Investors consider the phase of an economic cycle and calibrate their position accordingly. Christopher Forbes does too, but he does not oversimplify the market conditionalities or what will be the most suitable investing behaviour. The head of CMC Invest Singapore, and a member of its Board of Directors, Forbes pores over asset prices, interest rates, and political cycles before he decides what is thematic.
“If we look at the interest rate cycle, we are very clearly at the top,” he says, citing that we know this to be true because, “at least in Singapore and the UK, the US interest rates have gone up from zero to 5%, and even 8% in some other countries.
“We've just started to see New Zealand and some European countries cut interest rates for the first time,” he points out. “We've also seen the UK inflation data come in at 2%, which is basically what the government target was, albeit the policy rates are significantly higher.”
But how should a layman read these complex data? It depends on the phase of an economic cycle, when expansion, peak, contraction, and trough set in. In the late cycle, for instance, economic activity often peaks, growth slows down, and yet may remain positive. This provides an indication of where the opportunities lie, and in turn what to buy and what to let go.
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“You are physically losing money every single day on a real basis - ‘real’ being inflation-adjusted basis. The only way you can stem the losses is by investing. If you hold it in cash, which is unfortunately what a lot of Singaporeans do, you will lose money.”
But it is not as simple as it appears, Forbes cautions. Other forces at work may hasten or delay the movement of the cycle. “The whole world cuts interest rates once the Fed (US Federal Reserve System) has done so,” he affirms. “Some smaller countries have gone ahead and taken a risk, but the fact is that governments talk to one another. Central banks are famous for talking to each other. Why? Because policy decisions are a global thing. No one wants a strong currency, so they all coordinate. Otherwise, the interest rate differentials will drive currencies. My view is that the US is still watching its data.”
Forbes looks at the US regional banks as a good proxy for interest rates. “I know (from looking at them that) there's unemployment, inflation, and so on. If I just look at the price charts, it tells me that the sector is rolling over. But it has rolled over already – past tense. Part of that is because of policy rates.
“Innovation fuels the economy and keeps it running," Forbes theorises. "Whoever leads in innovation dominates the global economy. Everything in the world, rightly or wrongly, revolves around the US,” he says. “I don't agree with that (personally),” he qualifies, “but it's how the world works: The US innovates, Europe regulates, and Asia imitates.”
To back up his theory, he cites how the US empowers its businesses to grow their way out of crises quickly. “Europe, on the other hand, regulates the hell out of the world. Look at the French elections right now, the German coalition party, look at Spain. They are obsessed with regulation, by giving in to the minority.”
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Where Opportunities Lie
A person with S$5 million in the bank today will find its value going down every day. “You are physically losing money every single day on a real basis — ‘real’ being inflation-adjusted basis. The only way you can stem the losses is by investing. If you hold it in cash, which is unfortunately what a lot of Singaporeans do, you will lose money.”
Forbes sees wisdom in putting money into gold as an inflationary hedge, into property which, despite appreciation or depreciation, will still provide yield from rental, or the stock market.
There are also underrated opportunities worth looking into. “At a country level, assuming we’re outside of the US, I still love India. It offers probably the biggest and best long-term opportunity in the world.”
He also finds China in a rather interesting situation now. “They've had a horrible time deleveraging. The real estate cycle, governance, the education sector – they’ve all been awful. That's a perfect storm for positive outcomes for investors. There's been a lot of pain there. The incremental seller, which is effectively a US fund, is now gone. If you held Chinese paper AI bonds or Chinese equities, you've basically been told to sell.
There's not much more selling pressure in my view, and therefore, that's quite interesting that China (and Hong Kong) could outperform. I think we're almost there.”
Some of the price charts of the Chinese real estate sector, even Google and the Hang Seng Index, look pretty good, Forbes points out, adding that the next six to 12 months look positive.
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Going by the sectors, Forbes finds the energy transition to be the big theme. “It doesn't even have to be AI,” he emphasises, “but electric cars and data centres. You and I can't work without data centres. Everything you and I do now is held in the cloud—no longer on traditional fibre optic cables and a server. It's all set in a cloud somewhere, which is basically a desert in the middle of nowhere that relies upon electricity.”
With petrol no longer feeding the production of electricity, and with nuclear and renewable gas being their chief source, Forbes finds continuing interest in sustainability. If the world wants to be ESG-friendly and avoid the high cost of carbon offsetting, incremental energy output gains new importance. “I think energy transition to renewables to, dare I say it, nuclear, is a very viable option. It's expensive option, but a very long-term one.
“I think robotics are here to stay,” he adds. “It’s going to continue and grow really big. I still think health tech and biotech are at the start and no one's talking about it,” he concludes, giving on hint to what will become a big thing next.
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