Investment outlook - in brief
We maintain a mild underweight position on growth assets and keep our preference for emerging market equities over developed markets. Based on our base case scenario, our strategy is to adhere to a conservative approach – not to chase temporary relief rallies – and instead wait for better entry points once confidence and recovery are more stable.
Despite the short-term risks in developed market equities, we maintain our slight preference for US shares given their quality and structural growth potential.
On the other hand, given the Australian share market’s heavy exposure to the Financials and Resources sectors – which may be adversely affected by lingering low-interest rates and commodity prices – we remain underweight in Australian equities.
Our preference for emerging markets (over developed markets) is based on the positive outlook for China and its ability to rebound after the COVID-19. Given China’s willingness to stimulate its economy and its prospects for recovery, we maintain a slight overweight position.
We continue to hold alternative growth assets at benchmark as they have been shown to be a valuable diversifier during extreme market conditions.
Despite yields on fixed-income assets remaining very low, we continue to hold them above benchmark weight as they provide a good risk hedge value. As we continue to monitor market movements, we will look to reduce our holdings once markets stabilise.
We maintain our underweight position on the Australian dollar given it’s a risk currency and has the tendency to fall during equity market sell-offs.