Recent sharp market turbulence is to be expected as the US Federal Reserve signals a slowdown – or “taper” to its money-printing but the case for being bullish on equities in the medium term remains, argues Bank of Singapore.

In its monthly newsletter, BoS notes that June was a torrid month for risk assets: global equities fell by 2.6 per cent; US equities were down 1.5 pr cent, European stocks fell 5.1 per cent, and Asia equities fell by 6.2 per cent. Investment-grade corporate bonds slipped by 2.4 per cent while high-yield bonds fell by 4.0 per cent. On the other hand, Japanese equities gained by 1.6 per cent in June from May.

“To us, this correction is an adjustment process in which investors are coming to terms with the withdrawal of easy money. Investors need to realise that a Fed QE exit is not a bad thing since it reflects that the US economy is on a firmer footing,” the Singapore-based bank said.

BoS said it remains overweight equities, high-yield deb, and is underweight investment grade bonds and cash.

A number of wealth management houses have issued mid-year investment strategy updates, in most cases remaining upbeat about equities in the long run but also suggesting that further turbulence lies ahead when the full reality of an end to US monetary easing sinks in.

“Strategically, we remain positive on equities. Growth is recovering and inflation still benign. Valuations are less attractive given the sharp rebound but remain supportive. Also, markets seem to be over-reacting to the prospects of tapering ,” the bank said.

The US and Japan are BoS’s favoured equity markets, and it is becoming more positive on Europe, as the macro-economic outlook improves, it said.

On currencies, BoS is sticking to its 12-month forecast that the dollar will rise to 110 against the yen and be at 1.24 against the euro. On the other hand, its forecasts for emerging market currencies and commodities have been cut back, given the prospects of a more hawkish US Fed and the weakening outlook for China.

The prospects for the end of QE by the US Fed also means BoS is affirming its negative forecast on gold and silver; it sees gold, on a 12-month view, at $1,150 per ounce, a conservative stance as BoS regards gold at fair value under $1,000.

In the developed markets, where prospects are improving – and therefore positive for cyclical stocks – the bank’s 10 “top investment ideas” are: FedEx; Nissan; Oracle; Vontobel US Value Equity Fund; Neuberger Berman US Multi Cap Opportunities Fund, Henderson Global Technology Fund and JP Morgan JF Japan Equity Fund. Three remaining ideas in the list from the Asia-Pacific region (ex-Japan) are: Keppel Corp; Samsonite and Sands China.