019 2021 2023
legal 3% ceiling for the first time in four years.
Although the global slowdown will not spare the Source: Bloomberg, DBS
economy, growth should hold up at 5% in 2023 on
household spending and investments. With the
external downturn, the current account is expected to
slip into a mild deficit of 0.5%of GDP in 2023. USD/
IDR will not be in a hurry to fall below 15000 given
the 4% appreciation (BIS data) in the IDR real
effective exchange rate in the first ten months.

MYR The worst is likely to be over for the

Malaysian ringgit
We expect USD/MYR to stabilise in a 4.30-4.50
range in 2023-2024. MYR depreciated 12.3% to a 4.90 4.90
USD/MYR
lifetime low of 4.75 per USD on 4 November, slightly 4.80 4.80
worse than the 4.71 level during the Asian crisis. In 4.70 4.70
December, USD/MYR plunged to 4.37 on the Fed 4.60 4.60
dialling down hikes to 50 bps from 75 bps in March- 4.50 4.50
November. We see the Fed Funds rate peaking at 5%
4.40 4.40
via 50 bps hikes in 1Q23, where it will stay for the
4.30 4.30
rest of 2023. However, the interest rate differential will
4.20 4.20
remain negative against the US. We expect the central
4.10 4.10
bank (BNM) to lift the overnight policy rate by another
4.00 DBS forecast 4.00
25 bps to 3% in 1Q23, assuming CPI inflation falls to Consensus
3.90 3.90
3% in 2023 from 3.4% this year. The global slowdown
should lower Malaysia’s growth from 5.4% in 2022 to 3.80 3.80
5% in 2023. Rating agencies will pay close attention 3.70 3.70

2015 2017 2019 2021 2023
to how much the pledges for more government
spending (to ease the cost-of-living pressures) by the Source: Bloomberg, DBS
political parties elected at the general election hinder
fiscal consolidation. On a positive note, the current
account surplus may widen from 2.3% of GDP this
year to 3% in 2023.
THB The Thai baht rebounded after finding

strong support at 38
USD/THB has returned into its old 33-36 range where
it will stay into 2023-2024. The THB recovered to 40 40
DBS forecast
34.5 per USD in December after depreciating 13.4% Consensus
YTD to 38.3 in October, its weakest level in 16 years. USD/THB
38 38
Apart from our expectations for Fed hikes to pause in
1Q23, we see the central bank (BOT) hiking rates by
36 36
25 bps per quarter to 2% in 3Q23. The Thai economy
is set to buck the global slowdown, with GDP growth
34 34
improving a second year to 3.8% in 2023 from 3.2%
in 2022. The government’s hope for more tourists
flocking to Thailand hinges on China relaxing Covid 32 32
restrictions. The revival of the tourism sector and

lower oil prices are crucial to reversing the current 30 30
account deficit into a mild surplus in 2023, the source
of the THB’s strength before the pandemic. Against 28 28
the relatively better economic performance and 2009 2012 2015 2018 2021 2024
outlook, S&P and Fitch have affirmed the country’s

long-term foreign currency debt rating at BBB+ with
a stable outlook. However, volatility could increase
into the general election due by 7 May 2023. BOT is
concerned that the pledges of some political parties
to suspend or forgive debt to specific sectors could
undermine investor confidence in the financial system.

PHP The Philippine peso briefly breached its

price channel
We see USD/PHP stabilising in 2023-2024 within the
upper half of its price channel. Much will depend on 60 USD/PHP 60
the Fed Funds Rate peaking at 5% via smaller hikes 58 58
in 1Q23. We see the central bank (BSP) lifting rates
56 56
by another 100 bps to 6% to maintain a positive rate
differential with the FFR. The Philippine economy will 54 54
not be spared by the global slowdown, with growth 52 52

slowing to 6.3% in 2023 from 7.4% in 2022. Even so,
50 50
the Philippines will probably be the fastest-growing
48 48
economy in Asia. The hikes and slowdown will help
lower inflation and narrow the current account deficit. 46 DBS forecast 46
Consensus
We forecast CPI inflation to fall from 5.8% in 2022 to 44 44
4.4% in 2023, but more is needed to return to the
42 42
2-4% target. Similarly, the current account deficit will
remain wide at 4.4% of GDP in 2023 from 5.3% in 40 40
2013 2015 2017 2019 2021 2023
2022. The government is confident about narrowing
the 2022 fiscal deficit target to 7.6% of GDP; the Source: Bloomberg, DBS
budget shortfall was 6.5% in the first nine months.
On 18 November, S&P affirmed the country’s “BBB+”
debt rating with a stable outlook on expectations for
the fiscal deficit to decline on a robust economy over
the next two years.
VND The Vietnamese dong will recover with its

Asian peers
We expect a stable to lower USD/VND in 2023-2024.
The VND was not spared from the USD’s surge after 26000 26000
the Fed turned aggressively hawkish at the Jackson
Hole Symposium in late August. To cushion the VND, 25000 25000
the central bank (SBV) delivered two 100 bps hikes USD/ VND
24000 24000
in September-October to 6% and widened, on 17
October, the daily trading band to ±5% from ±3% 23000 23000
from its fixing. USD/VND stabilised around 24,780
22000 DBS forecast 22000
after the Fed signalled rate hikes would be smaller
Consensus
from December. It also helped that the US Treasury 21000 21000
Department removed, on 10 November, Vietnam
from its currency manipulation list. In October, Fitch 20000 20000
affirmed Vietnam’s BB long-term foreign currency

19000 19000
debt rating with a positive outlook. Despite the
VND’s sharp rebound in December, the appreciation 18000 18000
pace should moderate on the global slowdown in 2010 2012 2014 2016 2018 2020 2022 2024
2023. Support for the VND will come from strong

investor interest in Vietnam as one of the fastest-
growing economies in 2023, with a track record
for macroeconomic stability. We forecast Vietnam’s
growth slowing from 7.4% in 2022 to 6.3% in 2023,
CPI inflation averaging below the 4% target in 2022
and 2023, and the current account deficit turning into
a surplus in 2023.

DBS currency forecasts
Exchange rates, eop
15-Dec 1Q23 2Q23 3Q23 4Q23 1Q24 2Q24 3Q24 4Q24
China 6.9560 6.96 6.93 6.89 6.85 6.81 6.78 6.74 6.70
Hong Kong 7.7752 7.78 7.78 7.77 7.77 7.76 7.76 7.75 7.75
India 82.459 82.5 82.1 81.7 81.3 80.9 80.5 80.1 79.7
Indonesia 15627 15640 15530 15430 15320 15220 15110 15010 14900
Malaysia 4.4097 4.45 4.45 4.40 4.40 4.35 4.35 4.30 4.30
Philippines 55.810 56.8 56.6 56.5 56.3 56.2 56.0 55.9 55.8
Singapore 1.3488 1.36 1.35 1.35 1.35 1.34 1.34 1.34 1.33
South Korea 1301 1340 1320 1310 1290 1280 1260 1250 1230
Thailand 34.667 35.2 34.9 34.5 34.2 33.9 33.6 33.3 33.0
Vietnam 23525 23680 23560 23440 23310 23190 23070 22950 22830
Australia 0.6845 0.66 0.67 0.68 0.68 0.69 0.70 0.70 0.71
Canada 1.3560 1.37 1.36 1.35 1.34 1.33 1.32 1.31 1.30
Eurozone 1.0663 1.04 1.05 1.06 1.07 1.08 1.09 1.10 1.10
Japan 135.44 136 134 133 131 130 129 127 126
New Zealand 0.6446 0.63 0.64 0.64 0.65 0.65 0.66 0.66 0.67
Switzerland 0.9251 0.94 0.93 0.93 0.92 0.92 0.91 0.91 0.90
United Kingdom 1.2402 1.21 1.22 1.24 1.25 1.26 1.27 1.29 1.30
United States 103.799 105.2 104.4 103.7 103.0 102.2 101.5 100.7 100.0
Australia, Eurozone, and United Kingdom are direct quotes. Source: Bloomberg DBS

Paradigm
Shift in
Progress
A LT E R N A T I V E S : G O L D 1 Q 2 3
Gold to hold firm on the back of peaking bond yields and a normalising
dollar. We are cognisant that positive real rates will be a longer term
headwind.
Source: Unsplash
10.
Alternatives: Gold. Goh Jun Yong
Analyst
Gold investors mull timing of Fed pivot. Gold’s Correlation of gold prices with recession
performance has been mixed throughout 2022. risk
Rising rates and a strong dollar pushed gold prices
Gold price (LHS) %
down last September, reaching a low of USD1622/ USD/oz
Recession risk 12-months later (RHS) 120
oz, but the yellow metal found brief respite from the 2,000
downward pressure in October on the back of weak 100
macro data, which raised the possibility that the Fed
1,800
may start to slow its aggressive rate hiking path. 80
This sentiment gained further traction when CPI data
1,600
for November 2022 came in lower than expected, 60
which in turn drove gold prices above USD1750/
1,400
oz. once again. In the short term, we expect gold 40
prices to continue being volatile as investors track
macroeconomic data releases, commentary from 1,200 20
the Fed on its rate hiking trajectory, and movements
in the greenback. 1,000 0
11 13 15 17 19 21
Gold shines as a safe haven investment

2,000 Covid
pandemic
1,500
2008 financial crisis
The Great Inflation
(USD/oz.)
1,000
Iraq war
Americans are
allowed to own gold
500
0
1970 1980 1990 2000 2010 2020
100 1 Q 2 3 A LT E R N AT I V E S : G O L D
Fundamental disconnect in gold prices. Although Fed aggressively tightening rates this year, the 1Y
gold has outperformed major risk asset classes in real interest rate has nudged its way into positive
2022, there seems to be a fundamental disconnect territory in October 2022 and the 10Y real interest
between its downward price movement and its rate has reached at 2.0%. This will undoubtedly
status as a safe haven asset during a time of rising dilute gold’s near-term attractiveness. A significant
recession risk. With recession and occasional implication of this expectation is that the dollar had
market gyrations on the horizon, one would expect also strengthened tremendously in 2H22, acting as a
gold prices to instead be on an uptrend as history double whammy for gold as it now needs to contend
had shown on multiple occasions. not just with rates, but also the dollar as a destination
for (hot) capital.
Headwinds from positive real rates. While gold
is a safe haven asset and widely considered an Glimmer(s) of hope. While rising rates and a strong
inherent store of value, it is also a non-interest- dollar make for a steep hill to climb, there are reasons
bearing asset and therefore at the mercy of real to believe that some degree of price recovery may
rates. The way gold prices have trended suggests be on the horizon. Given that a Fed pivot may yet be
that gold’s standing as a doomsday asset is being some time away, there are material indications that
offset by the expectation of continued and possibly the pace of rate hikes may slow, which will provide
rising positive real rates moving forward. With the some reprieve for gold prices. Geopolitical uncertainty
Real interest rates are turning positive ETF holdings of gold vs gold price
(%) St. Louis Fed 1Y and 10Y Real Interest Rates millions troy ounce ETF holdings (LHS) USD/oz
1Y 10Y 120 Gold price (RHS) 2,100
10
8 2,000
110
6 1,900
4 1,800
100
2 1,700
0 1,600
90
-2 1,500
-4 80 1,400
1982 1990 1998 2006 2014 2022 Mar-20 Sep-20 Mar-21 Sep-21 Mar-22 Sep-22
1 Q 2 3 A LT E R N AT I V E S : G O L D 101
also continues to remain at elevated levels globally. Central bank reserve holdings globally have increased
Political turmoil in the UK (which saw multiple key for the 6th consecutive month, primarily driven by
appointment holder changes), continued ambiguity large volumes of buying. Central bank purchases
surrounding China’s Covid-zero policy, and the in 3Q22 amounted to c.400t, the single largest
persistence of conflict in Eastern Europe could quarter of demand from central banks since 2000
collectively provide a short-term catalyst for gold. and a >300% increase y/y. In terms of countries,
There are also demand side factors suggesting that Turkey was by far the largest buyer of gold in 2022;
the metal is currently oversold. For example, gold Uzbekistan and Kazakhstan were also consistent
ETFs saw their sixth consecutive month of outflows purchasers as they steadily added to their stockpiles
in October and total ETF holdings of gold sit at just over the same period. We believe central banks will
above 95m troy ounces. This just above pre-Covid continue to hoard gold against a risk-off backdrop,
levels and suggests we could be seeing near-bottom and that will act as a tailwind for the yellow metal
levels of the selloff. moving forward.
Central banks remain bullish on gold – Amid One of the best-performing asset classes in
heightened geopolitical uncertainty, central banks 2022. In retrospect, despite the challenging macro
are continuing to add gold to their balance sheets. environment facing gold, its return of c.-4% firmly
Reported changes* in global central bank reserve holdings
(tonnes) Gross additions Gross reductions Net

80
60
40
20
-20
-40
Jan-22 Feb-22 Mar-22 Apr-22 May-22 Jun-22 Jul-22 Aug-22 Sep-22
*Changes in reserves are not always the results of sales or purchases.

Central banks differ in whether gold out on swap is or is not included in reported reserves
Source: IMF International Financial Statistics; ECB, Weekly Financial Statement, national sources
establishes it as one of the top-performing asset Gold was a standout asset class in 2022
classes for the year, lagging only broad commodities,
oil, and the dollar. It should also be noted that whilst Year-to-date returns (%)
gold’s YTD return is negative in dollar terms, it remains Commodity

positive for majority of other major currencies. This is Oil
especially true for regions/countries such as EU and Dollar index
the UK, where central banks are less one-sided in Gold
their fight against inflation and growth problems are US HY
more acute (compared to the US). US Treasury

Intl' Equities
Target price remains but downgrade in progress. US Equities
In light of how gold prices have trended over the World Equities
past quarter, especially the strong rally in response US Corp.

Global Bonds
to cooling CPI numbers last November, it is clear
EM Bonds
that investors are primarily concerned with one
EM Equities
thing in the short to medium term, and that is the
China equities
Fed pivot. While there is no certainty on the exact
Nasdaq
timing of the pivot, inflation data has been trending
-25 -10 5 20 35 50
in the right direction and we believe that a turning
point (whether a pause or full-on pivot) is on the Source: Bloomberg, DBS
horizon this year. This would see the dollar normalise

Gold’s performance was positive in
and catalyse a positive re-rating for gold. On this
non-dollar terms
basis, we maintain our 12m target price for gold at
USD1,950/oz. However, beyond the proverbial pivot, YTD return in different currencies (%)
positive real rates and further rate normalisation

TRY (oz)
remain as significant, inalienable headwinds for gold
from a return perspective. It is with that in mind that JPY (g)
we are moving gold to underweight in our overall GBP (oz)

asset allocation to make way for increased holdings
RMB (g)
in investment grade developed market government
and corporate bonds due to their relatively superior INR (10g)
risk-adjusted and more predictable returns.
EUR (oz)
Nonetheless, gold remains relevant in the overall
portfolio construct as a risk diversifier given its low AUD (oz)
correlation with equities and bonds, and investors CAD (oz)

can gain exposure to gold via the following: i)
CHF (oz)
physical gold; ii) gold futures; iii) ETFs and managed
funds on physical gold and gold mining equities; or USD (oz)
iv) direct holdings in gold mining equities, which are
-5 5 15 25 35
essentially a leveraged expression of gold.
1 Q 2 3 A LT E R N AT I V E S : G O L D 103
Near-term
Challenges
A LT E R N A T I V E S : P R I V A T E A S S E T S 1 Q 2 3
Private assets have cushioned against steep public market drawdowns.

While we look to private assets for attractive opportunities and
diversification, we are cognisant of downside risks with the challenging
exit environment.
Source: iStock
11. Alternatives:
Private Assets. Beatrice Tan
Analyst
History demonstrates private equity’s resilience. has often been attributed to investment managers
The investing world had experienced some of its adept at navigating markets, seizing opportunities,
greatest setbacks over the past year, as the interplay and putting capital to work. While the world’s
of rising rates and sustained inflation threatened top investing talent has no doubt contributed to
stocks and bonds alike. In sharp contrast to the falling the exceptional performance of private markets,
public markets however was the resilience of private investors must not understate the role of macro
market investments; preliminary data suggests tailwinds over the past decade in its success. A
that private equity and venture capital investments backdrop of low rates and easy monetary policy had
have largely held up against steep losses in public formed supportive conditions contributing to stellar
markets, consistent with their past track record. performance and growing investor interest in private
equity by providing ample liquidity, cheap leverage,
Success requires more than a Midas’ touch. and demand from investors in search of yield.
The success and attractiveness of private equity
Private capital markets have cushioned Never has private equity had to grapple
against past public market drawdowns with today’s confluence of risks
S&P 500 Private debt PE VC

0% Market conditions Past Present to future
Interest rates Falling/ Low Rising

-10%
Drawdowns
Earnings growth Strong Slowing
-20% Stagnant/
Asset valuations Rising
declining
Covid pandemic
Leverage Cheap Increasingly costly
Global Financial crisis
-30%
2004 2008 2012 2016 2020
Source: Preqin, DBS
1 Q 2 3 A LT E R N AT I V E S : P R I V AT E A S S E T S 105
Times they are a changin’. A watershed year We delve into each of these risks below:
of mounting risks is now unearthing potential
downside concerns in private markets, turning Challenging exit environment
investor sentiment increasingly risk-off not long after
a post-pandemic surge had taken the industry to While the past years witnessed listings of prominent
new highs. Private markets will no doubt continue venture-backed companies, the brutal selloff in 2022
to provide the potential for attractive returns and particularly amongst unprofitable tech stocks closed
opportunities. However, we anticipate tempering the IPO door to emerging start-ups. Although a large
of performance as cheap borrowing costs and portion of private equity exits are via trade sales, trade
exuberant valuations become harder to come by, sale pricing would likely follow the IPO environment’s
while risk-free investments have become increasingly precedent, and funds in their harvesting stages
enticing. On the flipside, such moderation would would face the greatest headwinds from declining
be a welcome development for investors looking exit valuations. Nonetheless, this in no way spells
to continue committing capital to private equity doom for the industry – to resist low valuations,
allocations, as it would lead to more sustainable fund managers might extend fund lives to delay
performance expectations and attractive entry exits into more favourable future market conditions.
points. Nevertheless, we remain mindful of risks on Although longer fund lives may partially weigh down
the road ahead with a challenging exit environment, IRR returns, it would allow managers the flexibility
falling company valuations, and rising interest rates
being top concerns of investors.
The old normal: Tempering of performance Key challenges facing private equity in
expectations in private equity the year ahead
18.9% Exit environment
Asset valuations
15.4%
Rising interest rates
13.5%
Stock market volatility
PE performance CAGR
Geopolitical landscape
Competition for assets
Deal flow
Currency volatility
Regulation
Commodity market volatility
0% 25% 50% 75%

2015-2021 2018-2021 2021-2027
(Forecast) % of survey respondents
Source: Preqin, DBS Source: Preqin, DBS

Results of Preqin survey of institutional investors June 2022
106 1 Q 2 3 A LT E R N AT I V E S : P R I V AT E A S S E T S
Expansion of valuation multiples has The birth of unicorns

been a growing driver of buyout returns
over the past decade
Margin expansion 6% 528
Margin expansion
14%
New unicorns created per year (count)

Operational
Revenue growth
Contribution to buyout returns
improvements
38%
Revenue growth
38%
252
Multiple expansion
Multiple expansion Valuations
56% 97 102
48%
42 106
34
12 21
2 4 3
2010-15 2016-21 ’11 ’12 ’13 ’14 ’15 ’16 ’17 ’18 ’19 ’20 ’21 YTD
Exit year ’22
Source: Bain & Co, DBS Source: CB Insights, DBS
to engineer better exit timings. Fund extensions escape unscathed by broad economic declines. With
could also create opportunities in continuation funds valuations often based on a blend of performance
and the secondaries market. Meanwhile, long-term targets, financial metrics, and comparable public
horizons provide some insulation against the current valuations, companies unable to deliver concrete
environment. Funds in their investing years with dry performance and those without a genuine value-
powder to deploy are best positioned to benefit, adding proposition cannot expect to be spared as
as managers see cooling valuations as a buying investors become increasingly selective. From this
opportunity. climate, companies that would rise above the fray
would likely be those with genuine value-adding
Falling company valuations propositions, and the benefits of investing with
reputable managers with an emphasis on creating
Valuations of venture-backed companies had value through operational improvements would
created much buzz as private markets started become increasingly apparent.
birthing unicorns, decacorns, and now even the first
hectocorns (the world’s largest start-ups, ByteDance Rising interest rates
and SpaceX are estimated to now be worth more
than USD100b). However, the effects of 2022’s reset Investment structures in private equity typically utilise
in public markets are slowly trickling behind the significant leverage, particularly in leverage buyout
closed doors of private markets. Although they are (LBO) strategies which form a significant share of
not appraised as frequently as listed companies, it private market activity. Sequential rate hikes this year
would be idealistic to expect private companies to have driven a corresponding change in floating base
rates, eroding the economics of LBO strategies Dry spells in cash flows could enhance
which often rely on floating rate debt. According to leverage ratios
Pitchbook, floating rates for LBO loans averaged
24 x
between 4-5% in February 2022 but doubled to
more than 9% by September. Such a surge in interest
costs could necessitate an expansion of the equity
base of LBO deals to c.50% (up from a typical c.30%)
to contain interest costs, which would erode equity Debt/EBITDA
12 x
returns. Furthermore, heavily levered companies
would be susceptible to additional risks in potential Potential 8x
growth slowdowns, as dry spells in earnings would 6x cash flow
stress
exacerbate leverage ratios. Nonetheless, we believe scenarios
that companies with (1) countercyclical or resilient
cash generating businesses and/or (2) strong
sponsors with close support of lenders are set to Median EBITDA cut EBITDA cut EBITDA cut
(2017 to 1Q by 25% by 50% by 75%
weather these headwinds, noting the availability of 2020)*
ample dry powder sitting on the sidelines to support
Source: Pitchbook, DBS
follow-on investments. * Median debt levels of US Middle Market PE portfolio companies
purchased between 2017 and 1Q2020
Opportunities beyond challenging times. While

we expect moderation in private equity’s outlook Private equity supported by >USD1t of
from its 2021 exuberance, limited partners (LPs) still dry powder awaiting deployment toward
growing their private asset allocations could benefit deserving opportunities
from better quality investments going forward as the
industry is sifted through. Investors and funds that 5 Unrealised value Dry powder
have been consistent with due diligence in selection

of opportunities are best positioned to benefit from 4 1.2
this rationalisation, which would spell a healthier and

Private equity AUM (USDt)
1.3
more sustainable future for private market investing. 3
Looking ahead, we expect that the private markets 1.1
will continue to hold a wide universe of opportunities 1.0

2 0.9
to invest in. We continue to emphasise private assets 0.7 3.4
0.6 0.6 0.6
for their varied yet complementary characteristics 0.5 2.6
1 2.2
that bring diversification benefits to a traditional 1.6 1.7
1.2 1.2 1.2 1.3 1.4
60/40 portfolio.
0
12 13 14 15 16 17 18 19 20 21
Parts of the private markets which hold attractive
opportunities include:
Source: Preqin, DBS
Future-proof innovations through venture capital underscores the importance of investing alongside
and growth equity the most established private lenders to benefit from
a wide universe of incumbent opportunities for
We live in a period of rapid innovation – the past selection of the best credits, strong credit discipline
decade has seen new technologies and platforms and robust credit assessment, and professional
revolutionising how people live, work, and play. workout expertise to maximise recoveries in the
Such innovations hold significant potential for case of rising defaults. As public and private markets
outsized returns but often need the support of feel the heat from a slowing growth environment,
equity investments in their early years, through opportunistic special situations and distressed debt
venture capital and growth equity. This suggests that strategies may also be poised to benefit.
private equity will continue to be a core component
for discerning return-seeking investors even after Using infrastructure investing to build renewables
descending from its recent highs. Astute and capacity
well-connected managers will continue facilitating
technological development by directing investment Structural demand for infrastructure related to the
dollars towards promising innovations where capital energy transition is likely to underpin the growth
is most needed and can be best put to work. For of this asset class in the coming years. Amid an
example, Pitchbook’s data on 3Q22 private equity environment of heightened inflation, investors
deal activity suggests resilience in healthcare seeking stable cash flows and inflation-protected
services and cybersecurity dealmaking, while noting assets may seek private infrastructure exposure.
a slew of take-privates of high-growth software-as- Capital deployed towards infrastructure investments
a-service companies. will spearhead renewables adoption particularly in
Europe. With the Russian-Ukraine crisis continuing
Private debt investments as beneficiaries of rising to wage and the continent’s energy supply in
rates jeopardy, major European nations have pivoted back
to fossil fuels. However, if heavily publicised net-zero
The prevalence of floating base rates in private credit ambitions are to retain any credibility, ramping up
suggest that it may be a potential shelter providing energy generation cannot lean on carbon-intensive
investors with some insulation against a rising energy sources as anything more than a stopgap.
rate environment. Nonetheless, private borrowers This push towards growing renewable energy
are not immune to growth headwinds, and as capacity is likely to create opportunities starting in
stress escalates, we expect widening dispersion Europe, and subsequently flowing to other parts of
in performance amongst private lenders. This the world.
Europe expected to receive greatest Despite pertinent headwinds, the private markets
growth in private infrastructure AUM, have proven their resilience through tough times,
mostly relating to renewables with illiquidity and long investment horizons providing
insulation against short term shifts in sentiment as
1,000 North America Europe APAC Rest of World
the underlying companies enjoy greater certainty of
support. This insulation also implies a time lag relative
800
to public markets, suggesting that the coming years
Infrastructure AUM (USDb)
could be challenging particularly for investments

600 made at peak entry valuations of 2020/2021.
400 Nonetheless, this could also provide attractive entry

points especially for investors who have recently
begun growing their allocations to private assets.
200
Furthermore, growth falling from recent periods of
exuberance could spell a positive development for
0 the sustainability of the industry, benefitting prudent
18 19 20 21 22F 23F 24F 25F 26F 27F
investors who seek to create well-diversified and
robust portfolios over the long run. With investments
Source: Preqin, DBS facilitated by professional managers, private markets
allow LPs to direct capital towards the most lucrative
areas.
Commitment towards judicious selection

of investments, a prudent use of leverage,
and emphasis on valuation creation through
operational improvements are factors that set
the most resilient funds apart on the rocky road
ahead.
In Search
of Equilibrium
COMMODITIES 1Q23
Commodity prices to be caught between demand slowdown

and supply chain disruptions from global fragmentation and an
underinvested upstream. Favour select metals on energy transition
initiatives and a growing EV sector.
Source: iStock
12.
Commodities. Goh Jun Yong
Analyst
Prices trade sideways as bulls and bears Soft Commodities

continue tug-of-war. 4Q22 saw the continuation of
two key trends in the commodity markets: i) demand Russia continues to disrupt global wheat
destruction on the back of rising rates and recession supplies. The Russia-Ukraine war threw another
risk; and ii) ongoing supply chain disruptions in the spanner in the global food supply chain in 4Q22
form of global fragmentation, an underinvested by suspending its participation in the UN-brokered
upstream, and force majeure events. Black Sea Grain Initiative. This initiative saw the
temporary reopening of three Ukrainian key ports
While the broad-based slowdown on the back of between last August and September, enabling
rising rates is easily understood, factors disrupting approximately 9 million metric tonnes of grain to be
supply are more nuanced and specific to individual shipped out of Ukraine during this period. Moscow’s
sub-asset classes. In the energy space for example, sudden decision to withdraw its cooperation,
crude prices were kept buoyant by further supply however, could see a complete halt in commodity
cuts (2 million barrels per day) from OPEC+. For shipments leaving Ukraine once again, which is a
agricultural commodities, the supply of wheat and massive setback as the latter is the world’s seventh
sunflower oil looks set to be disrupted again by the largest wheat producer and its biggest sunflower oil
Russia-Ukraine conflict as Moscow suspends its
participation in a safe corridor initiative allowing the Exports from Belarus, Russia, and
export of grain from Ukraine. On the metals front, Ukraine
supply could be squeezed as the London Metals
Exchange contemplates suspending deliveries of Russian Fed. Ukraine Belarus
50
Russian metals ahead of official sanctions.
40
Percent of global exports
These developments, alongside slowing demand

30
growth, have resulted in volatile prices across the
board, but with no clear direction. The Bloomberg 20
Commodity Index registered a loss of 5.1% in the
two months ended 31 October 2022 with energy 10
leading the decline (-12.4%), metals falling -3.4%,

0
and agricultural commodities edging a modest
Urea
DAP/MAP
MOP
Ammonia
Maize
Wheat
Sulfur
gain of 1.3%. On a YTD basis however, the total

return benchmark recorded an impressive return of
+20.0%, substantiating the effectiveness of having Fertilisers Raw materials Grains
commodities as part of a holistic portfolio.

Source: International Fertiliser Association, US Department of Agriculture,
World Bank
112 1Q23 COMMODITIES

producer. Collectively, Russia and Ukraine account Agriculture yields will fall on 2˚C warming. Whilst
for just under a third of global wheat production and political developments in Eastern Europe dictate
15% of maize production. Since Russia withdrew the immediate supply and price of agricultural
its cooperation on the safe corridor initiative, wheat commodities, ecological factors are the greater
prices have surged 6.4%, bringing its gain for the elephant in the room when it comes to long-term
two months ended October 2022 to 13.8%. production. 2022 saw extremes in weather patterns,
with historic heatwaves sweeping through much
Global wheat prices: Sep – Oct 2022 of the Asian and American continents, alongside
torrential storms the likes of Hurricane Ian. And
Wheat price (LHS) while these weather disasters may appear to be
950
Agriculture commodities sub index (RHS)
114 isolated incidents, they are in fact part of a larger
930
trend brought on by global warming. Extreme
112
910 temperatures, extreme precipitation, increasing
110
aridity and water scarcity, and droughts are among
(Rebased: 1 Sep = 100)
890
(US cents/bushel)
108 the predicted outcomes of global warming that will

870
adversely impact global agricultural yields in the
106
850
future. A study conducted by the Potsdam Institute
104
830 of Climate Impact Research and Climate Analytics
810 102 showed that wheat, maize, and soybean yield in
Latin America could be heavily impacted (>50%
790 100
reduction) under a 2.0˚C warming scenario. While
770 98 such projections are unable to take into account
Sep 22 Sep 22 Sep 22 Oct 22 Oct 22
future scientific advancements that could counteract
Change in agricultural yields in Latin American under 1.5˚C and 2.0˚C warming scenarios
Change in yield Change in yield
Crop
under 1.5˚C warming (≈2030s) under 2.0˚C warming (≈2040s)
Brazil: –23% Brazil: up to –50%

Wheat
Central America and Caribbean: –43% Central America and Caribbean: –56%
Ecuador and Brazil: up to -64%

Mexico: -29%
Maize Mexico: up to -45%
Panama: +0.8%
Panama: +1.5–2.4%
Soybean Brazil: -45% Brazil: up to -70%
Rice Central America and Caribbean: +3% Central America and Caribbean: -4%
Sugarcane Southern Brazil: +15% Southern Brazil: +59%
Source: Potsdam Institute of Climate Impact Research and Climate Analytics
1Q23 COMMODITIES 113

the detrimental effects of this warming, they serve Declining investment in China property
as a stark reminder that one of the world’s key construction
agricultural regions is under considerable stress.
50 China Property Investment in Real Estate -
Construction (y/y %)
Industrial Metals 40
30
Chinese fiscal spending to support metals
demand. China has been and will continue to be
20
the world’s major demand driver for most metals,
with the bulk of metals demand derived from the 10
construction sector. It therefore stands to reason
that debt and liquidity headwinds, which have 0
15 16 17 18 19 20 21 22
battered the Chinese property sector, have invariably
-10
dampened metals demand and depressed prices.
Notwithstanding this, positive developments have
-20
surfaced on the policy front that should support
the sector and revive some demand for metals; Source: Bloomberg, DBS
most notably, Beijing has in official announcements
committed CNY6.8t (c.USD1t) to renewables and
Policy support to boost China’s
infrastructure projects. While Chinese property
infrastructure and manufacturing
investment is unlikely to turn the corner and resume
investment
its role as a major growth driver in the next few years,
the aforementioned fiscal spending on infrastructure China Infrastructure Investment 3MMA (y/y %)
60
and manufacturing, will support the demand China Manufacturing Investment 3MMA (y/y %)
50
for industrial metals. In addition to infrastructure
spending, it has been reported that regulators 40
in China urged joint-stock commercial banks to 30

provide new financing to property markets in Nov-
20
Dec 2022 to help the real estate development sector
complete stalled projects. This will in turn support 10
metals demand at the periphery. In essence, a fiscal- 0

led recovery will likely be the thesis in this space in 2005 2009 2013 2017 2021
-10
2023.
-20
-30

Source: iStock
EV and energy transition continue to drive lithium Long-term growth and scarcity thesis remains.
demand. Amid the otherwise soft global demand We expect that global fragmentation (Russia-
for metals, battery metals and materials including Ukraine conflict, US-China geopolitical tensions) and
lithium remain surprisingly robust with no signs of disruptions (crop yields, logistics etc) will continue
weakening. This is primarily due to a confluence of to overhang global commodity supply. It is therefore
growing demand from EV and government-led clean expected that volatility will persist in commodity
energy initiatives, as well as limited supply from prices in the short to medium term. Looking beyond
producing countries like Australia and China. The near-term volatility and the immediate global
impact of the US Inflation Reduction Act is already economic slowdown however, we continue to hold
starting to become visible as US demand for lithium commodities in good stead as they are the literal
battery production is set to surge more than fivefold building blocks of growth in our economy and form
by 2030. Lithium producers that have free trade the bedrock of industry and consumption. We favour
agreements with the US are working to capitalise on select metals for their key role in the energy transition,
incentives provided by the Act as domestic output is and food-related commodities for their inelastic
projected to meet just 6% of this surging demand by demand and long-term supply side challenges.
the end of the decade. Consequently, lithium prices We also reiterate the role of commodities as a risk
have risen substantially; both lithium carbonate and diversifier in a holistic portfolio construct given its low
lithium hydroxide, two of the most used forms of correlation with equity and bond returns.
lithium have increased in price by an average of 81%
and 102% respectively since the start of 2022.
Lithium carbonate prices from Sep 2020 Lithium hydroxide monohydrate prices
– 2022 from Sep 2020 – 2022
China lithium carbonate min 99.5% China lithium hydroxide monohydrate min 56.5%
90,000 Asia seaborne lithium hydroxide monohydrate
Asia seaborne lithium carbonate min 99.5%
90,000 min 56.5%
Europe and US lithium carbonate min 99.5% 80,000 Europe and US lithium hydroxide
80,000 monohydrate min 56.5%
70,000
70,000
60,000
(USD/metric tonne)
60,000
(USD/metric tonne)
50,000
50,000
40,000
40,000
30,000
30,000
20,000 20,000
10,000 10,000
0 0
Sep-20 Mar-21 Sep-21 Mar-22 Sep-22 Sep-20 Mar-21 Sep-21 Mar-22 Sep-22

Commodities demonstrate low correlation with other major asset classes
Security Global Global US High Sovereign

EM Broad Crude Industrial Soft Food
Equities IG Yield IG Gold
Bonds Commodities Oil Metals Commodities Commodities
Bonds Bonds Bonds
Global
1.00 0.34 0.65 0.58 0.49 0.45 0.24 0.58 0.39 0.20 0.09
Equities
Global IG
0.34 1.00 0.31 0.39 0.89 0.22 0.10 0.28 0.32 0.10 0.40
Bonds
US High Yield
0.65 0.31 1.00 0.60 0.56 0.41 0.23 0.46 0.41 0.21 0.06
Bonds
EM Bonds 0.58 0.39 0.60 1.00 0.83 0.29 0.22 0.38 0.40 0.12 0.28
Sovereign IG
0.49 0.89 0.56 0.83 1.00 0.31 0.23 0.32 0.40 0.20 0.43
Bonds
Broad
0.45 0.22 0.41 0.29 0.31 1.00 0.84 0.62 0.70 0.42 0.29
Commodities
Crude Oil 0.24 0.10 0.23 0.22 0.23 0.84 1.00 0.44 0.45 0.23 0.19
Industrial
0.58 0.28 0.46 0.38 0.32 0.62 0.44 1.00 0.57 0.40 0.31
Metals
Soft
0.39 0.32 0.41 0.40 0.40 0.70 0.45 0.57 1.00 0.53 0.35
Commodities
Food
0.20 0.10 0.21 0.12 0.20 0.42 0.23 0.40 0.53 1.00 0.19
Commodities
Gold 0.09 0.40 0.06 0.28 0.43 0.29 0.19 0.31 0.35 0.19 1.00
Source: Bloomberg, JPM, Refinitiv, LME, Euronext Amsterdam, Food and Agricultural Organisation of the United Nations
Performance of commodity sub-indices over the past 30 years

12 Broad Commodities Energy Agriculture Industrial Metals Gold
10
8
Index (1991=1)
0
1991 1996 2001 2006 2011 2016 2021
1Q23 COMMODITIES 117

Cybersecurity:
First and Last
Line of
Defence
T H E M AT I C S T R AT E G Y - C Y B E R S E C U R I T Y
As we move towards an increasingly digital world, cyber-attacks

are on the rise and leaving a long trail of destruction in its wake.
Cybersecurity offers an antidote to this growing problem. With a
boundless addressable market and fast-growing demand, we believe
cybersecurity will become one of the most important sectors in the
future.
Source:
Source:
Unsplash
iStock
13. Yeang Cheng Ling
Cybersecurity.
Strategist
Goh Jun Yong

Analyst
Data – the new currency of the world. The Where money goes, thieves follow. Amid this
unceasing migration to cloud, rise in remote- explosion of data and connectivity, cyberattacks are
working, and the increasing focus on round-the- fast becoming a pressing global issue. The immense
clock efficiency are pushing data to become the new depth and breadth of cyber connectivity, as well
undisputed universal currency. This phenomenon as colossal data flows are providing new channels
has expedited the growth of IOT connections, which for cyber assailants to operate. The costs of these
is expected to explode to 75b by 2025, 5x 2015’s attacks are neither hypothetical, nor a matter of IT
level. budget; they cost businesses and individuals data,
downtime, and reputational loss among other things.
Global IOT installed base The increasing reliance on technology and

the Internet has resulted in citizens becoming
80 Global IoT installed base (b) exposed to the risk of becoming targets of
cyberattacks.
70
Symantec/Norton LifeLock
60
50 Sharp spike in hacking attempts. Some 5.3t

intrusion attempts were recorded in 2021, a new
40
75 record high. This is in large part driven by the rise
30 62 of AI and the use of bots for brute force hacking
51
43 attempts. With further advances in AI, the rate of
20
36
31 cyber intrusion attempts will only go higher.
27
10 20 23
15 18
0
2015 2017 2019 2021 2023F 2025F
Source: HIS-Markit, Forbes, DBS
1 Q 2 3 T H E M AT I C S T R AT E G Y 119
Cyber intrusion attempts 3. In 2021, a water treatment plant in Florida

was hacked. The assailant remotely controlled
Intrusion attempts (t) the system to increase the level of sodium
6 hydroxide, also known as lye, to 100x above
the normal level.
5
4
4. Accellion, a file-sharing system company was
targeted by hackers in 2021, impacting its
3 customers globally.
2 5. In 2019, 533m Facebook user accounts were

hacked. Details comprising contact numbers,
1
names, and biodata were leaked.
0
2013 2014 2015 2016 2017 2018 2019 2020 2021 6. Some 250,000 Microsoft Exchange Servers
were breached in March 2021, and a year
Source: Sonicwall, DBS
later, partial source codes relating to Bing and
Cortana were stolen in a cyberattack.
Scale and scope of cyberattacks expanding. Not
only are hacking attempts increasing rapidly, the 7. In May 2021, the largest fuel pipeline company
scale and scope of these attacks are also getting in the US East Coast, Colonial Pipeline, was
larger. Here are some high-profile hacking incidents forced to shut down its system due to a
that happened in recent years: ransomware attack, causing disruption to
supply at thousands of gas stations.
1. SolarWinds, an IT software provider was targeted
by hackers in 2019, affecting the information of 8. A ransomware attack on Ireland’s healthcare
some 18,000 customers. sector forced a shutdown of its hospitals’ IT
systems in 2021.
2. In June 2020, Maersk had to recognise an
earnings impact of USD300m due to a system 9. Samsung’s internal company data base was
disruption affected by NotPetya ransomware- breached in March 2022, where hackers gained
attack. The same malware-attack also laid access to some source code of its Galaxy series
hands on FedEx’s TNT Express, leading to a devices.
brief trading halt of its shares.
10. USD611m worth of cryptocurrencies were

stolen from PolyNetwork in August 2021.
120 1 Q 2 3 T H E M AT I C S T R AT E G Y
Quantifying the damage. Cyberattacks come The long shadow of damages. Other than the
in many forms, both direct and indirect, and the quantifiable monetary losses, qualitative damages
damages are difficult to uniformly quantify using any from the aftershocks include:
single metric or database. However, the Internet
Crime Complaint Center (IC3), a subsidiary of the » Loss of confidential data
FBI, provides data on the official traceable monetary
» Destruction of intellectual property
costs of cyberattacks over the years. IC3 reports
that annual traceable monetary costs from reported » Compromised financial and personal information
cybercrime cases skyrocketed to USD6.0b in » Disruption of business continuity
2021. In the five years leading up to 2020, reported
» Damage to reputation and brand equity
cybercrime damages totalled a shocking USD13.3b.
Moving forward, the annual total cost of cybercrime » Derailment in productivity
is projected to reach USD10.5b by 2025.
» Regulatory charges
Reported financial costs from cybercrime

Existing architecture provides insufficient
protection. The rapid digital transformation of
Reported financial costs due to cybercrime the 2000s was, in many ways, fast-forwarded.
10,000 (USDm)
“As much as possible” and “as fast as possible”
were two central tenets of the cyber revolution
8,000 at its inception. As such, it comes as no surprise
that speed and usability are often prioritised over
6,000 security. Cybercriminals who are opportunistic and
evasive are unsurprisingly quick to capitalise on
such inadequacies. Today, ubiquitous networks
4,000
of connected smart devices (including computers,
cloud, servers, autonomous equipment, etc) and
2,000
the constant reliance on data is undoubtedly fertile
territory for cyberattacks.
0
2001 2003 2005 2007 2009 2025F
Cybercrime exacerbated by Covid-19. Ostensibly,
Source: IC3, US Dept of Justice, Cybersecurity Venture, DBS the rise in cyberattacks has been exacerbated by the
Covid-19 pandemic, which pushed many companies
to shift towards remote working even though
they were not ready to do so. This unfortunately,
compromised on the safety and security of working
platforms and resulted in a surge in cyberattacks.
The table below lists key incidents of data leakages
that divulged personal information and confidential
user data.
List of select historical data breaches

Accounts affected Year of
No Firm Industry
(m) occurrence
1 Yahoo Search engine 3,000 2013-14

2 Comcast Telecommunications 1,500 2021
3 First American Financial service 885 2019
4 Brazilian resident data Government 660 2021
5 Sina Weibo Social network 538 2020
6 Facebook Social network 533 2021
7 Marriott Intl Hospitality 500 2014-18
8 LinkedIn Social network 500 2021
9 Estee Lauder Personal care 440 2020
10 Friend Finder Social network 412 2016
11 Bykea Transport 400 2021
12 MySpace Social network 360 2013
13 Airtel Telecom 320 2019
14 Microsoft Software app 280 2020
15 Wattpad Social network 270 2020
16 Facebook Social network 267 2020
17 NetEase Mailbox services 235 2015
18 Zynga Gaming 218 2019
19 LinkedIn Social network 165 2012, 2016
20 Dubsmash Video messaging 162 2018
21 Adobe Software app 153 2013
22 Heartland Payment Online payment 134 2008
23 My Fitness Pal Fitness app 150 2018
24 Equifax Credit agency 148 2017
25 eBay Online market place 145 2014
26 MGM Grand Hotel Hospitality 142 2020
27 Canva Graphic design 137 2019
28 Heartland Payment Online payment 134 2008
Source: CSO-IDG, Sonicwall, IT Governance, various, DBS
Source: iStock
With great power comes great responsibility. Common forms of cyberattacks (in
The benefits of “going online” are well understood alphabetical order)
and accepted; having commercial, operational,
and financial data stored centrally on a cloud and 1 Birthday attack
available at one’s fingertips is a gamechanger for
a firm’s efficiency and productivity. It is no wonder 2 Cross-site scripting (XSS) attack
that organisations and government agencies alike 3 Denial-of-service (DoS) attacks
are embarking on digital transformations to be
more data driven. However, the numerous benefits 4 Drive-by attack
of digitisation come with drawbacks as well; the
5 Eavesdropping attack
migration from analog to digital, from digital to
cloud, involves system cutovers and data migration 6 Man-in-the-middle (MitM) attack
exercises that expose companies to cyberattacks.
7 Password attack
Moreover, simply being online increases the risk of
hacking regardless of the protection measures put 8 Phishing and spear phishing attacks
in place. It is therefore imperative to note that the
metamorphosis of digitalisation is a marathon for 9 Ransomware/ Malware
participants, and it is crucial to develop a strong- 10 SQL injection attack
walled moat against hackers to ensure the benefits
Source: Netwrix.com, DBS
of this journey continue to outweigh the costs.
“We shouldn’t ask our customers to make a

trade-off between privacy and security. We
Organisations at risk of cyberattacks
need to offer them the best of both. Ultimately,
protecting someone else’s data protects all of
us.” Small Government
Healthcare agencies Oil & gas
medium
services (defence, conglomerates
Tim Cook, Apple CEO enterprises
logistic)
Transport Higher
network education
Rising demand for cybersecurity solutions. In (airlines,
shipping)
institutions
Industries
the face of rising cyber assaults, the demand for vulnerable to
reliable cybersecurity solutions will increase. The cyberattacks
Communication Utilities plants
following table below features some common forms networks (Power, water)
of cyberattacks on both organisational and individual
fronts.
E-commerce Leisure Manufacturing Financial
platforms services supply chains institutions
Source: DBS
Top 10 cyber threats to organisations Smart phone vulnerability on the rise. Meanwhile,
smartphones have also become another vulnerable
Natural disasters 2% Espionage 2%
vertical. The ubiquity of smartphones and other
Internal attacks 5%
Phishing 22% connected devices has exposed more users to cyber
Spam 6%
threats and data breaches.
Cyberattacks
to steal IP
8%
Email attacks on the rise
E-mail Web
100%
Fraud 10%
17%
Malware 20% 80% 36%
Cyberattacks to
steal money Cyberattacks to 60%
12% disruption 13%
Source: EY, DBS

40% 83%
64%
“Cybercrime is the greatest threat to every
20%
company in the world”
Ginni Rommety, former Chairperson and CEO, IBM
0%
2019 2020
Email and smart mobility are at risk. The huge Source: Check Point Software, DBS
volumes of email flows increase the risk of the
users mistakenly falling prey to phishing, malware,
or ransomware links, opening the floodgates to Smart mobility is another source for
external cyberattacks. In order to bypass the users’ cyberattacks
watchfulness, attackers use nondescript and 100%
commonly used email subject lines.
Common titles used in phishing email 93%

(alphabetical order) 90%
Are you available / Are 88%

Direct deposit
you at your desk 86%
Expenses Follow up 80%
Hello Invoice due

Payment status Payroll
Purchase Re: 70%
Financial services Professional services Education
Request Urgent / Important
Source: Verizon, DBS
Source: Barracuda Spear Phishing: Top Threats and Trends, DBS
Data is the ultimate prize. While virtual crimes are Ransomware damages reached USD20b in 2021.
highly varied in nature, they share a commonality Ransomware is among the fastest growing forms of
in exploiting vulnerabilities in security vigilance. The cyberattacks. It started by targeting individual users
three most common types of information attracting and subsequently spread to the corporate sector.
cyber hacking are customer information, financial 2020 saw an increase in incidents of ransomware
information, and strategic plans. attacks on commercial firms and government
agencies. Among common cyberattacks, malware-
attacks have risen to notoriety, permeated
Data most commonly targeted by hackers
with ransomware. Total damages instigated by
ransomware reached USD20b in 2021, more than
Customer info double the amount in 2018. This number is expected
Financial info to grow exponentially, as Cybersecurity Ventures
predicts ransomware damages to total a staggering
Strategic plans
USD265b by 2031.
Board member info
Customer password
Global ransomware damage (USDb)
R&D info
M&A info
300
Intellectual property 265
Non-patented IP 250
Supplier info
200
0% 5% 10% 15% 20%
157
Source: EY, DBS 150
100
Ransomware – a lucrative way to attack. 71.5
Ransomware is a type of malicious software designed
42
50
to block access to data networks, operating systems, 20
and computing applications. It acts to deny lawful 5
0
users and original creators access to confidential 2017 2021 2024E 2026E 2028E 2031E
and important information. The victims usually end
up paying a sum of money to the attackers to unlock Source: Cybersecurity Ventures, DBS
the systems.
Global ransomware volume Cyber-ransoming monthly reported cases
700 Global ransomware volume (mn) 90 2019 (m) 2020 (m) 2021 (m)
80
600
70
500
60
400 50
300 40
30
200
20
100
10
0 0
2019 2020 2021 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Source: Sonicwall, DBS Source: Sonicwall, DBS
Healthcare sector at risk. In 4Q20, ransomware Industries targeted by ransomware in

attacks hit the sector the hardest, followed by 4Q20
professional and consumer services. These three
sectors collectively accounted for nearly half the Healthcare
Professional services
number of ransomware incidents. The typical victims
Consumer services
were companies with outdated, easy to penetrate Public sector
systems, a larger propensity to pay, and relatively Materials
lower levels of IT awareness. Tech hardware
Software
Capital goods
Rising cost per ransomware attack. The total cost Others
of ransom demanded, excluding downtime costs, Financial services
was estimated at more than USD10b among the Retailing

Automobile
top 10 affected countries. If downtime costs were
Insurance
included, the estimated quantifiable amount would Utilities
have been multiple-times higher. Between 2018 and Food retail
2020, the average direct cost of ransomware attacks 0% 5% 10% 15% 20%
nearly doubled to USD8,100 per incident. Including
Source: Coveware, DBS
downtime and related damages, each ransomware
attack would on average cost firms USD283,000
in total damages, a fivefold increase over the same
period.
Source: iStock
Investment implications Strong fundamentals warrant sector rerating. The

combined revenue of leading global cybersecurity
Cloud and IT infrastructure are areas of focus. firms is projected to reach USD50b by 2022. This
Corporate spending on cloud security equipment and is merely one quarter of annual global cybersecurity
IT infrastructure protection alone will reach USD13b spending. We expect the global industry leaders to
and USD25b respectively by 2023. Additionally, further broaden their coverage and gain larger shares
there are much larger spending allocations for in the fast-growing expenditure pie. The information
applications, operating systems, software, data and cybersecurity sector has compelling investment
analytics, disaster recovery capacity, start-end potential and deserves a lasting sector-wide rerating
points security, and other related solutions. The given the strong fundamentals and earnings upside.
beneficiaries are the providers of cloud servers and
solutions, security logic chipsets, high performance Classifying the investment options. We have
computing, AI tools, crisis management solutions, categorised the various players in the cybersecurity
cyber threats preventive applications, and system space based on revenue mix associated with
integration architecture. involvement in information security and related
solutions.
Ransomware occurrences in 2020 Rising damages caused by ransomware
5 Estimated costs (USDb, LHS) 25 Avg cost of ransomware attack (USD, LHS)
Reports cases (’000, RHS) Avg cost of ransomware incl downtime (USD, RHS)
9,000 300,000
4 20
250,000
3 15
6,000 200,000
2 10
150,000
1 5
3,000 100,000
0 0 50,000
US
Italy
Spain
France
Germany
Canada
Australia
Austria
NZ
UK
0 0
2018 2019 2020
Source: Check Point Software, DBS Source: Purplesec, DBS
Firms in Category 1 directly develop and provide Still a long runway for share price upside
cybersecurity services/solutions and have the
most direct and significant exposure to the sector.
Global cybersecurity sector index
Category 2 comprises companies that provide 600
operating systems and platforms. Such companies

have a cybersecurity component within their overall 500
business but are not wholly dedicated to it. The last

category consists of firms that provide IT and system 400
integration services. These companies will also have

300
ancillary exposure to the cybersecurity sector.
200
100
0
Dec-13 Dec-15 Dec-17 Dec-19 Dec-21
Categories of direct and indirect cybersecurity participants
Types of participants in the provision of

Examples of select entities
information security
Fortinet, VMWare, Palo Alto, Cyberark, NortonLife,

Category 1 - Development and provision of
Check Point, ServiceNow, FireEye, Proofpoint,
cybersecurity applications and solutions
Trend Micro
Category 2 - Operating system and platform,

Microsoft, SAP, Oracle, Dell-EMC, NetApp, AWS,
cloud network, data analytics, and software
Teradata, Splunk, Salesforce, Kingsoft
companies
Category 3 - Information technology services and IBM, Capgemini, Cognizant, TCS, Infosys, Tech
system integration providers Mahindra, Wipro
Source: DBS
Revenue and earnings uptrends (2010- We believe that Category 1 companies will benefit
2023F) the most from secular tailwinds that underpin the
cybersecurity sector, due to the direct monetisation
Revenue (USDb)
60 opportunities from the provision of related services
Gross profit (USDb)
Expon. (Revenue (USDb)) and solutions. However, should their portfolio allow,
50 investors can express the cybersecurity growth
theme by including companies from any of the three
categories.
40
Cyber perpetrators will remain for the years to come.

30
Therefore, a solid, all-rounded, and impregnable
information security fortress is the best defence
20 against pervasive cyberattacks to effectively deny
assailants from turning indispensable, all-important
10 global IT networks into a keyboard-slinging wild
2010 2012 2014 2016 2018 2020 2022F west.
Disclaimers and Important Notes
This information herein is published by DBS Bank Ltd. (Company This publication is not directed to, or intended for distribution to
Regn. No. 196800306E) (“DBS Bank”) and is for information or use by, any person or entity who is a citizen or resident of or
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may not include a number of terms and provisions nor does it of 1933 and in the Prospectus of the Fund.
identify or define all or any of the risks associated to any actual
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advice from a financial or other professional adviser or make Any such quotation, comments or analysis have been prepared
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you should consider carefully whether any product mentioned its accuracy, completeness or reasonableness. All information,
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tax, legal or other competent professional advisors as you deem change without notice. In any event, past performance is no
appropriate to ensure that any assessment you make is suitable guarantee of future results, and future results may not meet our/
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constraints and objectives without relying in any way on DBS factors.
Group or any position which DBS Group might have expressed in
this publication or orally to you in the discussion. The investment product(s) mentioned herein is/are not the only
product(s) that is/are aligned with the views stated in any research
Any information relating to past performance, or any future report(s) and may not be the most preferred or suitable product
forecast based on past performance or other assumptions, is not for you. There are other investment product(s) available in the
necessarily a reliable indicator of future results. market which may better suit your investment profile, objectives
and financial situation.
If this publication has been distributed by electronic transmission,
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errors or omissions in the contents of the information, which
may arise as a result of electronic transmission. If verification is
required, please request for a hard-copy version.
132
DBS CIO INSIGHTS | FOURTH QUARTER 2021
Dubai International Financial Centre and investment objectives. No other provision of this publication
or any other publication DBSHK may ask you to sign and no
This publication is provided to you as a Professional Client or statement DBSHK may ask you to make derogates from this
Market Counterparty as defined in the DFSA Rulebook Conduct clause.
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Professional Client or Market Counterparty under the DFSA rules. representation, guarantee or other assurance as to the outcome
of any investment based on the information provided. “Financial
This publication is from the branch of DBS Bank operating in the product” means any securities, futures contracts or leveraged
Dubai International Financial Centre (the “DIFC”) under the trading foreign exchange contracts as defined under the Securities
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DBS DIFC is regulated by the Dubai Financial Services Authority The information is provided to you as a “Professional Investor”
(the “DFSA”) with a DFSA reference number F000164. (defined under the Securities and Futures Ordinance of Hong
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Where this publication contains a research report, this research disclosed to any person nor copied or reproduced in any manner.
report is prepared by the entity referred to therein, which may
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Unless otherwise indicated, this publication does not constitute The report has been prepared by a personnel of DBS Bank,
an “Offer of Securities to the Public” as defined under Article 12 of who is not licensed by the Hong Kong Securities and Futures
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Kong Monetary Authority (the “HKMA”) and the Securities and Advisers as defined in the Financial Advisers Act and regulated
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133
Thailand in respect of any matters arising from or in connection with this
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Ltd. (“DBSVT”). its holding company Alliance Investment Bank Berhad, their
respective connected and associated corporations, affiliates,
The information contained in this publication is not intended to be their directors, officers, employees, agents and parties related
either an offer, invitation or solicitation to buy or sell any securities, or associated with any of them may have positions in, and may
derivatives, or any other financial products or services, provide effect transactions in the securities mentioned herein and may
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This publication has not been reviewed by any regulatory authority Wong Ming Tek, Executive Director, ADBSR
in Thailand and has not been registered as a prospectus with the
Office of the Securities and Exchange Commission of Thailand.
Accordingly, any publications and materials, in connection with
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securities, derivatives, or any other financial products or services,
may only be circulated or distributed by an entity as permitted by Indonesia
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and any such solicitation will be made by an entity permitted by Vickers Sekuritas Indonesia (“DBSVI”).
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134
DBS CIO INSIGHTS | FOURTH QUARTER 2021
Foregoing report/Section Analyst Certification
Please also refer to the other disclaimers and important 1. The research analyst(s) primarily responsible for the content
notes. of this research report, in part or in whole, certifies that the
views about the companies and their securities expressed in
The foregoing report/ section may comprise extracts from this publication accurately reflect his/her personal views. The
research report(s) prepared by DBS Bank, DBSVT, DBSVI. analyst(s) also certifies that no part of his/her compensation
The research report(s) is solely intended for the clients of DBS was, is, or will be, directly or indirectly, related to specific
Bank and DBSVS, its respective connected and associated recommendations or views expressed in the report. [The
corporations and affiliates only and no part of this document research analyst (s) primarily responsible of the content of
may be (i) copied, photocopied or duplicated in any form or by this research report, in part or in whole, certifies that he or
any means or (ii) redistributed without the prior written consent his associate1 serves as an officer of the issuer or the new
of DBS Bank, DBSVT, DBSVI. The research set out in this report listing applicant (which includes in the case of a real estate
is based on information obtained from sources believed to be investment trust, an officer of the management company of
reliable, but the DBS Group has not conducted due diligence the real estate investment trust; and in the case of any other
on any of the companies, verified any information or sources or entity, an officer or its equivalent counterparty of the entity
taken into account any other factors which we may consider to be who is responsible for the management of the issuer or the
relevant or appropriate in preparing the research. Accordingly, we new listing applicant).] [AND/OR] [The research analyst(s)
do not make any representation or warranty as to the accuracy, primarily responsible for the content of this research report or
completeness or correctness of the research set out in this report. his associate has financial interests2 in relation to an issuer or
Opinions expressed are subject to change without notice. This a new listing applicant that the analyst reviews.]
research is prepared for general circulation. Any recommendation
contained in this document does not have regard to the specific 2. DBS Group has procedures in place to eliminate, avoid and
investment objectives, financial situation and the particular needs manage any potential conflicts of interests that may arise
of any specific addressee. This document is for the information in connection with the production of research reports. The
of addressees only and is not to be taken in substitution for research analyst(s) responsible for this publication operates
the exercise of judgement by addressees, who should obtain as part of a separate and independent team to the investment
separate independent legal or financial advice. The DBS Group banking function of the DBS Group and procedures are in
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communication given in relation to this document. compensation to any specific investment banking function of
the DBS Group.
1
An associate is defined as (i) the spouse, or any minor child (natural or
adopted) or minor step-child, of the analyst; (ii) the trustee of a trust of
which the analyst, his spouse, minor child (natural or adopted) or minor
step-child, is a beneficiary or discretionary object; or (iii) another person
accustomed or obliged to act in accordance with the directions or
instructions of the analyst.
2
Financial interest is defined as interests that are commonly known financial
interest, such as investment in the securities in respect of an issuer or a
new listing applicant, or financial accommodation arrangement between
the issuer or the new listing applicant and the firm or analysis. This
term does not include commercial lending conducted at arm’s length,
or investments in any collective investment scheme other than an issuer
or new listing applicant notwithstanding the fact that the scheme has
investments in securities in respect of an issuer or a new listing applicant.
135
Glossary.
Acronym Definition Acronym Definition
AAII American Association of Individual Investors EPS earnings per share
ADR American depositary receipt ERP equity risk premium
ASEAN Association of Southeast Asian Nations ESG environmental, social, and governance
AUM assets under management ETF exchange-traded fund
AxJ Asia ex-Japan EU European Union
bbl barrel EV electric vehicle
BI Bank Indonesia FAI fixed asset investment
BIS Bank for International Sentiments FBI Federal Bureau of Investigation
BNM Bank Negara Malaysia FOMC Federal Open Market Committee
BOC Bank of Canada FCF free cashflow
BOE Bank of England FDI foreign direct investment
BOJ Bank of Japan FX foreign exchange
BOK Bank of Korea GDP gross domestic product
BOT Bank of Thailand GFC Global Financial Crisis
BSP Bangko Sentral ng Pilipinas Gsecs Government Securities
bpd barrels per day HIBOR Hong Kong Interbank Offered Rate
CAGR compound annual growth rate HKMA Hong Kong Monetary Authority
CGB China Government Bonds HY high yield
CPI consumer price index IC3 Internet Crime Complaint Center
DM Developed Markets IndoGB Indonesian Government Bonds
DRAM dynamic random access memory IG investment grade
DXY US Dollar Index IMF International Monetary Fund
EBITDA earnings before interest, tax, depreciation, IOT Internet of Things
and amortisation
EC European Commission IPO initial public offering
ECB European Central Bank IRR internal rate of return
EM Emerging Markets IRS interest rate swap
eop end of period ISM Institute for Supply Management
EPFR Emerging Portfolio Fund Research IT Information Technology
136 1Q23 GLOSSARY

Acronym Definition Acronym Definition

JGB Japanese Government Bond R&D research and development
KTB Korea Treasury Bonds RBA Reserve Bank of Australia
LATAM Latin America RBI Reserve Bank of India
LBO leveraged buyout RBNZ Reserve Bank of New Zealand
LP limited partners REER real effective exchange rates
M&A Mergers and acquisitions REIT real estate investment trust
MAS Monetary Authority of Singapore RM relationship manager
MBS mortgage-backed securities ROA return on asset
MGS Malaysian Government Securities ROE return on equity
mmbpd million barrels per day RRR reserve requirement ratio
NATO North Atlantic Treaty Organisation SAA strategic asset allocation
NAV net asset value SBV State Bank of Vietnam
NEER nominal effective exchange rate SD standard deviation
NGL natural gas liquids SNB Swiss National Bank
NIM net interest margin SOE state-owned enterprises
OECD Organisation for Economic Co-operation SOFR Secured Overnight Financing Rate
and Development
OIS overnight indexed swap SORA Singapore Overnight Rate Average

OPEC Organization of the Petroleum Exporting SPR strategic petroleum reserves
Countries
OPM operating profit margin SWIFT Society for Worldwide Interbank
Financial Telecommunication
PCE personal consumption expenditure TAA tactical asset allocation
P/B price-to-book TAM total addressable market
P/E price-to-earnings TOPIX Tokyo Stock Price Index
PBOC People's Bank of China TPI tax and price index
PE private equity UCITS Undertakings for Collective
Investment in Transferable Securities
PM portfolio manager UN United Nations
PMI purchasing managers' index UST US Treasury
PPI producer price index WTI West Texas Intermediate
PRR price-to-research ratio YTD year-to-date
QE quantitative easing YTW yield to worst
1Q23 GLOSSARY 137

CIO Collection
4Q22 CIO INSIGHTS 3Q22 CIO INSIGHTS 2Q22 CIO INSIGHTS 1Q22 CIO INSIGHTS
Fed in Focus Rising Above Inflation Anchor in the Storm A Divergent World
September 2022 June 2022 March 2022 December 2021
Stay the Course Hope Into Reality Back on Track A New Hope
On the Mend Resilient in the Storm Build to Last New Wine, New Skin
138 1Q23 CIO COLLECTION

CIO Collection
Ride the Wave A Changing World Lift to Win Tug of War
Window of Opportunity Steer Through Rough Seas Mind the Bends The Bull Ain’t Done
1Q23 CIO COLLECTION 139

Produced by:
DBS Chief Investment Office
go.dbs.com/sg-cio
facebook.com/dbscio
Dylan Cheang Senior Investment Strategist

Sabrina Lim CIO Content Management
Denise Kok CIO Content Management
Alyssa De Souza CIO Content Management
Sharlene Goh CIO Content Management
Jane Oidem CIO Content Management

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The Return of 60/40.

03 EXECUTIVE SUMMARY 136 GLOSSARY

Dear valued clients,

Dear valued clients,

Income generators include bonds and dividend equities; growth is

In this publication, we feature Cybersecurity, an essential component for

I wish you a steadfast year of investing even in the face of tremendous

1Q23 EXECUTIVE SUMMARY 3

Macro Policy Economic Outlook Equities

Credit Currencies Rates

Alternatives Commodities Thematics

1Q23 INVESTMENT SUMMARY 5

01. Hou Wey Fook, CFA

Asset Allocation. Chief Investment Officer

In 2023, we expect two things to transpire over the 115

One, the Fed is set to downshift its monetary policy 105

as economic momentum decelerates and two, the

Source: Bloomberg, DBS

60% equities and 40% bonds) with a great starting

Using the S&P 500 Index as proxy for equities

• Sharp returns post selldowns: On a 9M22

correction of 20% and above) in the subsequent 0%

Source: Bloomberg, DBS

yield-to-worst for bonds and a 60% weight

it is not logical to analyse this from an absolute

Huge funds sitting in money markets Upgrading Bonds to Overweight

-0.5 From a historical perspective, bonds tend to perform

» During those periods, bonds outperformed

Source: Bloomberg, DBS

Performance of equities and bonds during High Inflation/Low Growth periods

1. 4Q78 till 2Q80 -30.2 12.1 +11.4 +9.0 -2.4

2. 3Q81 till 1Q82 -13.9 8.9 -14.7 +10.2 +24.9

3. 1Q84 till 3Q84 -19.9 4.4 +0.7 +7.0 +6.2

4. 1Q89 till 3Q89 -10.0 4.8 +25.7 -10.4 -15.3

5. 2Q90 till 1Q91 -9.2 5.5 +10.4 +12.9 +2.5

6. 1Q00 till 1Q01 -14.7 3.5 -21.0 +15.0 +36.0

7. 4Q05 till 2Q06 -4.8 3.7 +3.4 -0.1 -3.5

8. 3Q07 till 1Q08 -4.3 3.6 -12.0 +8.2 +20.2

9. 2Q11 till 4Q11 -5.4 3.5 -5.1 +7.4 +12.5

Average -12.5 5.6 -0.1 +6.6

Source: Bloomberg, DBS

Bonds: A beautiful blend of income and safety. Cross-currents: Earnings Contraction vs

6.5 Equities - Est. Dividend Yield (%)*

Source: Bloomberg, DBS

Recession impact on earnings and valuations

Jul-1990 to Savings & Loans Crisis

Mar-2001 to Dot-Com Crash and

Average 7 -2.7 -10.4 7.0 -0.5

Source: Bloomberg, DBS

1Q23 Asset Allocation – The return of bonds

Forecasted EPS growth -2 to +2 1 -1 0 0 - 0 0

Valuation Earnings yield - 10-yr yield -2 to +2 0 0 1 1 1 1 0

Free Cashflow yield -2 to +2 1 0 1 0 - - -

Adjusted Score* 0.14 -0.38 0.10 0.14 0.45 0.38 -0.13

Valuation: The gap between US earnings yields and 10

Treasury yields continued to narrow in 4Q22 and 5

Source: EPFR Global, DBS

Inflation in Euro Area spiralling north Europe expected to register weakest

Source: Bloomberg, DBS Source: Bloomberg, DBS

Bonds: Upgrade DM corporate bonds to Attractive yield play

• Current IG yield is substantially above its 10-year 4