Market Commentary: 22 January 2020

22 January 2020

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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,

StashAway Academy upcoming events [0:39]

Our view on the latest global events [1:36]

2020 World Economic Forum [3:51]

The impeachment of President Trump [8:19]

Philipp [00:00:01]: Hello and welcome everyone for another weekly market commentary from StashAway. With us again our Chief Investment Officer Freddy Lim. Hi there! If you haven't yet, I would like you to all start subscribing to our YouTube channel so that you can be aware of any future updates we'll be doing a lot more content here over the next six months. So if you want to keep abreast of that hit the link down here just subscribe and spread the word to all your friends, that would be wonderful for you to do. With that being said we have a lot of things to cover today for market events to not market events. 

I wanted to start with the next upcoming StashAway Academy events that we have both in Singapore as well as in Kuala Lumpur. We have one in Singapore on the 12th of February. It's about how to plan for your retirement so this is where you will learn about CPF strategies. We'll talk a little bit about SRS and how you can make use of that tool from the Singapore government as well. That's on the 12th of February. You can sign up for that on our Web site as well as on Eventbrite, Facebook and wherever else you can find us. In Kuala Lumpur, same day, 12th of February Freddy will actually be there. 

You will do the outlook event 2020. So, Freddy, you will be talking a little bit about what we can expect from 2020. Kind of what happened in 2019.

So you learn a bit more about the investment side of things. That's on the 12th also at 7:00 p.m. and you can find out more on our Malaysia our Web site as well as on Eventbrite, Facebook and any other channel we are available on. 

With that being said Freddy we have a lot of interesting events coming up. There's a lot of interesting events in the world. 

I think one of the real headline dominating thing and it's intensifying I think right now with the Chinese New Year coming up; the virus spreading from China. First few cases Singapore had one case I think last week, confirmed. Now it's going to the US as well already on the West Coast. 

Let's first of all talk about what do you make of things like that, right? Is it just headline news or what should people be worried about. But then let's take a step back. What does it mean for markets as well right? 

Freddy [00:02:10]: Well, in short, it will be sharp and short-lived. I mean in the case of when you have to sharp knee jerk reaction maybe health care stocks would probably shoot up momentarily but then they always, the effect dies within a very short time. Something like this historically even back in the time where we had SARS. They rarely, rarely, rarely affect the markets beyond just a couple of days. Right. 

Even in the case of SARS, it probably had an impact in the localized markets. It was Hong Kong back then and that effect was less than two weeks, right? So this sort of stuff, events are as dangerous as they sound. So I do recommend as persons we take precautions when we travel, wear masks, disinfect your hands. But beyond that, it has very little bearing on your financial plans.

Philipp [00:03:07]: So you don't think that you know like people should be saying oh maybe we should wait a few days until we do my next investment because maybe the markets will be you know going down a little bit more.  The more news coming out.

Freddy [00:03:18]: As we speak, I think the fact has sort of first load. Yeah right. Maybe it's also getting confused with the Chinese New Year period. Liquidity is tightening up, things are slowing down. And when China goes to sleep for the Chinese new seasons, the liquidity in Asia could be lower than normal. So there is a lot of other factors at play as well as not just the Corona disease. So there's a lot more to it.

Philipp [00:03:46]: Well thanks for that Freddy, for your input on that. The next thing that's going to highlight, be the highlight of the week is probably Davos because pretty much the entire business elite and leaders of the world congregate onto a little Swiss town in the mountains right. Trump is gonna be there; he's there already. Climate change seems to be the topic; the hot topic of the year. It's been building up since 2019 right. But culminating in this I think a lot of people would like to understand. Like is there a way to benefit by investing maybe more responsibly or in companies that are responsible.

Does that have no impact on the markets? How does it impact investors in general? 

Freddy [00:04:33]: Well, other than Trump's belittling of the issue the central banks who central bankers are at Davos, they have actually raised this as a very serious concern. They also commonly acknowledge that the current central banking models of assessing the economy lacks this component on climate and how they could incorporate this for future policy decisions making. So it's very encouraging to see progress on this front and where people are modelling expect return volatility incorporating factors like this. And it's my personal belief and we are doing ongoing research as well on the StashAway side that over time this particular segment would be more and more important for returns and volatilities. So I would say however one has to separate your ideology from performance because you may believe in what the water crisis and you invest in a specific water processing sector. But it doesn't mean that you will make returns. So it's not, investing is not about charity and performance could really deviate if you are too idealistic about it. So taking an approach of ideology but being mindful of valuations; are things over-bubbled? I remember back in the solar power days in the early in an initial sponsorship of governments and solar really takes off, investors indiscriminately invested into the sector and making the sectors very very overvalued and that eventually led to quite a lot of underperformance in it for for for this people. So I would say valuation is important. Ideology is important. You take a holistic approach to it.

Philipp [00:06:24]: But do you think then like you know companies; I think last week in Germany it was quite big in Europe in the news because they got called out on Siemens right? They already this is a project that they already committed two years ago to build this coal mining factory in Australia right.? So because this wasn't the focus. Do you think it will have an impact on these big old conglomerates long term on how they're gonna conduct business or do you think this will go away and they will adapt to these things? I don’t know.

Freddy [00:06:55]: Well this is a tiny part of the market that's we term it ESG environmental, social and governance. So there are three factors going on here. In this case, it's environmental. There's also a social aspect where shareholders could revote and not like the idea we've been going green and you have this legacy thing. Yes but and now you are building a coal plant; you're stepping backwards. So investors may not like it and that can affect boardroom proxies. So that has real impacts and also in the case of ESG when it comes to emerging markets. When you invest in a company in the same sector, one has better reporting standards better governance. They do command as high as a 40 per cent premium in their share valuations versus a competitor that's not complying with governance processes. So ESG could actually impact returns but however you cannot look at it as a snapshot today. You have to look at it today and going backwards. Are we all are paying for ESG? Yeah. So I would still urge a holistic approach to reviewing impact investing, marrying it with valuation. 

Philipp[00:08:15]: Right. Yeah, exactly it's the right thing to do. Well, thanks, Freddy! Last but not least, let's really quickly I know there wasn't too much news because it's still haggling back and forth but it will also be dominating the headlines the next two weeks because that's probably how long the process is gonna take - impeachment trial right? I know we covered Trump a lot last year and we don't want to always go back but I think that will be interesting for people to hear your opinion on because it's really going to be dominating headlines like I said right. Anything from your side? 

Freddy [00:08:43]: I think our stance remains the same. Trump is already impeached. The Senate is Republican-dominated, the House is the Democrats. Right? So he's already impeached at the House. Now, since the Republicans dominated the Senate, it's very hard to see Trump being convicted for the impeachment. Impeachment is just a statement. Yeah yeah. He can be impeached and still go for re-election and may be re-elected. So already there are complaints about Republicans changing procedures of the hearings in the last moment. I think the times are scheduled to be a bit later now. And also the hearing time duration has been shortened and so it goes to show that there's a lot of effort on the other side trying to contain the damage. And so for us, the base case is very hard to see Trump being convicted and we do not expect any headline-grabbing surprises there. 

Philipp [00:09:39]: Yeah and I think that is what the market probably has already priced and that's why it's also not really reacting to it because there's probably like "oh ok there's nothing really gonna happen from the Senate side right?" 

Freddy [00:09:47]: I mean sensational headlines they could be but they don't - they don't generate a lasting impact on the markets. 

Philipp [00:09:53]: So I think that wraps it up really quickly and nicely Freddy. All and all, like I think our messaging never changes right? We do preach you know - invest according to your plan right? Keep that plan in mind every time you do invest and don't listen to headline-grabbing news because most likely they will not last. Anyways right, with that being said, thanks, Freddy! If you have any questions, feedback we would happily hear from you so you can comment down below the video and we'll get back to them especially if you have some questions for Freddy directly. We'll pick them up and if you want to be featured in that question we'll do that next week on our next Weekly Market Commentary. And if you want to keep abreast of any information again, hit the subscribe link that way you can always be updated when we get a new video out. Anyways, thank you so much everyone and we'll be with you next week. 

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