The year has entered its final quarter, marked by fluctuations in equity markets. The S&P 500 achieved a record close at 5,762.48 on September 30, with a 0.42% increase, driven by investor interest in themes such as artificial intelligence and possible interest rate cuts. Chinese markets have also experienced renewed interest, highlighted by the CSI 300 blue-chip index’s 8.5% surge on Monday, marking its strongest performance in 16 years. The benchmark 10-year U.S. Treasury yield is currently around 3.79%.
Looking ahead to the last three months of the year, a seasoned investor has flagged several uncertainties, including the forthcoming U.S. elections, escalating geopolitical tensions, and concerns about an economic slowdown. “These factors could introduce volatility into the markets, making Q4 a period to observe keenly,” stated Kevin Teng, CEO of Wrise Private Singapore, in a conversation with CNBC Pro on September 30. In light of these uncertainties, CNBC Pro consulted market experts on their investment strategies for the year-end.
The fourth quarter commenced amidst central banks’ rate easing measures. On September 18, the U.S. Federal Reserve enacted a 50 basis-point cut, and the People’s Bank of China (PBOC) reduced both the seven-day reverse repo rate and banks’ reserve requirement ratio on September 24. According to Teng, this trend diminishes the allure of cash, an asset class that was heavily favored by investors last year. Teng’s firm, which caters to ultra-high-net-worth individuals across Asia, the Middle East, and Europe, is now concentrating on short-duration cash investments.
Teng favors U.S. equities due to the Federal Reserve’s accommodative policy and strong momentum in high-growth sectors like artificial intelligence. He specifically remains optimistic about generative AI and companies such as Nvidia, which are experiencing robust demand from data centers and AI-driven applications. Real estate and consumer staples are also on Teng’s radar, expected to benefit most from reduced borrowing costs.
Furthermore, Teng has upgraded the outlook for Chinese and Hong Kong-listed equities from neutral to overweight following recent PBOC announcements. He believes the measures, particularly targeted liquidity injections, address the critical issue of insufficient domestic capital flows into China’s stock market. Teng predicts that the new policy framework will increase market participation, enhancing equity performance, and positions China and Hong Kong equities for significant upside potential.
Teng suggests structuring a $50,000 portfolio as follows: $30,000 into U.S. indexes exchange-traded funds tracking the Dow, S&P500, and Nasdaq; $10,000 into global active and short-duration fixed income funds; and $10,000 into money market instruments, with a view to capitalize on dips in equities. He anticipates continued volatility in the U.S., advocating for buying on dips and maintaining a long position in the equities market this year. Teng has also reduced allocations to gold and alternative assets to align with shifting market dynamics.
In a similar vein, Nannette Hechler-Fayd’herbe of Lombard Odier is optimistic about equities but prefers markets that have lagged behind. She regards the U.K. market as attractive due to its appealing valuations comparable to those in emerging markets and recent positive economic developments. Her comments followed the British pound’s rise to a two-and-a-half-year high on September 23, influenced by a hawkish rate stance from the Bank of England.
Beyond the U.K., Hechler-Fayd’herbe identifies potential in emerging markets such as Taiwan and South Korea. Taiwan is expected to benefit from the growing global demand for semiconductors, while South Korean equities are anticipated to experience a significant recovery in earnings per share over the next six to twelve months, bolstered by the continuation of the memory upcycle.
Hechler-Fayd’herbe also sees opportunities in Japanese equities, particularly in the small and mid-cap sectors. Japan is in a “geopolitical sweet spot” and is benefiting from rising inflation and stable consumption levels. The country’s domestic businesses are rediscovering pricing power, and the gradual monetary tightening cycle should positively impact banks and insurers. The momentum for corporate reforms remains strong, serving as a secular tailwind.
Hechler-Fayd’herbe’s outlook underscores the favorable conditions for certain markets and sectors, as investors navigate the complexities of the final quarter of the year.
