Investors and traders on Moomoo Singapore are confident in making their own investment decisions and are bullish that equities — particularly those in the US — are the asset class that will outperform all others in the second half of 2024, according to the digitalised brokerage’s 2H2024 market outlook survey.
And, these self-declared user survey responses corroborate with users’ actual behaviour on the platform. Indeed, Moomoo Singapore’s clients are allocating 75% of their equities portfolio to the US market, and many have holdings in mega-capitalisation technology stocks.
Speaking to The Edge Singapore, Isaac Lim, chief market strategist at Moomoo Singapore, says that investors generally want to take ownership of their own investments. Therefore, investors have indicated that they are confident in making their own investment decisions, which does not come as a surprise, he adds.
However, Lim caveats that such optimistic sentiments often occur when the markets are moving in one direction — up. He references the S&P 500, which is up 16.10% year-to-date and has recorded new highs 38 times for this year alone. This is just like back in 2020 and 2021, when the Chinese markets were rallying and investors were bullish and confident about Chinese equities.
“From a behavioural perspective, when the markets are generally trending in one direction, we tend to see this trend of behaviour where investors are very certain of their decisions,” Lim explains. “It’s very easy for people to say that they are making money, that they know what they’re doing, and that they are investing correctly.”
While the US equities market has undoubtedly continued to outperform, Lim says that investors may be overly optimistic and cautions against taking a more nuanced approach.
A lot of the growth in the S&P 500 this year is really due to a handful of small stocks called the Magnificent 7, he says.
He cites a second-half global equities outlook table from Bloomberg, which showed that the 2024 y-o-y earnings growth estimates in the US minus the mega-capitalisation technology companies were lagging behind the rest of the developed and emerging markets. “The story is very different when you put back the technology stocks into the mix,” he adds.
A strong recurring theme around AI has caused the relationship between highly correlated markets to break down — the spread between the S&P market capitalised index and the S&P equal-weighted index has been getting wider. While this does not mean that the market will crash anytime soon, the rest of the sectors have some “catching up” to do with this basket of mega-capitalisation stocks, says Lim.
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Lim warns that investors are very focused on what they are hearing and what the media is feeding them. The chief market strategist adds that the other sectors will begin to see a catch-up with these mega-capitalisation stocks only when they start to synergise and incorporate AI technology into their products, services and infrastructure.
When the markets are generally trending in one direction, we tend to see this trend of behaviour where investors are very certain of their decisions, says Lim, chief market strategist of Moomoo Singapore. Credit: Moomoo Singapore
Complex and ambiguous market conditions
The top three investment themes that respondents are most positive about for the second half of 2024 are AI, growth stocks and value stocks. According to Moomoo Singapore, investors aged 35 to 44 are also the most likely to be enthusiastic about mega-capitalisation technology companies.
Meanwhile, the brokerage has found two key investor behaviours from the survey: almost 50% of investors intend to buy stocks on dips for the second half of the year, and about 30% are looking to increase their cash holdings.
Overall, investors remain optimistic about the US and Singapore markets, seeing them as opportunities for higher returns and portfolio diversification. With these trends in mind, Lim highlights three key factors that investors should consider moving forward: the US presidential election in November, interest rates and the potential AI bubble.
Investors should prepare for a volatile, uncertain, complex and ambiguous (VUCA) environment, a term Lim borrowed from the US Marines. He points to the attempted assassination of former US President Donald Trump, the unpredictability of interest rate cuts, and other geopolitical uncertainties as examples of this challenging landscape.
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If Trump were to become president again, Lim anticipates looser fiscal policies, as the former president has been “very vocal” about strengthening the US dollar. This could lead to increased inflationary pressures, which would be contrary to the US Federal Reserve’s efforts throughout most of 2024, he notes.
The chief market strategist notes that the outcome of the US presidential election will also influence the geopolitical tensions that are most apparent between Russia and Ukraine, Israel and Hamas, and the US and China.
Lim proposes three trading strategies for investors. First, investors should observe the US yield curve “very carefully”, particularly the two-year and 10-year US Treasury yield curve spreads, which will be a key indicator of whether there is a risk of recession.
Following the recent attempted assassination of Trump, the yield curve has begun to rise, something it has not done in the past two years. Although analysts suggest that a Trump presidency could benefit the market, they overlook the fact that the economic conditions of his first term differ significantly from those today. “I think looking at the yield curve really helps investors to be more aware of this interest rate environment, which could lead to a recession should the yield curve steepen further,” says Lim.
Next, investors should still invest in the US markets and, if possible, gain some exposure to other developed markets. Lim says that beyond the Magnificent 7, there are still “undervalued gems” in the US equities market, and a possible Trump presidency, which would involve more protectionist policies and would help consumer and industrial-related sectors.
“If investors are willing to step out of their comfort zone and look elsewhere for such opportunities, they will see that the US equities market is still the preferred way forward,” says Lim.
Meanwhile, the Japanese stock market’s overall maturity is “very developed”, and most Singaporeans would be familiar with some homegrown names such as Toyota, Honda, Suzuki and even Nintendo. “The Japanese equities market actually gives investors that diversification option, to not over-concentrate their risk in US markets,” he adds.
Bet on Singapore
Lim’s final investment strategy is to bet on Singapore. Although the local equities market is “not something that has been very exciting” for quite some time now, the chief market strategist at Moomoo Singapore likes it for being steady and stable.
The Monetary Authority of Singapore has shown strong commitment to defending the Singapore dollar through all the historical market downturns, and as investors purchasing goods from overseas, this strength against other currencies benefits them as consumers of a global supply chain.
In addition, despite the recent market volatility that the world has seen, the Straits Times Index has brought in a new five- or six-year high, Lim adds. It also has been a steady dividend-paying play, which is “not the best, but not the worst as well”.
