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Phillip: Three Investment Ideas For 2015
Aspire, Hot Picks | 05 February 2015
By: Lim Si Jie
Articles (169) Profile

US Fed’s Dovishness Likely To Benefit US Dollar
The US dollar has been rising steadily against most currencies in the past few months, including against the Singapore dollar. Phillip believes that this trend is likely to persist in 2015.

Why? The reason is simple. The US Federal Reserve System (Fed), which decides on issues such as monetary policy, interest rates and money supply, is set to remain dovish.

What Are Doves?
Doves prefer low interest rates as a means of encouraging growth within the economy because this tends to increase demand for consumer borrowing and spur consumer spending. As a result, doves believe the negative effects of low interest rates are negligible when viewed against the big picture.

New Interest Rates Forecasts Still Low
The current interest rate projection for end 2015 is between 1.25 and 1.5 percent, which is still rather low compared to historical standards before the 2008 financial crisis. Historical interest rates during the economic boom went as high as 5.25 percent, which is the Fed’s long term ideal percentage.

Hedging Against Slowing Appreciation
The outlook for inflation in Singapore has since shifted significantly, largely due to the decline in global oil prices. The Monetary Authority of Singapore (MAS) will be adjusting its monetary policy and could look to slow the appreciation of the Singapore dollar.

The current USD/SGD spot rate is about 1.35. The US dollar seems to be a safe investment against the imminently “weaker” SG dollar. This thus forms the first investment idea put out by Phillip. That is to BUY the US dollar.

US Indices Looks Set For Positive Gains
Even with hikes in the interest rate, rates continue to be at low levels. US bonds still look expensive for 2015. Investors are likely to invest in other asset classes, i.e. Equities.

The Top Down Approach
Europe continues to be bugged by poor growth, QE fatigue and Greece threatening to leave the EU. On top of that, the market is still unsure how long Russian reserves can hold out in defending the Ruble.

If Russia defaults, the European market will be the first casualty.

The Japanese market does not look like the region to invest in as Japanese stocks continue to be weighed down by the strong US dollar. The fact remains that while a weak Japanese Yen is good for exporters there, the weaker Yen translates to smaller capital gains or dividends when converted to the home currency.

Recovering US Economy
The US economy is recovering as data of strong non-farm hiring and falling unemployment claims signal an improvement in the US labour market. The Dow is on a strong uptrend and could reach 20,000 points in 2015. Thus, the second investment idea that Phillip mentioned was to go LONG on US equities.

Outlook 3: Emerging Markets (EM) Might Surprise
Despite early season problems, three emerging market (EM) indices managed to outperform the S&P 500. China A50 managed to record gains of close to 63 percent while India Nifty managed close with up to 30 percent of gains.

Source: Bloomberg/Phillip Futures

India and Indonesia have consistently beat the S&P 500 while it took a late rally for China to beat the S&P 500. EM stocks do have the potential to deliver strong results despite its relative volatility.

The third investment idea for 2015 is therefore to BUY into emerging market indices such as the India Nifty and A50 China indices.

Know Your Own Risk
Be it for traders or investors, it is good for portfolios to have exposure to emerging markets to diversify. However, it is important to understand your own risk aversion before you place a portion of your portfolio in a specific asset class. Exposure to emerging market assets can be rewarding but it does carry higher risks than major indexes.

Si Jie is no stranger to investing having started his journey at a young age. He is heavily influenced by acclaimed investors such as Benjamin Graham, Peter Lynch, and John Rothchild.

Please click here for more information about this author.

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The Shares Investment editorial team welcomes constructive feedback on our coverage and content. We would also be delighted to answer any questions on the above article. Leave us a comment below, and we'll get back to you shortly!

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