KGI Asia: Market volatility still exists, can increase defensive stocks

According to the information from Wisdom Financial APP, KGI Asia stated that the poor US non-farm data has increased market concerns about economic slowdown. However, with the ISM service industry and initial jobless claims numbers better than expected, investors' worries about a recession have eased slightly. The focus will now shift to the US election, geopolitical conflicts, and the speed of economic downturn. Considering the economic slowdown and ongoing market disruptions, investors can increase defensive stocks in the stock market and adopt a diversified strategy. In terms of bond market investments, it is advisable to increase allocations to high-quality bonds when interest rates rise.

Regarding the bond market, KGI Asia pointed out that high-quality bonds, such as US treasuries and investment-grade bonds, often perform well during recession periods. The possibility of the economy entering a recession still exists, with some investors even questioning whether the Fed has waited too long to cut interest rates. On the other hand, Berkshire Hathaway significantly reduced its holdings in Apple Inc. (AAPL.US) in the second quarter while continuously increasing its holdings in US short-term debt. This move is seen by market participants as Buffett being concerned about a US economic recession, as Buffett has previously stated that he would buy short-term Treasury bonds during an economic crisis.

Currently, data reflects a 100% probability of a rate cut in the US in September, with a 1% rate cut expected next year. The increasing expectations of a rate cut in the US have led to a decline in yields on US government bonds of different maturities. As of August 9th, the yields on 2-year and 10-year government bonds were around 4.05% and 3.93% respectively, a decrease of about 56 and 35 basis points from a month ago.

KGI Asia further mentioned that the decline in yields supports an increase in bond prices, with investment-grade bonds performing well recently, especially during the global stock market pullback. The consensus is that the direction of US government bond yields is downward, and the recent alleviation of concerns about an economic recession has led to a slight rebound in yields. It is recommended to first allocate to medium-term bonds to lock in profits, and for long-term bonds, the allocation should be based on the investor's risk tolerance and positioned after a rebound in yields.

In terms of the stock market, some market participants believe that Chinese and Hong Kong stocks are at historical lows, while US, European, Japanese, and Taiwanese stocks are at highs. Funds may flow from overvalued markets to undervalued markets, including the Hong Kong stock market. However, it is important to note that this week is a heavyweight technology stock earnings period in Hong Kong, and performance expectations may influence the overall market. Caution is advised when deploying strategies, and maintaining a globally diversified portfolio is recommended