13 February 2020
Watch Freddy Lim, StashAway Co-founder and Chief Investment Officer, and Philipp Muedder, Head of Financial Planning and Partnerships, discussing the latest global events and their impact on the markets.
In this episode,
Philipp [00:00:01]: Hello and welcome everyone to another market commentary from StashAway. With us, of course again, our Chief Investment Officer, Freddy Lim.
Freddy [00:00:08]: Hi there!
Philipp [00:00:09]: Hey Freddy. Lots to talk about. As always, we will have a few updates to give, maybe on the virus situation. Obviously, you know, the city of Singapore is kind of on lockdown, right? In terms of workers, a lot of people are working from home, they don't really know when to return, right? So, it's kind of impacting life; daily life. So, perhaps you know a lot of people are feeling a lot more anxious, about what does it do to their investments and maybe also to their retirement plans in that case. So I want to cover that with you and then obviously there's a lot more election news coming up now right? That goes month by month. We're getting closer to November and I think with the Primaries from the Democratic nomination committee coming up, I think there's a lot to talk about but let's start with the virus because that's really felt at home here right? For all of us, it's impacting us in a certain way right in terms of how do you move around? People are always worried about everything. Want to give an update maybe on what it does to markets? Because they don't keep.
Freddy [00:01:15]: Well before I get into the markets. I would want to share an interesting research and modelling, sort of analysis. It's not done by ourselves. We're not expert in epidemics but from, say, the scientific community, a Bloomberg article also has an expose on that which is that they suspect that the later part of February to be the peak of in terms of number of reported cases of infections and the model is quite non-linear. It accounts for the fact that in the initial phases, official reports tend to be understated because this also is not an intentional thing. Sometimes this takes time to get the reports in and sometimes people don't even realise they have it right. So over time because of the under-reporting the biases in the data you tend to see an organic rise in the number of infections given enough time. So using a very complex model they projected that by the end of February, we may even see global number of infections going up as much as to 500,000 cases. And a number of death toll could be expected to be ten thousand. So right now we have reported around a thousand and a half, globally
Philipp [00:02:34]: Yeah. 60,000 cases or something like this.
Freddy [00:02:36]: And so it's sort of part of it is due to understatement. The other part is that the virus is still spreading and maybe it's going to slow at some point. But the numbers account for these two factors. So we're going to see the media keep reporting higher numbers. It's the same situation back in the SARS. We would not be surprised by that. So in the physical world; stay safe, clean your hands, disinfect. Now moving onto the markets,
Philipp [00:03:06]: Well I don't know if everyone who has looked lately at their portfolios. Most likely you will see you know markets have been hitting new highs again right. So a portfolio actually performing across the board quite well right? What do you make up of that? Why is that the case? What, what do you think is driving the market to new highs?
Freddy [00:03:25]: Well, firstly, before we even think about the market performance, we should realize that the market is a fast-moving voting engine. So it does try to price in right now what some kind of expected damage upfront. And so you see that is more concentrated the impact on China, Chinese stock markets. And then to the rest of the region in Asia ex-Japan because China has a 35 per cent weighting in the region. So you'll see more impact in China. Asia ex-Japan and even the Straits Times Index in Singapore. But you see muted reaction in Europe and Latin America or even and especially the US. So it goes to show that if you have a very diversified; globally diversified approach to investing, this risk is not very concentrated. It's diversified away and henceforth you don't see a lot of impact on StashAway portfolios.
Philipp [00:04:22]: And I think that's why we always preach this right? Having a diversified global portfolio is so important for your financial plan right? Because things like that affect certain areas more than others right? But if you have a globally diversified that's why you do it well.
Freddy [00:04:36]: Well what's even better is that you can go beyond diversifying by geography. You can also create more diversification by including different asset types into your portfolio. It could be -- you could have income-generating assets elsewhere. You could have a bit of protected assets like gold and bonds from the U.S. and from Europe. There's a lot you can do to sort of further mitigate concentration risk. And that's one of the wonders of modern portfolio theory.
Philipp [00:05:07]: Yes it is. It is one of the wonders of modern portfolio theories. OK well, enough for the virus. I think we all been following this quite a lot but I think it was a really good analysis to actually see and not to be too worried about it. What the market does in these short term volatile times. U.S. election next topic right. We had the first two primaries Iowa, New Hampshire and again not only that they were divided between Republicans and Democrats but in the Democratic Party, that's all it seems to be also a 50/50 split between more socialism and moderates.
Freddy [00:05:44]: We're getting more diversification in terms of the candidates - the types of candidates we're seeing on the Democratic side. If we step back a bit there were previous concerns last year that the Democrat Party has gone very left, very social with the likes of Bernie Sanders, Elizabeth Warren. And so if the Democrats actually win the 2020 election, there's concern that the market may not take it very well. However, that's been changing quite rapidly with very difficult to pronounce names. Yes, I think we have Mayor Pete Buttigieg.
Philipp [00:06:19]: Yes he was he says you can call him Mayor Pete right?
Freddy [00:06:23]: Buttigieg has won the primaries in Iowa. Yup. And Amy Klobuchar had won New Hampshire. Yes. Oh, she was..yeah she's up there second. It was Bernie who won New Hampshire. So it's sort of diluted a lot of concern of the markets on the Democrats going left.
Philipp [00:06:42]: Yes. Yeah.
Freddy [00:06:43]: It's still very early to predict. But this is a very healthy development for the markets.
Philipp [00:06:48]: OK. I totally agree. And I think we're still also way too far out from November right? That the market really cares about this. Too much noise in the market. He's already happy probably with having that diversity right that is more than one -- Michael Bloomberg hasn't even entered yet right.
Freddy [00:07:01]: Yes.
Philipp [00:07:03] : So he's going to enter next month and who knows what's going to happen then right?
Freddy [00:07:05]: Yes. We're getting more business-friendly Democratic candidates. And I guess Trump is not our only choice now that's market-friendly. I mean relatively market-friendly. Not a trade war. So I would say this is a good balancing act to have. So again it goes to show that let's not try to worry or react to certain things too quickly. Too rash. It's always good to have an investment plan that's long term looking and stick to the plan and average in your monthly savings into the markets, right? That approach remains the best approach for most of us. It reduces noise to your net worth.
Philipp [00:07:45]: Exactly right. I think I couldn't have said it any better. Thank you, Freddy, for this. For everyone, we have a few very nice events coming up next week. So on the 19th of February in Singapore, we're actually going to have a webinar. It's called Investing for Women. So if you would like to join that you can go to our website stashaway.sg/academy to sign up for that. And then in Malaysia, we also going to be having a webinar and it's also going to be on the 19th of February and it's going to be about how to plan for your retirement so you learn a lot of strategies, where you can optimize your retirement and things like that. So if you want to learn more about you know what we've been saying about diversifying and things like that, join any of our webinars, go to our website to sign up for those and otherwise tune in again for another market commentary shortly thank you so much. Till next week we'll see you soon. Bye, bye.