Sequis Life pivots fixed income strategy following Trump comeback
Indonesian insurer Sequis Life is maintaining its strategic long-duration bond positioning while adjusting tactical allocations as market expectations shift toward a shallower Federal Reserve rate cut cycle, according to chief investment officer Muhamad Umar Johan Sidik.
"Market dynamics have shifted, with shallower cut cycle expectations since Trump's election prospects strengthened," Sidik told AsianInvestor.
"But our initial move toward longer-duration bonds still works fine, as it serves specific purpose of lengthening asset duration before the Fed pivot."
The $1.3 billion life insurer, partly owned by Japan's Nippon Life, had previously positioned to narrow asset liability duration gap on anticipated Fed rate cuts of 300 basis points through 2026.
However, US President-elect Donald Trump's campaign rhetoric and potential inflationary policies have prompted a tactical reassessment.
TACTICAL FLEXIBILITY
"The market currently presents higher beta to rate cuts and wider spread potential, providing favourable entry points for investment-grade credits and emerging market government bonds in short to mid-tenure," Sidik said, noting the US 10-year Treasury yield's climb from September lows of 3.6% to around 4.2-4.4%.
The insurer maintains approximately 70% of assets in fixed income, reflecting its need to match long-term insurance liabilities extending to 40 years.
Sequis Life
"We've developed a flexible approach to complement our long-core bond portfolios with barbell strategy overlays that can enhance returns along the yield curve dynamic movement," Sidik said.
The potential return of Trump administration policies has introduced new variables into the fixed income equation, though Sidik maintains a measured approach to political risk.
"It wouldn't be prudent to react to every statement or tweet," he said.
"We need to distinguish between negotiating tactics and credible policy initiatives. Further details are needed to understand how and when actual US policy changes might be implemented."
The life insurer’s current strategy focuses on building resilient returns while maintaining the flexibility to capitalise on market opportunities. This approach has proven particularly valuable as markets reassess the trajectory of Fed policy.
"Whether the Fed cuts rates by 125 basis points or just 50 basis points in the next 12 months, our fundamental positioning remains sound," Sidik said.
"We're staying nimble with tactical allocations while maintaining our strategic focus on duration management."
MARKET VALUATION CONCERNS
While maintaining tactical flexibility in fixed income, Sequis Life is also closely monitoring broader market dynamics, particularly US equity valuations.
Our offshore equity allocation is still fruitful amid high volatility, benchmarking All Country World Index with sizeable exposure to US Equity. Scenario of U.S. tax cuts, increase in fiscal stimulus and knock-on effects of higher US tariffs, can lead to rising US stocks and a strong USD.
"US exceptionalism has driven markets higher, but current S&P 500’s Forward PE at 25X pushing nearly two standard deviations above the historical 10-year mean," said Sidik
"Historically, above this level of valuation premium isn't sustainable long-term and could trigger significant market repositioning eventually. We may lock some profit in the future if valuation overshoot"
"Still, with the chance of Trump’s corporate tax cuts from recent 21% to as low as 15% could materialize by early 2025, ensuing higher earnings growth in 2025-27 may justified the valuation," said Sidik.
REGIONAL OUTLOOK
Looking at the broader Asian market context, Sequis Life sees potential opportunities emerging from regional market dynamics, particularly in ASEAN markets.
"Short-term risks on prospect of a strong US dollar and trade policy shifts may set downside risk on valuation of EM ASEAN, but we're seeing medium-term opportunity on potential earnings upgrade, relatively stable currency and inflation, with positive fundamental story remains intact across ASEAN markets," said Sidik.
"This regional stability provides an important backdrop for our regional equity allocation strategy, and we prefer on lowering beta by keeping the same allocation amid market volatility, open to tactically add holdings when a good EM ASEAN stocks are unfairly punished"
The insurer's approach reflects a careful balance between global market opportunities and local market realities, with a continued emphasis on maintaining sufficient portfolio flexibility to respond to evolving market conditions while meeting long-term liability requirements.
"We put equity allocation as strategic asset allocation solution to match a very long-duration liabilities (above 40 years horizon), which emphasises on sustaining long-term returns driven by strong quality earnings and cashflow growth, for both onshore and offshore."
The insurer's approach reflects a broader trend among Asian institutional investors adapting to an increasingly complex global fixed income environment, where political considerations are becoming as important as traditional economic indicators in shaping investment strategy with all possible risk scenarios.