DBS’ Piyush Gupta sees US as global growth engine in 2025 but warns of headwinds

OUTGOING DBS chief executive officer Piyush Gupta expects the US to remain as a global growth engine, but warns of three potential headwinds that could lead to a market correction.

Gupta, who joined the Singapore bank in 2009 from Citibank, will be passing the reins to Tan Su Shan, the group’s head of institutional banking, at DBS’ annual general meeting on Mar 28.

During his tenure, DBS began its digital transformation, a journey that propelled the bank’s earnings, and eventually its market value beyond S$120 billion – a feat unrivalled here.

Gupta delivered his last opening address on Jan 13 at the DBS Private Bank Market Outlook for the first quarter of 2025. He said: “The biggest source of strength in the global economy comes from the US. Retail sales have been holding up… Inflation is high but payroll data is high and jobs are being created.”

He reckoned the base case of assuming a soft landing is still pretty much intact. A soft landing would mean the US Federal Reserve has accomplished the difficult task of taming inflation without triggering a recession.

While the market now assumes no more interest rate cuts by the Fed, Gupta expects to see “a couple of rate cuts at least”.

Uncertainties related to US policy loom large. If the new Trump administration implements targeted tariffs and modest fiscal easing, the overall impact could provide the tailwind for US growth. If so, it makes sense for investors to buy US equities even though they are expensive, as earnings are coming through, Gupta added.

But the tail risks cannot be ignored, he said. One of these is potential instability in the financial markets.

In the US, consumer loan delinquencies have crept up. Total household debt in the US increased by US$147 billion from the second quarter of 2024 to a record high of US$17.94 trillion the following quarter, data from the Federal Reserve of New York showed. Mortgages made up 70 per cent of the US$17.94 trillion. Credit card and auto loan delinquency rates have also increased sharply.

“The free float and availability of US dollars is beginning to shrink,” Gupta said.

A stronger US dollar means headwinds for most emerging markets as they face a rising cost of external debt paid in the greenback.

“Put all these together – delinquency in the system, high valuations, tighter liquidity, less dollars in the system… it is not impossible to see some market corrections,” Gupta said.

He added that this instability in the financial markets could spill over into the broader economy, fuelling uncertainty and insecurity.

There are also risks associated with more extreme trade policies hitting emerging markets and export-oriented Asia. Slower growth in these regions will impact the US, Gupta said.

The US government debt to gross domestic product (GDP), at around 120 per cent, is creating anxiety, he added. The cost of debt could hurt markets.

“So I think the US should do generally well, but I still see a lot of choppiness, a lot of volatility,” he said.

Investors may want to be a little defensive and diversify their portfolio beyond the US and into emerging markets and gold.

Asia outlook

On China, Gupta noted that there had been many policy measures to boost growth, but the mainland faces a fundamental challenge – the lack of market confidence.

“As a consequence, they are finding it very hard to turn the ship,” he said.

While some sectors in China could see an improvement, others like its electric vehicle market, where there are more than 100 electric vehicle manufacturers, could see some value destruction.

Growth in India is expected to slow to 6 to 6.5 per cent in the fiscal year ending in March 2025, down from 8.2 per cent growth in the previous year.

The outlook for South-east Asia is mixed, with Singapore witnessing broad-based growth. The Ministry of Trade and Industry has forecast that the country’s real GDP growth will range from 1 to 3 per cent in 2025, down from 4 per cent in 2024.

Malaysia is likely to remain strong, with analysts projecting a GDP growth of at least 5 per cent, driven by foreign investments.

Indonesia’s outlook is uncertain, though long-term growth is projected at around 5 per cent, Gupta said.

DBS chief investment officer Hou Wey Fook said the bank’s flagship barbell strategy returned 15.6 per cent for the year as at Dec 4, 2024.

The bank continues to rate US equities and technology stocks as “overweight” on the back of US President-elect Donald Trump’s pro-business stance and the growing adoption of artificial intelligence.

Hou also advocates “overweight” on fixed income as it provides downside protection should trade tensions escalate.

He suggested holding some assets such as gold and hedge funds to enhance a portfolio’s overall resilience. THE STRAITS TIMES