Global Growth Global Growth Global Growth

Global Growth

Market Rewind
Saxo

Summary:  After each quarter you can download your personal quarterly report into your SaxoWealthCare account. In this article we would like to further explain what has happened in the market and how we have responded to this within your profile and portfolio.


Market Review

In the third quarter (Q3) of 2023, market participants digested news that interest rates may need to stay higher for longer to combat elevated levels of inflation.  As a result, markets generally declined over the quarter, though year-to-date have still produced positive returns. 

The market rally incurred during earlier months of the year was driven by optimism that central banks could navigate the reduction of inflation whilst incurring a “soft” economic landing to avoid a prolonged recession. As of now, that optimism appears to have overshot reality and consequently investors became more cautious in recent months. Most notably, Utility companies suffered most in Q3 as their high levels of debt weighed on investor sentiment.

FAANG1 stocks were most relevant in 2017 but now there are the “Magnificent Seven” comprising Meta, Microsoft, Apple, Amazon, Google, Nvidia, Tesla. These seven stocks make up 28% of the combined value of the S&P500 index and were by far the biggest driver of positive market returns in Q2. By summer-end they seem to have lost some of their lustre, with some speculating that there could be a convergence of returns between the magnificent seven and the rest of the market. Companies with healthy balance sheets including low levels of debt and high cash piles, tend to be faring best in the current climate.

Regionally, Asian markets suffered more than their Western counterparts with China at the forefront of that underperformance. Local catalysts including the government crackdown on the technology industry and a sinking property market combined with rising energy prices, all of which contributed towards the market decline. Evergrande, which has over 300bn USD of debt and is China’s largest property developer, still makes headlines while the consequence of its collapse is being digested.

With expectations for higher interest rates for longer, the returns on “safe haven” government bonds are at their most attractive levels since the financial crisis. It remains the case that short term (1-3 year maturities) bond yields2 are higher than medium to longer term (5-10 year maturities) government bond yields. This is technically described as an inverted yield curve where short term interest rates remain elevated to tackle inflation compared to future expected interest rates. 

The 30% surge in oil price meant energy companies performed very well in Q3 in contrast the rest of the market. For ESG-considered investors, the removal of energy stocks due to their environmental impact meant they would not have benefited from this compared to their non-ESG filtered counterparts.

The outlook for a soft or hard economic landing remains the biggest driver of market activity into the year-end. Moreover, the market will be eagerly awaiting inflation updates, GDP updates and the interest rate decisions of central banks as they limbo between fighting short term inflation whilst attempting to avoid the hard landing scenario of a prolonged recession.


Portfolio Performance

Fixed Mix Strategies - Global Growth

 
 
 
 
 
 

 
 
 
 
 

10Y Annualised Return

 
 
 
 
 

10Y Annualised Volatility

 
 
 
 
 

Since Inception

 
 
 
 
 

Year to Date

 
 
 
 
 

Quarter to Date

 
 
 
 
 

Very Dynamic

 
 
 
 

7.7%

 
 
 
 

12.0%

 
 
 
 

-2.8%

 
 
 
 

6.0%

 
 
 
 

-2.0%

 
 
 
 
 

Dynamic

 
 
 
 

6.9%

 
 
 
 

9.6%

 
 
 
 

-2.9%

 
 
 
 

5.4%

 
 
 
 

-1.8%

 
 
 
 
 

Moderate

 
 
 
 

5.9%

 
 
 
 

7.4%

 
 
 
 

-3.0%

 
 
 
 

4.6%

 
 
 
 

-1.6%

 
 
 
 
 

Defensive

 
 
 
 

4.9%

 
 
 
 

5.4%

 
 
 
 

-3.2%

 
 
 
 

3.9%

 
 
 
 

-1.5%

 
 
 
 
 

Very Defensive

 
 
 
 

3.9%

 
 
 
 

4.2%

 
 
 
 

-3.5%

 
 
 
 

3.1%

 
 
 
 

-1.3%



Source: Data from Bloomberg, Morningstar, BlackRock, Amundi, from 9/30/2013 to 9/29/2023. Inception date of the strategy is 5/31/2022. Returns are shown in SGD and gross of costs such as management fee and transaction costs but net of ETF costs (TER)

Returns are calculated with a monthly rebalance to target allocation. Returns before the launch of the strategy with Saxo are calculated based on the portfolio allocation at the launch date. These historical returns do not attempt to simulate investment decisions that could have been made before the first portfolio was implemented with Saxo. The returns presented are indicative of the returns of individual investors, which may differ slightly.

In the third quarter of 2023, the equity portfolio suffered negative returns though they were slightly less severe than the reference equity markets (global with an Asian bias). The bonds portfolio also gave up some ground, though mostly in line with the reference bond markets.

Still, all the risk profiles maintain a positive return year-to-date, helping recover part of the negative returns incurred in 2022. 


Portfolio Protector and Goal-Based Strategies 

Investors who have opted for Portfolio Protector or Goal-Based strategies have their own unique asset allocation that depends on their individual preferences and constraints. Still, the mix of assets in their portfolios will fall somewhere on the spectrum of the Fixed Mix portfolios since they are composed of the same building blocks for equity and bonds. Hence, we believe the information presented in this report should bring them some light to interpret the performance of their portfolios accordingly.


Portfolio Changes

Equity

In the third quarter of 2023, the Asian bias equity portfolio was rebalanced four times by BlackRock.

This portfolio gives investors a broad exposure to equities with a focus on Asian equities. It aims to outperform global stock markets via dynamic tactical adjustments to the mix of ETFs in the portfolio. These adjustments are done via two investment models: country rotation and thematic investing. Country rotation is implemented through ETFs that track the general market of various countries and represents the biggest share of the portfolio. The rest of the portfolio is allocated to the thematic investing which is implemented through ETFs that select stocks based on megatrends, aka long-term changes that affect societies and economies in a transformational way.

Early July

The exposure to thematic ETFs was trimmed as these ETFs typically invest in smaller cap companies, which can bring unintended risk to the portfolio. The reduced exposure to themes represents a shorter-term tactical move and does not change the overall conviction on the ability of these strategies to deliver good risk-adjusted returns in the long run.

Within the country rotation sleeve, the portfolio was rebalanced to overweight US and Japan, and underweight Emerging Markets. 


Late July

The emerging market rotation strategy required to trim the overweight in China and Hang Seng shares. The overweight in India was maintained on the back of strong and resilient earnings backed by domestic demand. Similarly, the overweight in South Korea was maintained as the economy benefited from the recovery of the semiconductor industry. The underweight to Taiwan was also maintained on the back of relatively poor valuations. 

Late August

The rebalance increased exposure to China and Hang Seng shares. Domestic China, represented by A shares, were more supported by recent policy changes, while China H shares typically outperform when there is more foreign excitement in the short-term (like a reopening). On the other hand, the exposure to South Korea was reduced to fund this move, leaving the portfolio with an underweight for both Taiwan and South Korea.

Late August

Tactical moves saw new themes introduced in the portfolio, such as Automation & Robotics and Electric Vehicles & Driving Technology, while allocations to Digital Security and Healthcare Innovation were let go, with a marginal revision of the other positions.


Bonds

In the third quarter of 2023, the bonds portfolio was kept unchanged by Amundi.

This is a yield-seeking bond portfolio. It is composed of global government and corporate bonds with a medium duration, but it also has a special focus on Asian investment grade corporate bonds. The foreign currency exposure is mostly hedged to USD in this portfolio. It is designed to invest for more stable returns than equities and to act as a diversifier to equities during negative periods, with a focus on the Asian region.

Disclaimer

The Saxo Group entities each provide execution-only service, and access to analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Inspiration Disclaimer and (v) Notices applying to Trade Inspiration, Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular, no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Trading in financial instruments carries risk, and may not be suitable for you. Past performance is not indicative of future performance. Please read our disclaimers:
Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
Full disclaimer (https://www.home.saxo/en-sg/legal/disclaimer/saxo-disclaimer)

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Markets or its affiliates.

Saxo Markets
88 Market Street
CapitaSpring #31-01
Singapore 048948

Contact Saxo

Select region

Singapore
Singapore

Saxo Capital Markets Pte Ltd ('Saxo Markets') is a company authorised and regulated by the Monetary Authority of Singapore (MAS) [Co. Reg. No.: 200601141M ] and is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms & Risk Warning to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products such as Margin FX products may result in your losses exceeding your initial deposits. Saxo Markets does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Markets does not take into account an individual’s needs, objectives or financial situation.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-sg/about-us/awards.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website are not intended for residents of the United States, Malaysia and Japan. Please click here to view our full disclaimer.

This advertisement has not been reviewed by the Monetary Authority of Singapore.

Apple and the Apple logo are trademarks of Apple Inc, registered in the US and other countries and regions. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.