SINGAPORE – The Singdollar could play a significant role in currency diversification amid heightened global uncertainties, particularly for Asian investors, a Bank of Singapore senior executive said.
Global chief investment officer Jean Chia said at a mid-year outlook briefing on July 9 that Asian clients with home currencies such as Thai baht, Malaysian ringgit or Indonesian rupiah would have most of their offshore or overseas assets denominated in US dollars. “That means that you are also very vulnerable on both ends to either the home currency or US dollar.”
Noting that the Singdollar is stable and being managed against a basket of currencies of Singapore’s major trading partners, she added: “The Singdollar could be the third currency in many of your currency diversification discussions.”
She also named gold and alternatives as asset classes investors could diversify to in the face of market volatilities from US tariffs and global slowdown fears. The price of gold is up more than 20 per cent so far in 2025, she noted.
In alternative investments, Ms Chia noted that a steady stream of exits through initial public offerings (IPOs) and merger and acquisition activities in major markets could drive increased deal flow in the private equity secondaries market – which involves buying and selling existing investor commitments. “In private equity, we see a resurgence of IPOs, both in the US as well as Hong Kong and Asia. That does bode well for secondaries for private equity.”
Dr Owi Ruivivar, chief portfolio strategist at Bank of Singapore, the private banking arm of OCBC Bank, said investors often overlook uncertainty in pursuit of expected returns when managing their portfolios. “Uncertainty has never really been episodic. It’s part and parcel of what we have to deal with as investors,” she said.
In a systemically uncertain environment, she advises against building portfolios around one particular theme. Instead, build a portfolio with very unrelated or slightly related types of factors and types of asset classes and securities.
The bank launched a new asset allocation framework on July 4 targeted at helping investors build more resilient portfolios amid heightened market volatility.
The framework adopts a “robust optimisation” technique – typically used by quantitative hedge funds and institutional investors – that aims to create investment portfolios adapted to withstand uncertainties in market conditions and key inputs, such as expected returns and risks, thereby delivering more stable returns.
The framework was developed after a year-long study and stress testing of 120,000 portfolios.
This marks a departure from more conventional approaches like mean-variance optimisation (MVO) and market cap-weighted benchmarks. MVO – which requires accurate forecasts – typically underperforms when actual market conditions diverge from forecasts. Meanwhile, portfolios constructed using the market cap-weighted benchmarks approach tend to be heavily concentrated in the US market, which can be less than ideal in today’s environment.
Dr Ruivivar said portfolios that adopt the “robust optimisation” technique can deliver an average return that is sensible and attractive across different environments.
“And one where the worst outcome is actually a bit more constrained relative to other portfolios, and that’s where the robust optimisation comes in,” she said, adding that the bank is neutral on bond duration, meaning that it is not betting on interest rates going up or down significantly.
Bank of Singapore expects only one 25-basis-point rate cut in 2025 as the US Federal Reserve keeps its federal funds rate above 4 per cent to continue curbing inflation.
A longer-duration bond is more sensitive to interest rates, as there is more time for interest rates to change and impact the bond’s price, while a shorter duration bond is less sensitive to rates.
“Although we expect the Fed to cut rates later this year, there are other risks – such as heavy US government borrowing – that could keep long-term bond yields elevated and reduce the appeal of longer-duration bonds,” said Dr Ruivivar.
