DBS Private Bank is largely sticking to recommendations made prior to the Covid-19 outbreak as it enters the second quarter.
Its balanced portfolio will continue to allocate 50% to equities, 27% to fixed income, 16% to alternatives, and 7% to cash.
CIO Hou Wey Fook noted that financial markets have been confronted by two ‘black swan’ events, namely the coronavirus and oil price collapse.
This has caused markets to fall some 30% peak to trough, and Treasury bond yields to hit historic lows.
‘The speed and the size of the fall has caught many of our clients, including fund managers, by surprise,’ Hou told a media briefing on Thursday.
‘There are risks of a recession certainly. The comforting thing is authorities, both central banks and governments, are working very hard to quell these ‘black swans’. I think that would mitigate some of the impact on the markets,’ he said.
DBS favours equities over bonds. The US will still make up the lion’s share of its equity allocation in the second quarter, accounting for 27% of its balanced portfolio.
This is followed by Asia ex-Japan equities at 17%, European equities at 4%, and Japanese equities at 2%.
The lender has also cemented its conviction calls on technology, healthcare and Chinese stocks, namely A-shares and banks.
Although the technology sector, which includes e-commerce and cloud computing, has not been spared from the sell-off, it continues to outperform the stock market, Hou said.
‘I think that trend will continue because the world is becoming digital. That’s a long-term, structural, irreversible trend.
‘Take advantage of the sell-off to really increase exposure into this particular sector, within your portfolio of bonds, equities and gold,’ he advised.
Within fixed income, DBS has a preference for emerging market bonds, where it likes China in particular.
It believes these offer better yields than developed market corporate or government bonds. DBS’ balanced portfolio allocates 15% to EM bonds and 12% to DM ones.
The lender will also keep a 7% allocation to hedge funds and 9% allocation to gold.
The precious metal has returned 2% over the past three months. This means it has outperformed all asset classes and currencies, living up to its name as a portfolio hedge, it said.