The investment landscape this year is complicated; yet, having a traditional mainstream 60% equities and 40% bonds portfolio is “not a bad thing”, says DBS Group Holdings CEO Piyush Gupta.
The benchmark 10-year US Treasury bond gives a yield of around 4.75% now, and, including credit spreads, a “decent” portfolio with a yield of around 6.5% to 7% can be built, Gupta noted at a dinner for DBS Private Bank’s clients on Jan 13, his last as CEO before his retirement in March.
Despite the handsome gains in 2023 and 2024, retaining some exposure to the US market is also “not a bad idea” even though US valuations have become “toppish”. He adds that the US economy continues to be “relatively robust” due to strong employment numbers and consumption.
With US President-elect Donald Trump set to take office on Jan 20, movements including the deregulation of some industries like the crypto or banking sector will bring about more tailwinds and more impetus for growth, says Gupta.
That said, he flagged a few critical caveats for this year, including the potential for financial market instability, which could spill over to the real economy which is facing some challenges. “If you look at the underlying data, delinquencies in the US are going up [in] unsecured cards, loans and mortgages,” says Gupta.
In addition, the Fed’s total reserves, which were about a few trillion dollars before, have now fallen to US$160 billion ($218.8 billion), which could lead to some degree of tighter financial liquidity.
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At the same time, the strength of the US dollar (USD) is a headwind for most of the emerging markets, particularly in countries such as Indonesia, Thailand and India. “As the [US] dollar keeps getting stronger at some stage, it hits a tipping point. When you start seeing more stress in the currency, central banks need to start responding,” says Gupta. Throw in Trump’s “strange” remarks into the mix, and it is not impossible to see some sharp market corrections, he warns.
Second, a stronger set of protectionist policies by the second Trump administration could disrupt global trade and weaken Asia’s export-driven economies. “If you look at Asia’s performance in the last year, it has mainly been driven by our export engine. PMIs [Purchasing Managers’ Index] were up nicely in November because exports were up and export data has been strong. But if you strip out exports and look at the underlying economies in Asia, domestic demand — domestic consumption — has been slowing,” he says.
China and to a lesser extent India are leaning more heavily on domestic consumption to drive their respective economies but the effects thus far are “not obvious”. Thus, a slowdown in the export engine on the back of tariffs could have a meaningful impact, which may then spill over back into the US. In the worst-case scenario, the world could see stagflation; while the odds are not high, it is not impossible, says Gupta.
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Finally, rising US debt levels is a long-term risk, warns Gupta. While he does not see the country reneging on its debt, the cost of debt and the yield curve could remain high, and thereby have an impact on the markets.
‘Fundamental challenge’ in China
China, meanwhile, is speaking in the “right language”, as it flags rate cuts. However, its fundamental challenge continues to be a lack of confidence among investors, entrepreneurs and the general public. “As a consequence, I think they’re finding it very, very hard to turn that ship [around],” says Gupta.
While he does not agree that China’s economy is collapsing as some doomsayers have warned, there are certain industry sectors, such as electric vehicles (EV) manufacturing, that are under growing stress. “As we speak, there are [about] 100 electric vehicle companies in China. Not all of them are going to survive.” He adds that while there may be pockets of opportunities in China, these will take a year or two to manifest.
India, the most populous economy in the world, is likely to see a slowdown, which will be “palpable” in consumption demand and consumer credit. Meanwhile, Southeast Asia is a “mixed bag”. While Singapore had a “fantastic” 2024 with GDP growth outperforming expectations at 4%, Gupta predicts a slowdown in 2025 compared to last year.
At the same time, neighbouring Malaysia is going “gangbusters” drawing in lots of investments especially in the electronics sector and data centres. Indonesia, under a relatively new administration, remains “uncertain” and seems to be “stumbling a bit” particularly in the context of the automotive sector.
Sports, a game-changer
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DBS has some relatively offbeat ideas for investments. Citing well-watched events such as the FIFA World Cup, the Tour de France and the National Football League (NFL) in the US, the DBS CIO team sees significant growth thanks to live-streaming, increasing enthusiasm for women’s games, youth sports and e-sports.
According to Statista, the global sports market revenue stood at US$463 billion in 2024 and is expected to grow at a CAGR of 7% to reach US$862 billion by 2033. “The scarcity of sports franchises, totalling only 153 in America, enhances their desirability, in turn, driving impressive growth rates,” says the bank’s chief investment officer Hou Wey Fook.
On average, leagues such as the National Basketball Association (NBA), NFL, National Hockey League (NHL) and Major League Soccer (MLS) have seen their franchise values compounding at an annual growth rate of 11.8% in the past 12 years.
As such, the allure of these investments is stable, with recurring income derived from broadcasting rights and sponsorship deals that are typically long-term in nature. “As a result, they demonstrate low correlation to traditional asset classes and equities, and [are an] essential attribute to any portfolio as they will increase overall resilience,” Hou says.
While a lot of these investments are in private assets, retail investors may take advantage of the trend by buying into beneficiaries such as Big Tech, given the digitalisation of sports and many other activities. Retail investors may also buy into the sports industry through consumer discretionary or tech funds to assess the growing theme, says DBS.
To help flag this point, English former footballer Michael Owen made an appearance at the event. The 45-year-old noted that the introduction of sports science was pivotal for him and for football in general.
“Sports science is the single most [important] thing that has changed football in the last 20 years. That was a real game-changer in my game. It was great for me,” he reflected.
Now, as a racehorse breeder and owner and also a sports pundit and commentator, Owen sees data and how the world uses data and technology as “really important”. “In my life, data — analysing [it] and using it to your advantage, and the technology — is the biggest game-changer for both [football and my business],” he said.
An ‘unusual’ and ‘strange’ place
Reflecting on 2024, Gupta said that he made some right calls — including fewer rate cuts than expected. He had predicted “relatively” strong growth for Japan and India, which turned out to be the case as well. He also recommended a diversified portfolio mix of equities and bonds where bonds will do well in the event of lowered yields. He expected equities to do well too.
Gupta acknowledged that he was off the mark when it came to the US market, which was “toppish” and in contrast, emerging markets would have done better. “As it happens, the US market outperformed everybody else,” he says.
But the best performer last year was the share price of DBS Group Holdings itself, which delivered gains of more than 50% to its happy shareholders and, together with the other two banks, lifted the Straits Times Index to a near record high. Gupta could not resist a quip though, that the bulk of the gains were made after he announced his retirement last August: “I’ve tried to do a lot of things for the bank, but the best thing I’ve done, so far, is announce my retirement.”
