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Global ETF Opportunities in Australia, Japan, UK and US

by DBS Vickers Securities

Look beyond the Singapore turf, as having diversified exposure is an effective way to ride out downturns in different market cycles. To do so, investors can consider exchange-traded funds (ETFs) to gain broad market exposure instantaneously. Traded like stocks on key stock exchanges, ETFs are cost-effective tools for investors looking to construct a diversified portfolio, in terms of geography, market capitalisation, industry sectors, asset quality, or duration. Over the past 23 years, the asset class has been fast evolving and today, the vast array of ETFs covers almost every conceivable market sector, including fixed income, balanced assets, and commodities – all of which have been well received by investors.

To help investors tap global investment opportunities, DBS expanded its global coverage to include ETFs that are listed in Australia, Japan and the UK. Voted the Best ETF Broker in Singapore in 2015 and 2016, DBS has a specialised in-house research team that provides house views and ratings on over 70 ETFs listed in Singapore, US, Hong Kong and other key stock exchanges. These ETFs are exposed to developed and emerging countries, new frontiers, as well as other asset classes like bonds, gold and oil. In this article, DBS regional equity strategist, Joanne Goh, shares her views on ETF opportunities.

Australia: Opportunities in resources, banking and commodities sectors

2016 GDP growth in Australia is expected to be around 2.9 per cent – a level that is similar to last year’s trend forecasts. So far, the Reserve Bank of Australia (RBA) has kept cash rate steady at a record low of 1.5 per cent, following two rate cuts this year. The RBA is mindful that it needs to strike a balance between meeting its inflation target, guarding against fuelling a housing bubble and avoiding from pushing rates too low for savers.

The Australia market trades at 16x 12-month forward PE multiple and pays about 4.4% dividend yield. The performance of Australian ETFs has been quite flattish as global banks, including those in Australia, are affected by global low bond yields, as well as a de-rating in European banks’ valuations. Notwithstanding this, resources sector ETFs have performed well year to date. Investors may also consider ETFs that tap opportunities in the banking and commodities sector.

Japan: Further easing likely; strong interest for ETFs that track market indices

Into its third year, “Abenomics” continues to tackle Japan’s long-term deflation with the twin easing of monetary and fiscal policies. The economy is expected to grow at around 0.6 per cent this year and the next. Although downside risks to the near-term growth outlook have somewhat eased due to the cyclical recovery in the global electronics sector, the private sector remains cautious. To provide continued support to the mild recovery, Bank of Japan is likely to maintain a dovish tone, and explore the possibility of further easing.

The most actively traded ETFs in Japan are the ones exposed to the broad market indices such as Nikkei225.

UK: Focus on UCITS-compliant ETFs with global exposure

Given the post-Brexit uncertainties over trade and financial relations with European Union and the rest of the world, UK’s GDP growth is expected to be at around 1.8 per cent, down from 2.3% in 2015. The GBP/USD has plunged from its high of 1.5018 to near 1.20. The markets are expecting Bank of England to keep policy conditions accommodative. Meanwhile, the UK stock markets hit an all-time high in October as a weak GBP should benefit companies with overseas earnings. Other than gaining exposure to the UK market itself, investors may consider UK-listed, UCITS-compliant ETFs that have exposure to the global markets. UCITS-compliant funds benefit investors as they are generally not subject to withholding tax on dividends.

US: Opportunities in the Trump era

Following Donald Trump’s surprise win in the presidential election, markets are focusing on policies which the President-elect has promised during the campaign. These include tax cuts for individuals and businesses through an overhaul of the Federal Tax Code; financial and energy deregulation; more fiscal measures and less emphasis on monetary tools; and greater defence spending. Pharmaceutical companies can also expect less scrutiny on drug pricing.

Against this backdrop, investors may consider ETFs that have exposure to areas such as consumption, finance, defence, infrastructure and biotech in the US.

  • Receive a S$10 shopping voucher for every S$100 commission spent when you trade in ETFs.
  • Stand to win an iPad Pro and round-trip tickets when you trade in Australia, Japan and the UK.
  • Both promotions end on 31 December 2016. For terms and conditions, visit www.dbs.com.sg/vickers/en/promotions

Call 6636 2669 or email ETF@dbsvickers.com to start your ETF investment journey today.

 
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