Market Commentary: 1 April 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,

Markets are keeping an eye on COVID-19 developments [00:37]

• As the number of new COVID-19 cases increase in the US, we continue to monitor the incoming leading economic indicators
• The low economic output is substituted by fiscal and monetary policy bazookas
• Markets are in a stalemate until the number of cases peaks and lockdowns start to ease

Should I move my investments to a higher-risk portfolio now? [06:33]

• Don’t try to time the market, make sure you’re setting a risk level that you’re comfortable with before you start investing, and stick to your investment plan
• Stocks and bonds are deviating from the usual negative correlation because of the QE measures, which makes timing the market redundant

Full Transcript

[Philipp - 00:02]

Hello and welcome everyone to another Weekly Market Commentary from StashAway. With us again, our Chief Investment Officer, Freddy Lim. Hey, Freddy, good to have you back. Another week, another market update. We have a lot of questions from last week that we want to get to, right, today? So, we'll mostly focus this video on the questions from our listeners but I do want to get a quick update from you on the markets. What happened since last week and kind of also what is the virus situation across the globe right now?

[Freddy - 00:37]

Right. I think, in summary, the news headlines say that last week was the biggest weekly gain since 1932 or 1933? I mean, people like that kind of stats. I do not make much of it. I'm just thinking that we continue to monitor incoming leading indices, incoming data. We remain in a watchful mode but we also want to remind ourselves of our long-term goals. Yes, so those things remains unchanged. Other than that, it's pretty boring, it's all about virus counts.

[Philipp -  01:15]

Yes, virus counts and how long everyone is closed, right? That is what everyone is focusing on right now.

[Freddy -  01:20]

Right. Well, we share our - how would you put it? We share our concerns with what's happening in the US now, the cases are really spiralling and I think they rank No. 1 now. Yeah. And I think China's half of the US numbers.

[Philipp -  01:37]

I think they have very low new cases as well, right?

[Freddy -  01:41]

So, while we continue to observe what's happening to the US and by the data that we're seeing from China and other places, not assuming that they were managed the same way as China but just looking at the stats, we are still in a period of more spiral in the pipeline in terms of infections. So I wouldn't be surprised that Mr Trump, President Trump himself has said that the next two weeks is going to be horrible. So, we expect that to continue to be the case and it will be a total of five weeks from lockdown before the peak can be observed. If you believe that we manage it like China. So other than that the news has been that they have been not focused on any other things.

[Philipp -  02:28]

No, I think that's the only thing they're focusing on, right? And I think perhaps the markets are even looking more futurists in the future once they find that point of say hey we're going to be able to open up, we see flattening curves across the world, right? I think that will be a huge driver for this.

[Freddy -  02:43]

Yes, I would say that a halt in activity, zero output right now. You have this time gap in this graph where there's zero output but then this income loss is now being replaced by all the policy bazookas. I think the governments are already talking about more. So how Senate, even a separately Democrats, are talking about two more bills in the pipeline and if you think about it, if you have to lock down, 3 months in a year to fight this virus and the US is a 19.5 trillion dollar economy, your stimulus package will need to be four to five trillion dollars. So, we are now hitting it 2 and they are talking about two more bills that will roughly get to the 4. Trump already had this proposal on infrastructure spending, 2 trillion dollars. They obviously needed the infrastructure -  it's so old in the US. That's why this virus, you see the results right.

[Philipp - 03:39]

So hopefully that's a lesson they take away from this.

[Freddy - 03:42]

So I think the 2 trillion dollar spending that is a very well - I think that's a very, very good plan. Separately, Democrats have their own plans on helping consumers more, more directly. So in summary, yes that's a lot of negatives but there's also a lot of silver linings.

[Philipp - 04:02]

Yeah. Thank you, Freddy. I think this already answers almost the question No. 1 from E Wei Ong that we got because he was asking, he was actually outlining the situation exactly like you just did right here in China. The playbook ran like this right from mid-Feb; in the middle of February, it was really bad. Markets didn't care. Created new highs, right? Only now that it's in Europe and the US and it seems to be getting worse than China just because of the measures taken maybe it took too long? Also, a different system of how the countries are run and how effective they are at actually quarantining people. Do you think now that it's pretty much already set before April 30th nothing is going to happen opening up, right? They just removed it from Easter to April 30th. Is there gonna be any more market downturns because of that?

[Freddy - 04:57]

Ok, if I have to make a point, I think we are in a stalemate, the bulls and bears are fighting. Yes. Well because the bazookas are coming in and more bazookas are being planned, not just on the government spending side or infrastructure bills. We have central banks who can do virtually unlimited amount of buying and selling. They can monetize those steps. So we used to call it MMT, the Modern Monetary Theory.

[Philipp - 05:26]

If it doesn't look farfetched now in unprecedented times. But also there's another word for it, helicopter money or a universal basic income. I mean you wouldn't be surprised that some form of drastic measure may come. Yeah. So, in a way, we end the stalemate because we are trying to just replace lost output. Right. But some casualty will still remain from halting activities so the path will not be a V, could be a multi V, could be a U? We don't know how we're going to get there but the final destination is clear.

[Freddy - 05:58]

The final destination is that we go back to the original trajectory but the path getting there is what we're all trying to decipher now and at StashAway as well we're monitoring incoming data not just economics but leading. We're looking at valuations of asset classes, how much of those prices in those assets, how much are they saying about what kind of recession is the market expecting and if it's severe enough there's nothing to do. If it is not severe enough, we stand sure that ERAA will reoptimize portfolio when necessary. So at the moment, we're in a stalemate observatory situations.

[Philipp - 06:33]

Yes, and no need to rush things there right, so it's like you said that also let numbers speak for themselves right? Thanks, Freddy. I hope for Mr Ong this will be a good answer. Another question we got and I think I got it from, you know, some friends who are clients as well. This one is from Michelle Ling and she's asking what would be your suggestion on adjusting the investment split between the different risk profiles let's say, for example, I have a low-risk, medium-risk and a high-risk portfolio normally; and I put money across these, should I now maybe put it all into the high-risk because that is the one that it's maybe the most impacted one and then move it back to.. or what would be your suggestion there?

[Freddy -  07:19]

The question is a very understandable one. So I'll address it head-on and I'll tell you my final answer. If you, it involves market timing because you are inevitably making a statement that I think this is a bottom and I am going to now move from a low-risk and balanced-risk to the highest-risk portfolio to capitalize; to make full use of the cheaper valuations on the global stock markets, right? So that's a view-driven perspective and if you get it right, yes, you will get rewarded for making that call. But if you get it wrong it does hurt you more. And so it's a matter of opinion here. In principle, my answer would be you when you sign up on StashAway's apps, we have this process of determining the risk profile, your risk profile is your ultimate true answer for what you should really be in a long term, medium and long term, and your plan shouldn't really change because of market conditions in the next few months or quarters, right? You should always be focusing on saving, invest those savings into a risk profile that you have selected. And just stay with it for the long term. I mean that really is what I believe should be the answer. But there are people among us who knew markets better and would like to take a view. Then it does sound intelligent to be switching portfolio risk points -

[Philipp - 08:59]

especially if you have maybe three portfolios anyway so you might want to want to do that. But again the baseline should be what you just said hey really talk about and I know we stress every single time here right. But it's so important to look at the goals, be true to yourself with your goals right and stick to them because that will work out in the long term.

[Freddy - 09:18]

I have one more point to make which will tell you it doesn't matter because the policy bazookas came in such a big way and the central banks are going to conduct many more quantitative easings. Basically they buy bonds. It doesn't mean that when the market goes back up the bond would do poorly. I mean because there's a lot of buying on everything under the sun. So in a way sticking to the risk level that you have selected, doesn't mean you may miss out on a big stock market recovery because the bond side is actually the pillar. The bond yields have to stay low first; you will get those positive return from bonds side as well. Yeah right. For the stock market to do well here they are both friends going forward. I mean this is unprecedented times, the usual negative correlation between bonds and stocks, they will break down as we have seen in 2008 crisis, post-QE, they both move together right. Right. So in a way, it makes the question sort of redundant in the sense that it didn't matter whether you have more bonds or stocks.

[Philipp - 10:29]

Yeah, I think a very good summary of that.

[Freddy - 10:32]

That's my market-driven opinion yes.

[Philipp - 10:35]

And hopefully, Michelle will get to see this video and get your opinion on that as well. I think she will be happy with that, thank you, Freddy, for all of this really helpful. And we'll obviously be back next week to do some more. But I wanted to just mention a few things so we're going to have a couple of webinars next week in Singapore as well as in Malaysia. In Singapore, we have it on April 8th. It's going to be an inside look into StashAway, about our app, you can ask any kinds of questions you have during the webinar as well. We'll address all of them. So that is on April 8. That's a live webinar you can sign up on the links below and on April 9th, in Malaysia, we're going to have a live webinar about personal finance basics. So if you want to learn more about budgeting, saving, goal setting and things like that you can sign up again. Also in one of the links below the video or on our Website or Eventbrite page as well. I hope you enjoyed this video. Once again, Freddy and myself, we'll be back soon and otherwise have a wonderful week. Bye!