Tactical Positioning

Currently, government bonds are either generating low returns or suffering under the European debt crisis. Although interest rates will remain low at least over the short term, we have nonetheless slightly moderated the underweighting in our EUR and USD mandates.

Owing to their higher yields and solid fundamentals, we prefer non-financial corporate bonds over government bonds.

The duration of the bond portion remains slightly shorter than the benchmark.

Credit risks on high-yield bonds are still attractive, so we remain modestly overweighted.

In our EUR-based mandates, we continue to be tactically positioned in Norwegian and Swedish bonds.

On a risk-adjusted basis, emerging-nation bonds in hard currencies appear to be attractive at present. Accordingly we are overweighted in this segment.

Uncertainties surrounding the European debt crisis persist, thus we are maintaining our equity quota at the existing strategic level.

We continue to prefer North America over the Asia/Pacific region. We are neutrally weighted in Europe and the emerging markets.

Our balanced sectoral positioning remains unchanged in North America as well as in Europe. We still advise against positioning in cyclicals.

In terms of real estate, hedge funds, listed private equity and commodities, we consider a neutral quota to be adequate.

Out of risk considerations, we are slightly overweighted in commodities. They afford a certain degree of inflation protection and reduce the overall portfolio risk thanks to their negative correlation characteristics.

Convertible bonds are attractively valued at present. They participate in rising stock markets but, thanks to their bond-like nature, offer a buffer against price declines. Here, we are hiking both our opinion and investment quota.

The SNB will defend the 1.20 floor in EUR/CHF. For now, we consider it rather unlikely that CHF will depreciate even more against EUR. However, we continue to forego hedging a portion of the EUR and USD positions. On the other hand, the CHF positions in our EUR-based mandates remain 100% hedged.

The Fed’s persistently expansive monetary policy, coupled unfortunately with enormous government budget deficits, has long prevented a sharper appreciation of USD versus EUR. The mood vis-à-vis EUR has soured again of late. That, together with improved undamental data out of the States, has put further pressure on EUR/USD. However, over the near term, the record-high net short position in the futures market harbours the risk of a temporary correction in USD. The growth prospects for the USA are clearly better than those for the euro zone, so that is something that argues in favour of USD in the longer run.

VP Bank (Singapore) Ltd.

9 Raffles Place

#49-01 Republic Plaza

48619 Singapore

Tel +65 6305 0050
Fax +65 6305 0051