Mon, Jul 17, 2023 page12

• PIMCO advisor Clarida shares insights into H2

  • Staff writer
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  Pacific Investment Management Co (PIMCO) global economic advisor Richard Clarida on Friday gave a speech at an investment forum in Taipei organized by Cathay United Bank (國泰世華銀行), sharing insights into the global economic situation in the second half of the year.

  Clarida, former vice chairman of the board of governors of the US Federal Reserve System from 2018 to last year, said the Fed’s interest rate-hike cycle is expected to come to an end during the second half of the year, but there are still three potential risks that investors need to pay attention to.

  This is the second time a retired Fed official has come to Taiwan to give a speech since 2015, when former Fed chairman Ben Bernanke visited the country.

  

  From left, Cathay United Bank chief economist Lin Chi-chao, Pacific Investment Management Co global economic advisor Richard Clarida and Cathay Life Insurance Co senior vice president Wang Yi-tsung pose for a photograph at an investment forum in Taipei on Friday.

  Photo courtesy of Cathay United Bank

  After the address, Clarida also joined a panel discussion with Cathay Life Insurance Co (國泰人壽) senior vice president Wang Yi-tsung (王怡聰) and Cathay United Bank chief economist Lin Chi-chao (林啟超) regarding the global economic outlook and future investment strategies.

  Hundreds of Cathay United Bank customers participated in the forum, while tens of thousands also watched the event online, the bank said.

  Cathay United Bank said that market fluctuations are inevitable in the second half of the year, but investors are advised to target sectors that are poised to benefit from recovery opportunities next year, including artificial intelligence (AI) technology and new energy industries.

  Clarida said he expected the Fed to raise the federal funds rate to 5.5 percent at its policy meeting this month.

  If upcoming data continue to show a strengthening US economy, the Fed would likely maintain its hawkish stance and continue to raise rates one to two times before ending this rate-hike cycle, he said. It is unlikely that the US central bank would cut rates by the end of this year, he added.

  In terms of investment strategies, Clarida suggested investors adopt a more defensive stance after the hawkish moves by global central banks last year.

  A high-quality and defensive bond investment portfolio is expected to have an initial yield of more than 5 percent, he said, adding that high-quality bonds have regained investors’ attention as they boast of similar return potential but are less volatile than equities.

  Wang offered his views from the perspective of monetary policy, saying that when central banks no longer raise rates aggressively, the risk of a hard landing on the economy would be reduced.

  But the longer the high interest rate environment lasts, the less likely the economy is to show a strong expansion, he said.

  In terms of asset allocation strategies, Wang said companies within industries that have clear prospects are more likely to provide investors with the desired profit growth, and those with quality profits and better finances are also more resistant to the downside risks of the business cycle driven by high interest rates. Industrywide, AI-related technology and new energy appear to be among the most favorable investment targets, he added.

  Regarding the strength of the US dollar and the challenges facing the greenback hegemony, Lin said the Fed’s monetary policy might affect the performance of the US dollar in the short term against the backdrop of international political and economic situations.

  However, in the long term, the world economy is still centered on the US dollar in terms of the economic scale, foreign exchange transactions and performance of various currencies, he said.

  The New Taiwan dollar has performed relatively weakly against the US dollar so far this year, affected by the country’s slowing exports and manufacturing activities, especially the semiconductor industry which is still in the process of bottom-building.

  However, as the US’ interest rate hike cycle is coming to an end, and Taiwan’s manufacturing sector is entering the traditional peak season in the second half of the year in preparation for replacement demand for consumer electronics next year, the outlook for the NT dollar seems positive, Lin said.

  Lin also reminded investors of the risk of the stock market overheating with the potential fluctuations in the short term, but added that any pullback in the market could serve as an opportunity for investors to build on a new, more sustainable footing in the long run.
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