Market Commentary: What’s driving inflation? | Global corporate tax rate

10 June 2021

Watch Freddy Lim, StashAway Co-founder and Chief Investment Officer, Philipp Muedder, Head of Financial Planning, and Stephanie Leung, Group Deputy CIO, discuss the latest global events and their potential impact on the markets and on our investment portfolios.

In this episode:

  1. Our new Group Deputy CIO, Stephanie Leung [0:14]
  2. What’s driving inflation and how StashAway protects your investments [4:32]
  3. The latest on the global corporate tax deal [6:21]


Philipp | 00:01

Hello and welcome, everyone, to another market commentary from StashAway. With me of course, our Chief Investment Officer, Freddy Lim. Hey Freddy, how are you?

Freddy | 00:12

Hi Philipp, good to see you again. It's been two weeks.

Philipp | 00:14

It has been two weeks and on top of it being two weeks since the last one, Freddy, we also have a guest on the show today. Do you want to introduce Stephanie for us?

Freddy | 00:25

Yeah, I'm actually very excited to let our users know that StashAway has appointed a new Group Deputy CIO, Stephanie Leung, and she'll be joining and be in the CIO office. She will work very closely with myself on all matters relating to investments. Very happy to introduce you to Stephanie, because she has a very exciting background in computer science (artificial intelligence) from Stanford. And she also has many, many years - 17 years to be exact - of experience in financial markets, having managed multi-asset and multi-billion dollar portfolios in funds and in family offices. So she's superbly experienced. And here we go. Stephanie, do you want to say hi to our users?

Stephanie | 01:18

Sure! Hi everyone! My name is Stephanie and I'm super happy to be on the market commentary together with Freddy and Philipp. And I will be bringing more investment products, as well as a better investment experience for all of you guys. So, I'm looking forward to that.

Philipp | 01:37

Yeah, we're looking forward to having you here, Stephanie. And just for the audience, a heads up, we're recording a podcast episode with Stephanie very soon. So if you have any questions you'd like to ask her, send us an email to Or if you want, you can also put comments below wherever you're listening so that our team can pick them up [00:02:00] and myself can ask all of them to Stephanie on that podcast episode soon. With that being said, it's been two weeks Freddy - lots of things happening around the world, but I think we wanted to touch a little bit on the topic of inflation again by reading out one of the user questions that we've gotten throughout the last two weeks, and one of them is from Kenny Lee. He says, "As always, thanks for the insightful weekly commentary. As I understand, StashAway is in an All-Weather mode right now. Can you explain to us again what we expect in a high inflation environment?"

Freddy | 02:37

Well, first of all, I just want to remind users that we have sort of been in this All-Weather strategy since last May, and that was to prepare us for not just uncertainty, but big trends like massive money printing that governments and central banks have done during the pandemic. It has the same effect as either diluting the value of the paper money or actually having an inflationary effect that we have seen recently. I'll let Stephanie comment a bit about inflation and certain asset classes that we already have in the portfolios that would sort of help protect the portfolio's value against them.

Stephanie | 03:20

Yeah, so we actually wrote about this during our latest CIO Insights. Of course, the latest number was for the US. It was actually over 4%, which is a recent high, and exceeded a lot of expectations from economists etc. But I guess it's important to think about what is driving this US inflation - and then also, we wanted to point out that this is a very, very specific US phenomenon that we're seeing. Actually globally around the world, for example, in Asia, inflation rates are not as high as in the US. So there are several reasons why we're seeing such a high inflation rate. Mostly [00:04:00] there is a low base effect, i.e. if you looked at what happened in COVID, of course, prices fell quite aggressively last year. So we're starting - we compare the year-on-year growth rate. I mean that would be quite high given the very low base last year. Secondly, as we are still facing some supply side issues, particularly in commodities and upstream resources, that actually drives prices higher. So we expect the supply side issues to resolve itself over the coming years. But this is something that is causing a high inflation rate as well. And then lastly of course, for the US, is the economy reopening. So this actually drives an increase in demand which drives prices higher as well. So I think it's important to remember that some of these factors are more transitory or transient, which we expect to ease over the coming years. So I guess if we think about the headline inflation rate of over 4%, it's important to remember these driving forces and as Freddy said, there are some assets that actually benefit from a higher inflation environment, which includes, for example, Gold. So in our portfolios with Gold as a protective asset against rising inflation, and particularly where you have inflation higher and interest rates staying constant, the real rate, which is your nominal interest rate, minus inflation rate, actually goes lower. So Gold actually historically has a good relationship with this real rate. So when rates are low, Gold performs quite well as a protective asset. Other assets that would perform better would be, for example, natural resources, emerging market equities, which are exposed to more natural resources, as well as, for example, REITs and inflation-linked bonds.

Philipp | 05:56

Yes thank you Stephanie and Freddy for that comprehensive answer to Kenny's [00:06:00] question on inflation. Very much appreciated. Moving on to the next topic though - something that was obviously in the news a lot over the last two weeks is the global corporate tax deal that everyone thought was not going to go ahead is now apparently going ahead Freddy. Maybe you want to chime in on that a little bit?

Freddy | 06:21

Well, if you step back a bit, it's really in the first place - companies are being creative in how they account for revenues. And the accounting law is sort of like it's not based on where you sell your products, it's sort of based on where you're headquartered. So if you're headquartered in Boston, in the US, you can still build revenues coming in from a 0% tax haven such as Bermuda, simply because of how you structure your accounting reporting workflows. So that's sort of a lot of lost revenues. So the global standard now is, the first progress is what Janet Yellen, the Treasury Secretary of the US, has done in the G7, is to have an accord on at least imposing a minimum 15% minimum corporate tax on foreign income. So what it means is that if Bermuda is going to charge 0% income tax on the revenue built from there, the difference of 15 versus 0 will be now earned by the home country. So at least some sort of taxes will be captured by where you actually sold your goods, right? So it's just trying to sort of widen the net to make sure it's harder to now hide your flows? So companies, especially tech companies, because of online services, data services, digital services, are a little bit more borderless. They now would sort of be in the crosshairs of such tax treatments. In the end, our personal opinion is, this is better than [00:08:00] unilateral efforts by France and Germany to slap a random 3% tax on revenues made in their country, right? Because you can sort of see it as very ad hoc and countries trying to up one against another - that can actually cascade over time to something very horrible. So, to sort of have a global standard is still a welcome one. And yes, Amazon would be increasingly more captured, although there's some profit margin requirement before they get taxed. But they are trying to capture companies like Amazon, Facebook in a more holistic manner. So it is slightly negative in the near term. But look, it's something that's been going on for years, it's a trend that's inevitable, and it's better to have a global standard than ad hoc standards.

Philipp | 08:50

Great. Thank you Freddy and Stephanie, again as well. For everyone else, if you want to learn a little bit more about inflation and more on the investment side of things - things that we look out for, for the rest of the year, you can join one of our upcoming webinars that's actually across our regions, Singapore, Malaysia, Hong Kong and MENA. It's called StashAway Market Outlook 2021. It's on Wednesday, June 16. For Singapore, Malaysia, Hong Kong time, 7pm. And for our audience in the Middle East, it's at 3pm, your time. The links to sign up for those is in the show notes below this video, as well as on our website or anywhere else that you can find StashAway. So we hope to see you all there. And you can ask more questions to the investment team there as well. And again, we look forward to being with you again over the next few weeks. Until then, have a wonderful rest of your week.

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