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Seizing opportunities in short-term investment amid a slowing economy

Sabrina Loh
Sabrina Loh • 5 min read
Seizing opportunities in short-term investment amid a slowing economy
Singapore’s economy expanded by a slightly more modest pace than initially expected in 2023, as manufacturing activity contracted while services grew / Photo: The Edge Singapore
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In December 2023, the Monetary Authority of Singapore (MAS) disclosed its quarterly survey of professional forecasters, revealing a lower economic growth projection of 2.3% in 2024, down from an earlier prediction of 2.5%.  

Expecting tighter financial conditions to dampen consumption and investment sentiments regionally, coupled with escalating geopolitical tension, Singapore’s growth outlook will be constrained by weakening external demand.

Amid economic uncertainty, higher market volatility in risk assets and the highest inflation levels in decades, cash deposits face challenges in providing a positive absolute return over the extended horizon.

To navigate these challenges, investors stand to gain by adopting a defensive approach with an allocation to short-term instruments portfolios as their prices are less sensitive to sharp swings in interest rates, serving as a hedge against inflation.

Curbing inflationary pressure and maintaining the Singapore Dollar (SGD)
In the October 2023 Monetary Policy Statement, MAS left monetary policy unchanged, maintaining the existing width, slope and level of the Singapore dollar nominal effective exchange rate (S$NEER) policy band.

See also: Lombard Odier sees three rate cuts for 2H2024, stays neutral on equities and overweight on fixed income

Given the prevailing downside risks to growth, the presence of negative imported inflation and the impact of past policy-tightening measures in slowing down price growth, MAS deemed the existing policy stance sufficient to sustain medium-term price stability.

Consequently, the Singapore dollar (SGD) maintained its strength while the US dollar (USD) weakened against the SGD. The USD Spot Index further declined in December, starting the month at 103.49 and ending at 101.38.

See also: Look out for rotation from growth into value areas for 2H2024: IG Asia strategist


Market liquidity condition
In the last quarter of 2023, Singapore’s overall liquidity conditions remained unchanged. Notably, the yield curve of Singapore Government Securities (SGS) exhibited a reduction in its inversion. Meanwhile, despite the absence of a rate hike in November 2023, there was an established consensus within the US Federal Reserve that a restrictive monetary policy would need to remain for the time being.

The current economic data from the US is promising, with US labour markets holding up well, and inflation showing signs of moderation. In the latest revision of 3Q2023 GDP growth, the US economy registered an impressive 4.9% gain over the previous year.

Market participants are cautiously optimistic about the prospect of a soft landing. If inflation continues its downward trend and meets the Fed’s 2% target without causing severe damage to the US economy as it currently indicates, the yield curve is expected to return to normalcy, boding well for bond market performance.

For December, US 10-year treasury yields ended at 3.88% and a similar pivot towards normalcy is anticipated for the SGS yield curve, following market confidence that inflation will decelerate into the target range of 2%–3% within 2024 in the US.

Seek to reserve monies and get enhanced yields in short-term funds
When allocating funds for short-term investments, the objective is to identify a secure haven for preserving capital while maintaining liquidity. In recent years, we have witnessed the fastest escalation of interest rate rises since 1981, driven by the Fed’s ongoing fight against inflation.

For more stories about where money flows, click here for Capital Section

This dynamic environment has heightened the appeal of short-term bond investments with attractive yields. Consequently, investors are enjoying meaningful yield levels from short-term instrument portfolios.

At the time of this writing, yields on the composite short-duration SGD and USD corporate/government bond portfolios are approximately 4% and 5% respectively.

Strategy and approach of Phillip Capital Management
In response to the current market dynamics, Phillip Capital Management (PhillipFunds) has launched our first short-duration bond fund with a focus on environmental, social and governance (ESG). Notably, the yield curve between the two-year and 10-year Treasury notes inverted since July 2022, serving as an indicator of the spread between short-term and long-term Treasury Securities.

Consequently, short-term investments aim to minimise risk while concurrently offering relatively higher returns compared to long-term bond investments.

Safety is deemed as the most important factor for investors in a short-term investment. We look at the credit fundamentals of Singapore investment-grade corporate bonds which have strong credits given their healthy corporate balance sheets even amid slow economic growth. These investment-grade corporate bonds currently offer good value.

PhillipFunds has been managing one of the largest SGD money market funds in Singapore for more than 20 years with zero credit default. Being located in Asia, the centre of the major growth regions worldwide, provides us with a unique perspective on both opportunities and challenges facing companies in each market.

PhillipFunds was incorporated in 1999 as a fund management company with a network across the region including Singapore, Thailand, Australia, Hong Kong, Indonesia and London. PhillipFunds’ products and asset classes include unit trusts and exchange-traded funds investing in equities, bonds and the money market. Our investment teams are local participants in the capital markets, providing insight into hyper-local investment situations.

Simultaneously, we collaborate across the region to share ideas and learn from each other. A member of PhillipCapital, PhillipFunds has an established track record managing funds investing in the Asia Pacific region and globally, having won fund awards from Standard & Poor’s, Lipper and Singapore Exchange S68 -

. PhillipFunds has been managing one of the largest SGD money market funds in Singapore for more than 20 years with zero credit default. For more information, visit

Higher yields with limited risk — this is the combination that investors consistently seek. There is a strong case for a significant allocation of a portfolio to short-duration bonds, given the rise in yields over the last one or two years. The yield-curve inversion further stresses the advantageous position of short-duration bonds at the lower maturity spectrum. Furthermore, the risk/reward trade-off is superior too, given the reduced sensitivity of short-duration bonds to interest rate movements, potentially mitigating interest rate risk.  

Sabrina Loh is the director of fixed income, at Phillip Capital Management(S)

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