Investors should adjust their core investment portfolios to prioritise technology stocks and American banks, as US tax cuts will enhance corporate profit margins, while gold is recommended as an alternative asset, says Singapore-based DBS Bank.
Chief investment officer Wey Fook Hou said the bank expects gold prices to reach US$3,300 this year due to trade wars and geopolitical tensions.
"The global economy remains as complex and sensitive as ever, especially as the second term of US President Donald Trump will impact investment markets and risk assets worldwide," he told a briefing for DBS Vickers Securities (Thailand) yesterday.
Policies related to taxation, climate change, immigration and border security have made an expected economic downturn in the US and interest rate cuts by the Federal Reserve unlikely.
The US economy has the potential to continue growing, said Mr Hou.
As Trump is committed to cutting taxes and government spending, there are uncertainties about fiscal sustainability, he said.
The import tax hike triggered a trade war amid the contradictions of expansionary fiscal policies and rising geopolitical tensions, said Mr Hou.
Given the expansionary policies of the Trump administration, DBS recommends adjusting the investment status of global stocks from underweight to neutral, but maintaining the weight of US stocks at overweight because tax cuts should increase the profit margins of companies, especially in the US technology and banking sectors.
The bank still believes these companies have the potential for sustainable growth in the long term, allowing investors to receive positive returns from the tax cut policy and deregulation.
To reduce trade war risk, DBS placed an overweight rating on fixed income instruments as they help protect against downside risks if trade tensions escalate, said Mr Hou.
The bank recommends investing in Asia excluding Japan because the stock price in this market is 34% cheaper than developed markets.
Southeast Asian countries will continue to benefit from China's supply chain diversification under the China+1 strategy.
The Thai economy is likely to recover this year, with tourism, banking and industrial estate stocks expected to soar, according to DBS. The bank projects the Stock Exchange of Thailand index this year to tally 1,500 points, with a potential upside of around 10%.
Despite short-term challenges, DBS maintains an overweight rating on gold as safe-haven assets become more attractive amid trade tensions and concerns over the sustainability of the US fiscal policy under Trump, he said.