DBS Group Holdings Ltd · SGX:D05
DBS — Q2 2020 Earnings Presentation
21 slides from DBS's earnings presentation, 2020
Slide 1: Build to Last: 2Q20 Market Outlook
Build to Last 2Q20 MARKET OUTLOOK Source: Envato
Slide 2: Equities in capitulation mode
Equities in capitulation mode 2.5 Greed & Fear Indicator NY Fed Prob of Recession in US Twelve Months 50 Ahead Predicted by Treasury Spread 45 2.0 40 35 1.5 30 25 1.0 20 15 0.5 10 5 0.0 0 Feb-90 Feb-00 Feb-10 Feb-20 Mar-90 Mar-98 Mar-06 Mar-14 Source: NY Fed, Bloomberg, DBS
Slide 3: 2Q20 CIO Framework
2Q20 CIO Framework Equities Bonds Score Categories Indicators Range Europe Japan AxJ DM Govt. DM Corp. US Equities EM Bonds Equities Equities Equities Bonds Bonds PMI -1 to +1 -1 -1 -1 -1 0 0 0 Economic surprise -1 to +1 -1 -1 -1 -1 0 0 0 Fundamentals Inflation -1 to +1 1 1 1 1 1 1 1 Monetary polici
Slide 4: Equities in bargain territory?
Equities in bargain territory? S&P 500 - Forward P/E (x) Average 27 25 23 21 19 17 15 13 Valuation for S&P 11 500 has fallen 9 below long-term Feb-90 Feb-00 Feb-10 Feb-20 average Source: Bloomberg, DBS
Slide 5: Widening yield gap
Widening yield gap 6.0 Equity-Bond yield gap (%pts) 5.5 5.0 4.5 4.0 Widening yield 3.5 gap between equities and 3.0 2.5 bonds strengthens 2.0 the case for future 1.5 Jan-14 Jan-16 Jan-18 Jan-20 portfolio shifts into equities Source: Bloomberg, DBS
Slide 6: QE Infinity to support equities
QE Infinity to support equities 3,500 US Equities (LHS) US Federal Reserve - Total Assets (USD t, RHS) 6 3,000 5 2,500 4 2,000 3 1,500 2 ▪ Open-ended 1,000 commitment 500 1 ▪ Unprecedented move to buy IG 0 Dec-94 Dec-99 Dec-04 Dec-09 Dec-14 0 Dec-19 bonds and ETFs Source: Bloomberg, DBS
Slide 7: US Policy Stimulus
US Policy Stimulus Global Financial Crisis vs. COVID-19 Crisis 3,500 2.0 (USD t) (USD b) 3,000 1.5 2,500 2,000 1.0 1,500 0.5 1,000 500 0.0 Fiscal Stimulus Package - Fiscal Stimulus Package - 0 Global Financial Crisis COVID-19 Crisis QE1 QE2 QE3 Latest QE* Source: Bloomberg, DBS
Slide 8: Awaiting catalyst
Awaiting catalyst 18,000 5.5 Global (ex-China)* new COVID-19 cases (LHS) China new COVID-19 cases (LHS) 16,000 HSCEI rel. to DM equities (RHS) 5.3 14,000 12,000 5.1 10,000 4.9 8,000 Average daily 6,000 4.7 recovery rate has 4,000 superseded 4.5 2,000 the average daily 0 4.3 new confirmed Jan-20 Sour
Slide 9: Bonds: Favour BBB/BB+ and Asia Credit
Bonds Favour BBB/BB+ and Asia Credit
Slide 10: Fast and Furious
Fast and Furious Unprecedented velocity of US corporate credit spread widening in 2020 2000-2002 2007-2008 2011 2014-2016 2020 (current) 600 Spread change from trough to peak (bp) 500 400 300 200 Recent spread widening driven 100 more by liquidity 0 than solvency concerns 0 100 200 300 400 500 600 7
Slide 11: Divergence, Big Time
Divergence, Big Time 8 6 4 2 Price divergence 0 -2 from NAV of iShares -4 iBoxx IG Corporate Bond ETF the -6 largest in last 10 -8 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 years Source: NY Fed, Bloomberg, DBS
Slide 12: Repercussions of Regulations
Repercussions of Regulations Total size of US Corp. debt has risen while Primary Dealer Inventory has declined substantially post GFC Primary Dealer Inventory (LHS) MV of US Corp. debt market (RHS) 300 7 6 Rapid rise in size 250 and complexity of end users 5 200 USD'trillion USD'billion 4 150 3 Eros
Slide 13: Credits in moderate growth
Credits in moderate growth Credit spread sensitivity to rate of change in q/q GDP growth (since 2003) US IG BBB US HY BB B CCC 60 40 Median Quarterly Spread Change (bps) 20 0 -20 -40 Credits have -60 exhibited resilience -80 in a moderate < -2.6% -2.6% to - 1.5% -1.5% to - 0.2% -0.2% to 1.0% 1.0% to
Slide 14: Asia HY; Attractive valuations
Asia HY; Attractive valuations US HY/IG Asia HY/IG LATAM HY/IG 5 4.5 +31% 4 Multiple (x) 3.5 -7% 3 -27% 2.5 HY/IG multiple 2 trades 31% 1.5 higher than its 2012 2013 2014 2015 2016 2017 2018 2019 2020 long-term average Source: Bloomberg, DBS
Slide 15: Barbell Strategy
Barbell Strategy GROWTH INCOME Digitalisation REITs Millennial Wave BBB/BB Bonds China Equities China Banks Healthcare Hybrid Securities Oil Majors
Slide 16: Secular Growth Themes
Cloud e-Commerce 5G Computing Secular Growth Themes Aging Millennial Population Semicon Wave 16
Slide 17: Gold: Resilience
Gold Resilience Source: Unsplash
Slide 18: Gold vs. Bond Yields
Gold vs. Bond Yields USD/oz Gold price (LHS) UST 10Y (Inverse, RHS) % 1,900 1.0 1,800 1.5 1,700 1,600 2.0 1,500 2.5 1,400 1,300 3.0 Opportunity cost 1,200 of carrying gold 3.5 1,100 close to none as 1,000 4.0 bond yields get lower 2011 2012 2014 2016 2018 18 Source: Bloomberg, DBS Source: : AFP
Slide 19: DBS CIO Asset Allocation
Cash 7% Hedge Funds US Equities 7% 27% Gold 9% DBS CIO Asset Allocation Europe Equities EM Bonds 4% 15% Japan Equities 2% AxJ Equities DM Corp. Bonds 17% 10% DM Govt. Bonds Source: DBS 2%
Slide 20: CIO Insights: Build to last
Build to last • Quelling Black Swans • Mind the Gap • Barbell for resilience • Value in BBB/BB+, Asia Credit CIO Insights 20 2Q2020
Slide 21: Disclaimers and Important Notes
Disclaimers and Important Notes This information herein is published by DBS Bank Ltd. (“DBS Bank”) and is for information only. This presentation is intended for DBS Bank and its subsidiaries or affiliates (collectively “DBS”) and clients to whom it has been delivered and may not be reproduced, tran