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In the interview with SFC, Stefanie Holtze-Jen, Chief Investment Officer for Asia Pacific Private Bank at Deutsche Bank AG, shared her insights on global market trends and investment opportunities. She pointed out that despite the challenges facing global markets, China’s economy remains resilient, particularly with ongoing fiscal stimulus measures by the government. Regarding the uncertainty surrounding the U.S. election, Stefanie noted that while the outcome could create short-term market volatility, investors should focus on the long-term fundamentals of the U.S. economy and potential shifts in monetary policy.

She also emphasized the changing dynamics of global capital flows, especially with the strengthening of the U.S. dollar, and its impact on Asian markets. Looking ahead to 2025, Stefanie highlighted that China’s economy will continue to present growth potential, with opportunities in innovation-driven sectors and green finance, which are expected to become key growth areas in the coming years.

SFC Markets and Finance: What do you think of China's recent 10 trillion RMB fiscal package? How will this plan influence China's economic recovery?

Stefanie Holtze-Jen: Allow me to expand a little bit. I think the market focuses very much on the fiscal package because it's very recent. But for me, China's stimulus plans are the entirety of everything that we saw so far.

So the first part was the structural reform package that was announced during the Third Plenum in July, and then that was followed up with the very meaningful and large monetary policy stimulus package, very comprehensive, that also had stock market stabilization measures in it, and that was in September. And then, of course, there was conversation with the market, where it was quite obvious that the market wanted to also have fiscal stimulus, because one cannot work on a standalone basis. So in that context, the first, I interpreted as a first kind of measure around fiscal stimulus, because it only really focuses a 10 trillion RMB fiscal package on relieving the fiscal pressure, the financial pressure, that pressure that is on local governments as very meaningful and important, also most importantly, it has met to some extent, headline expectations.

So what I'm impressed with is the feedback loop that right now is going on between what the government wants to deliver, vis-a-vis what the market is asking for. The market had very lofty expectations of 10 to 12 trillion RMB package, which I think was very difficult to meet, but at least a headline number of 10, whereas it's a split of six plus four, really where six is completely new money is very important and meaningful. But of course, now, and we see in the market reacting already to that, there's an expectation that the December economic work conference, hopefully even a little earlier than typically, I think it's around the 11th, 12th of December, but maybe even earlier, will give us another insight as to what is the next area of fiscal stimulus that comes along.

SFC Markets and Finance: A lot of markets' attention also goes to the result of the U.S. election. With Trump securing his victory in the U.S. presidential race, how might this shift global market dynamics, particularly for China and Asia?

Stefanie Holtze-Jen: Well, the biggest element of the U.S. election, of course, is what everybody keeps recalculating as we get more news, is the situation on the tariff implication. But having said that, it's been a subject of the first Trump administration already, it has been a subject of the Biden administration as well. So we think it's not coming as a total surprise. Of course, the extent of the tariffs, we need to wait, whether it is sticking with the 10%, comes even information on, you know, specifically, maybe the chip sector getting more.

But we have seen during the campaign, talk about 50% to 60% now the calculation that we have done around this is that most probably the impact will be watered down because the diversification of supply chains. So I think we're in the realm of speculation at this moment of time, because it's also important to understand that the new administration is not yet sworn in, so our base case is that the tariffs will only hit in the second part of next year, which is also kind of a delay response, which everyone is preparing for, because we've seen export orders from China already being front-loaded, but then again, it's also diminishing the impact for the whole year, because it will come in later.

SFC Markets and Finance: What volatility might other Asian currencies face on the back of a stronger dollar?

Stefanie Holtze-Jen: So this is very important, look at the region, because we have for a long time been in that scenario where the attractiveness of the U.S. assets, may that be the equity market or the higher for longer interest rate environment, which we've now come back to pricing in again, because, of course, more issuance in debt in the U.S., but also higher tariffs will keep inflation up and will keep rates, ultimately, also higher for longer. That is putting pressure on all the currencies in the region. So that means for central banks in the region, there is less of opportunity window to take rates down and stimulate their own economy.

Now, I think China as a separate discussion, because, as we said, initially, they're having a full-fledged stimulus agenda, which is very methodical, very systematic, in turning around the domestic situation. The rest of Asia really, will have to continue to balance weak currency. It could be a negative feedback loop in terms of attractiveness of your own domestic assets, your own domestic market.

On the other hand, the positive, of course, is the more you wire towards an export orientation, of course you also gain benefits with a weaker currency, and to that extent, for instance, today, just for instance, South Korea is surprised with an interest rate cut. You can see that some of the economies are still using the opportunity, despite the feedback loop on the currency, because for them, it actually works on their favor to kind of stimulate more of their own economy that there are more rate cuts. Others may have to have a finer balancing act to manage not to risk too much of a currency outflow if you do not benefit from currency weaker in your export.

SFC Markets and Finance: You mentioned the interest rate might stay higher for longer. We’re curious what are your expectations for the Fed’s rate cuts?

Stefanie Holtze-Jen: Just to put it again in perspective, we didn't have to change our forecast to a big extent, because for a long time, we have already been in the camp that we will see inflation not coming back to target in the U.S. that we will have a relatively higher for longer environment. So we have never been kind of part of this volatility around rates, you know, at one stage pricing in seven or nine cuts. So yet again, the markets come to the understanding even more so after the U.S. election that this is the environment we will face for longer.

So the Fed reaction function, which of course, is very much driven by the data at the moment, will be one where they take rates down as long as inflation is coming their way. Now, we've just seen a recent inflation print where you see this situation stalling, but then on the other hand, because there's a pivot towards the unemployment side, only if the unemployment side is deteriorating, you will really have to continue to put rates down more aggressively, which at the moment doesn't look so much, because the economy is doing fairly well. But then again, before the last meeting for this year, we will have one more unemployment reading next week, so the Fed will take this into account. For the overall one year forecast, we're looking for three cuts in total for the Fed between here and end of next year. So it could be one more cut in December, and then to next year, relatively front loaded, most probably, or spread over the next year.

SFC Markets and Finance: Are A-shares still attractive against a backdrop of more cautious global capital flows? Are there more opportunities in areas such as technological innovation and high-end manufacturing?

Stefanie Holtze-Jen: Absolutely. We have always held onto the view that China offers a medium and long-term investment opportunity, especially in the three sectors that see a lot of resolve from the government that they want to support these sectors. One you already mentioned is the IT, the high technology sector, which is so crucial to be able to grow and continue to grow at the level and to meet the demands around everything that is in high tech, artificial intelligence, etc.

The second avenue, of course, is the consumer. So there is a drive to move over to consumer-led economy. So consumer discretionary is another area we feel you have to be invested. The third part is everything around green energy, sustainability, because the trio of solar, wind and electric vehicles for China is really leading. That will still be an area that will see demand from the rest of the world, but also will help to engineer more sustainable growth going forward, and higher quality growth going forward.

So we definitely see these three sectors being supported, and overall it's been a sentiment game for A-shares. So you need to reassure sentiment, and that has taken place. I think we are building a base, and have built a base ever since, alongside the monetary policy stimulus program, we saw also a stock stabilization program coming in, and also we now getting this forward guidance, so to inform the market. If that's not enough, if we need to do more, we will be there and do that. So that is one element that will give confidence to external and also local investor that this is not just a trading opportunity.

But of course, ideally we want to also see, and in that respect, the jury is still out, the activity data to turn around, and it's too early to look at the data from yesterday and the day before, because they are all backward-looking. To be able to assess whether all the different three parts are showing their effects, I think we need to wait for the first and second quarter to really stabilize, and then the third quarter will most probably have a very meaningful pickup and activity data as well. At least the probability for that has been heightened now.

SFC Markets and Finance: So the overall sentiment is positive?

Stefanie Holtze-Jen: Yes. With the entirety of the program, the expectation that on the fiscal side, there will be more follow-up to be done. Of course, we need to evaluate as when these measures come. Are they timely? Are they meeting market expectations? Do we see a show of change and confidence domestically that kind of will make this a lasting impact and this high quality growth the government is looking for? But again, as I said, I think that the probability for it to work has significantly improved.

SFC Markets and Finance: As emerging markets in Asia play an increasingly important role in the global economy, how do you see the investment potential and challenges in economies such as China and India?

Stefanie Holtze-Jen: China, as I already mentioned, it is a fairly optimistic, cautiously optimistic view into the next year, because we're building a base now. And again, it's been a view we were holding on already. This is not new, just getting reinforced by the meaningfulness of the three different measures that I was already explaining we are evaluating.

Now when it comes to India, it's been an investment call for us already, since end of last year, even, because India is going through a phase of high infrastructure investment. We know now there's a lot of policy continuity, there's a resolve to build out the sorts of tax and incentivization around manufacturing as well. There's an alignment in the region around also the BRICS efforts, for instance. So this is an investment case that stays the course for us. And even if we're having episodes like right now, are we getting the opportunity to go in at better levels? This is the way we look at this market.

So again, there we're looking at more of alarge-cap exposure. Because from a valuations perspective, we are now back to around the five years average, whilst, for quite a while, it had been kind of moving to a direction where it was difficult to build exposure when it was very highly valued.

SFC Markets and Finance: How about Japan?

Stefanie Holtze-Jen: In terms of Japan, likewise, it's been an investment case for us very much built on the structural reforms they are doing on the Tokyo Stock Exchange. A lot of things have been done around governance that the market takes extremely positively. And this is obviously married by a macroeconomic outlook that is also improving, and this economy has been moved out of deflation. We have positive effects with the higher reach negotiations in regards to consumer spending power, etc. And then on a more cyclical note, given that we are back to the old narrative of the US dollar being high, local currencies being low. That's also something that works for the export-led part of the Japan economy. And you can see that this also transports into how the equity market is trading at the moment, whenever the Yen is depreciating, it's something that the market is taking as a positive takeaway. And so the combination of both gives us a valid investment case to stay also invested in Japan, and use opportunities when they arise, to add to exposures.

SFC Markets and Finance: What do you think is the most important asset allocation principle in the current environment? How to balance the benefits and risks?

Stefanie Holtze-Jen: So it's got to be a globally, well-diversified portfolio. I'm starting with the asset classes. So you have to have definitely bonds and stocks. So growth from both ends in the portfolio, you still have very attractive yield levels. We try to continue to look for opportunities in investment grade space.

In particular, alternatives need to feature as well, because there's a lot of interesting opportunities to have them in the portfolio. One that is sometimes used as an alternative. But I want to highlight, it's been a strong call of ours is gold so we've seen gold being one of the best performing assets this year. We've just taken up our forecast, another nod to 2800 in one year's time. So the dynamics for gold in this kind of environment, may that be higher inflation, despite the higher for longer U.S. dollar, but this higher inflation side will work for gold. We still have a central bank diversification heavily going into gold, the geopolitical avenues that typically support gold, and also think it's been looked at as a store of value, especially in this region, when you may have to counter some of the weakness of your currency.

So Chinese retail investors have also looked at gold a lot, Indians as well, historically, so gold is an important diversifier as well. Now, in terms of having this mix of stocks and fixed income and alternatives, commodities like gold, for instance, in terms of geographical mix is also very important to be well diversified. Now we spoke about Asia, which is contributing 60% to global growth and will continue to do so. So Asia is an important growth element in the portfolio, but our biggest conviction call in regards to geographies, still remains the US as well. So we want to be exposed to the U.S. We also have a lot of insight when it comes to Europe. So Europe also features in the portfolio. And then, of course, Asia, in regards to that growth that you can play by being well invested across the different opportunity sets that we talked about.

SFC Markets and Finance: Is it still a good time to position in gold?

Stefanie Holtze-Jen: Well, we had a good sell-off actually in gold recently, because of the repricing of the U.S. dollar, and the higher dollar then means higher opportunity cost for gold. So that's sometimes a knee-jerk that is coming into play, and that is then also used to continue central bank diversification because they’re also price sensitive. So I think this, as long as the drivers are still valid in this environment, gold is still a good, even at current levels, if you don't have it in the portfolio, you at least start adding at these levels to not completely miss out.

SFC Markets and Finance: How about holding cash?

Stefanie Holtze-Jen: It's always good to have a little bit of cash in the portfolio to be able to navigate in a volatile environment. And also, at the moment, you still get well rewarded for cash, because as the deposit rates, likewise, as fixed-income yields, are staying a little bit higher for longer. But then again, you may miss out on some of the ability where rates are getting taken down and bonds are appreciating, if you stay too long in the cash trade. but in regards to being able to navigate this environment and use opportunities where sometimes you have a bit of a lower prices in equities, you have to have cash to then participate at better levels.

SFC Markets and Finance: Last but not least, what is your outlook for China’s economy and investment opportunities in 2025, and for Asia as a whole?

Stefanie Holtze-Jen: And also, broad outlook for Asia as well. So we remain constructive on Asia. 60% of global growth comes from our part of the world. The powerhouses of China and India are kind of staying the course, and China in particular is doing a lot of reviving its own economy, again, with a very meaningful, three pronged and very credible approach, where we have yet to see actual outcomes in activity data. So it's an overall constructive look into the next year. Equities will feature well, again, our sector peaks, I had elaborated on before, the minimum three you have to have in consumer discretionary, the IT and high tech sectors in China, and also everything around the trio of solar, wind and electric vehicle, where they also leading globally in regards to the sustainability trends. In terms of India, large caps, industrials, the infrastructure build out will be driving a lot, but also the local consumer is being able to participate more.

In Japan as well, we like the IT sector. We like consumer discretionary. That is where you will see more participation as higher wages are coming in, and also the banking industry, because in Japan, the ability for Japan to take rates up. So we see 75 basis points over the course of one year will also help the banking sector going forward in terms of profitability. So there's plenty of opportunities in the region. And you know, you have to make sure you're invested. So there's this good old saying “it's about time in the market, not timing the market”. Although, of course, here in Asia, we tend to be very, sometimes we have the fear of missing out, and when there are opportunities, just use better levels and continue to accumulate this exposure to be set for the next year.

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