Bank of Singapore DBS on 12 Business Ideas for 2021 As Global Economy Recovers

SINGAPORE – Asia is expected to outpace the rest of the world, as the region’s economies expect to recover in 2021 from the coronavirus-induced slump, said the chief economist at Singapore’s largest bank.

Few Asian countries will continue to receive great fiscal support next year, but that is “fine” because the region is in “much better shape” in terms of managing the pandemic and recovering growth compared to the West, said Taimur Baig of DBS Group Research.

“I think it’s quite easy to argue that given the favorable growth differential, given the attractive valuation, Asian economies and markets will attract investors’ interests, they will do better,” he told CNBC’s “Street Signs Asia” on Wednesday.

“So we are actually making quite a strong outperformance call for Asian asset classes and Asian economies in 2021 relative to the rest of the world,” he added.

In a report last week, Baig and other DBS strategists outlined 12 business ideas and strategies for 2021 in rates, currencies and credit.

Rate trading has a macroeconomic focus and generally revolves around sovereign bonds and interest rate derivatives. The DBS report listed Six Trade Topics for Rates:

• The steepening of the US Treasury yield curve, with the interest rate over the 10-year term is likely to reach 1.3% in the latter part of 2021, up from current levels of around 0 , 9%.
• Bet on Singapore dollar exchange rates that exceed those of the US dollar.
• Indonesia’s government bonds are expected to strengthen in value as they are now relatively cheap; DBS analysts see 6.5% as a short-term “decent entry point” for the 10-year bond.
• Flattening in the Indian government bond curve, with the difference in rates between the three-month and five-year segments slowly advancing towards 150 basis points by the end of 2021.
• Favor Chinese government bonds that may rebound in the short term, as it feeds on the strength of the yuan, with a preference for terms of five and seven years.
• Widening of 10-year yield spreads between Korean Treasuries and Thai Government Bonds to 70-80 basis points given the high potential for bond supply in South Korea

The US dollar has become “less overvalued,” meaning it could depreciate more gradually in 2021, according to DBS. The bank has three ideas on how to trade currencies next year:

• A basket of high-yielding Asian currencies, the Indonesian rupiah, the Philippine peso and the Indian rupee, is expected to strengthen against the dollar.
• Viewing the value of the Philippine peso against the Swiss franc and the Japanese yen. This strategy has generated stable spot returns of up to 2% and still appears to provide “value,” analysts said.
• Predicting the British pound could weaken against the New Zealand dollar given the different fundamentals between the two economies.

In terms of investment in debt securities, DBS analysts favored Asian credit denominated in US dollars. They have three preferred sectors:

• Indonesian Investment Grade Bonds;
• Indian “quality” bank credit;
• Chinese real estate credit and cyclical consumer credit.

DBS said China, where the coronavirus was first detected, will lead the global recovery in 2021. But investors should be wary of Chinese companies with higher leverage and low profitability, the bank warned.

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