SINGAPORE (July 8): DBS CEO Piyush Gupta and Chief Investment Officer Lim Say Boon had words of wisdom for their clients in the DBS Private Bank 2H 2016 Market Outlook.

Gupta had flew in from London a few hours earlier, where DBS Group Holdings was awarded the World&rsquo s Best Digital Bank by EuroMoney. Despite the good news and a new award for DBS, the outlook for the second half is definitely downbeat.

Here in Asia, China will be a source of uncertainty. The Middle Kingdom is likely to continue restructuring its economy. Efforts to squeeze out excess capacity in iron and steel and heavy manufacturing are likely to lead to disruptions.

A planned economy doesn&rsquo t allocate resources efficiently. Although capital will be allocated more efficiently as China moves to a market economy, the downside is volatility in the interim, Gupta indicates.

&ldquo Expect to see a lot of corporate defaults in China. So we must ensure we take on the right counterparty risk,&rdquo he says.

Taking a philosophical turn, Gupta doesn&rsquo t think GDP is the best measure for a country.

GDP was created in the 1930s to measure manufacturing output, he says. &ldquo Today we need to measure economic welfare and satisfaction without relying on traded goods.&rdquo

Hence, Gupta believes the 2% inflation targets by the US Federal Reserve, the European Central Bank and the Bank of Japan should be replaced by different benchmarks.

&ldquo We should start measuring the right things so we can get different answers,&rdquo he says.

Overall, Gupta sees the US economy as being stronger than is the common perception, based on recent data.

&ldquo Housing has been the strongest in seven years. Payroll numbers were very strong last month. Inflation is pushing 2%, and GDP growth should come in at 2-2.5%,&rdquo he says, adding that he reckons the Fed is going to hike interest rates once more this year.

2H2016 in eight predictions

CIO Lim summed up the second half in 8 predictions:

1) Brexit will not break the EU but it will be negative for European stocks. 

2) The global economy will continue to struggle and a corporate earnings recession will spread. 

Corporate earnings have been in recession for emerging markets for the last two years, and this is spreading to the US and EU.

Corporate earnings growth for FY2015 is down 16% for Asia ex-Japan, down 21% for other emerging markets, down 6% for China H-shares and 9% for Shanghai Composite Index. In Europe, corporate earnings fell 7% last year, and were 3% lower in the US. The exception is Japan which rose 4%.

3) A decline in US corporate earnings will inevitably take the Standard and Poor&rsquo s 500 Index down with it. Lim is forecasting a 10% decline in the next six months.

4) The Bank of Japan will have to unleash further stimulus because a strengthening yen is bad for the economy and corporate earnings.

5) China will continue to ease. The best way to play China is through H-shares, which are trading at a 75% discount to A-shares, according to Lim. In addition, forward earnings multiples of H-shares are at near 10-year lows.

6) Asia ex-Japan stocks will outperform global equities because their dividend yields are higher. Dividend yield for Asia ex-Japan is 3.3%, Singapore market is 4%, and for China H-shares 4.2%. This compares favourably with the global average of 2.7%.

7) Lim is negative on the US dollar and believes that commodities and gold will rise, given the global central banks are in easing mode.

&ldquo There is no currency that can shoulder the burden of reflating the world,&rdquo Lim says.

As a result we are likely to experience continued currency volatility. He thinks the US dollar will weaken and gold is a better investment.

&ldquo We are bullish on gold and have been for a long time,&rdquo he adds.

8) Bonds will continue to outperform equities.

World savings percentage of GDP is rising and now stands at 26%, due in part to an ageing population.