The potential US government shutdown is a near-term risk for global markets, but Standard Chartered Bank believes any pullback in risk assets should be viewed as an opportunity for long-term investors.<\/p>\n
In its latest strategy note, Rajat Bhattacharya, Head of Investment Strategy at Standard Chartered, said the bank\u2019s base case is for a 2\u20133 week shutdown, which is expected to have only a limited impact on the economy and markets. A longer shutdown, however, could spark short-term weakness, particularly as US equities are already trading at stretched positioning levels.<\/p>\n
\u201cInvestor positioning in US equities has risen close to extreme levels \u2013 1.65 standard deviations above the historical mean,\u201d Bhattacharya noted. \u201cAt such levels, subsequent three-month returns have often been negative. The last time positioning crossed 1.6 in December 2024, US equities fell 8.1% over the next three months.\u201d<\/p>\n
Despite this, Standard Chartered does not expect a deep correction, citing supportive momentum, economic surprises, and macro factors.<\/p>\n
Preferred Markets and Sectors<\/p>\n
The bank continues to recommend the US and Asia ex-Japan equities, underpinned by strong earnings and structural growth themes, particularly in technology, healthcare, and communications.<\/p>\n
\u201cAI-driven growth will continue to power the technology sector globally, with US Q3 earnings growth now estimated at 8.8%, up from 8% at the start of the quarter,\u201d Bhattacharya said. The healthcare sector, he added, has benefited from agreements with the Trump administration that ease tariff concerns.<\/p>\n
Gold and Bonds as Hedges<\/p>\n
Gold remains a reliable hedge during shutdowns and continues to benefit from central bank demand amid global policy uncertainty. Standard Chartered sees tactical opportunities in gold miners, with rising margins as prices stay well above the all-in production cost of USD2,000\/oz.<\/p>\n
On bonds, the bank recommends locking in yields in the 5\u20137-year maturity range, given expectations of further US Federal Reserve cuts. Standard Chartered projects 100bps of rate cuts over the next 12 months, bringing the Fed funds rate down to 3.25%.<\/p>\n
USD\/JPY Outlook<\/p>\n
Currency markets may also see volatility. Bhattacharya expects USD\/JPY downside, with potential to test the 145 level, particularly if Japan\u2019s Liberal Democratic Party leadership race strengthens the case for Bank of Japan rate hikes at its 30 October meeting.<\/p>\n
\u201cGold, US Treasuries, and selected Asian equities stand out as tactical opportunities should the shutdown extend beyond expectations,\u201d he concluded.<\/p>\n
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