Market Commentary: 4 March 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,

1. How will the markets react to the surprise interest rate cut by the Federal Reserve? [0:39]
2. Will Covid-19’s impact on the markets be easing anytime soon?  [2:38]
3. How are the contenders for the Democratic candidacy for the U.S. Presidential Elections shaping up? [4:06]
4. Should I put more money into my StashAway account when the market drops? [6:00]
5. Is StashAway recession-proof? [8:24]
6. Upcoming StashAway events [10:53]

[Philipp – 00:01]

Hello and welcome to another market commentary from StashAway. With us again our Chief Investment Officer, Freddy Lim.

[Freddy – 00:07]

Hi there!

[Philipp – 00:09]

Hey Freddy, nice to have you again with us and lots of things again right? And I know I keep repeating myself about this but this week already saw a lot of markets' Headline News the coronavirus kind of you know, spreading its way into other parts of the world. So obviously more anxiousness, more volatility. People buying up the shelves now in the U.S. and Europe which we've seen here four, five weeks ago right? So it's kind of like I said it's kind of making its way now. Let's talk about this a little bit and what happened overnight right? So basically we had a lot of chatter. You know the G7 central banks they all had a talk and then an hour after the market opens, the Federal Reserve came out with a bang right? Maybe you wanna explain a little bit to the people - what happened? Kind of what the next steps are where do you see the market heading.

[Freddy – 01:01]

Ok. So the Reserve Bank of Australia did it last week and this very early morning today (4th March 2019), the Fed surprised the market and they cut rates by 50 basis points. That's larger than usual and has a strong signalling effect. However intraday we see the market sort of retracing some of the big gains late in the day. And a lot of people started thinking is are things so bad that they need to cut so much so fast. Now I would caution against overreading too much into it because global central banks are likely going to be coordinated in this monetary easing this realm. And in addition, it's not just central banks doing something, it is going to be fiscal policy as well. Government's going to come in. Look at Singapore. The budget already has a lot of focus on easing the pain for households and small businesses. More and more suddenly talked about a few weeks ago right? When it happened here. Exactly this is going to be very coordinated on the government spending side as well around the world. So I sort of disagree what commentators are saying about the way the market has fallen after they take the cut. Yeah right.I mean I think we should not just read too much into it.

[Philipp – 02:21]

Ok. So you think it will have an impact but it looks kind of like take a little bit of time to develop, to price in, you think? Yeah absolutely. You know it makes sense right and I think for everyone. Again we're still in the early stages of this which we discussed a while, a few videos back right? We showed also the graph of all the different viruses or pandemics that we had before right. And kind of what the peak to trough is and how long do they normally last these corrections.

[Freddy – 02:49]

The clock started on 19th February actually. We are about two weeks from that time. And the study has shown that past epidemics except for HIV, they generally have less than 2 months of an impact if it is worse than the average epidemic then. I think the 5.1 month period for HIV could be a very good next benchmark. Right. Interestingly we also did some study. We read and we looked at the Spanish flu - the mother of all pandemics in 1918. We've seen similar conclusion as well but data back then was contaminated by the World War One which happened from 1914 to 1918. So the cumulative impact of the market has a lot of things going on. But the second pandemic was the Asian flu. Yes. Asian flu 1957. Actually the market did not even react. It was a linear up move. So it's very hard to read into it. So by I would say that the worst-case scenario using HIV as a guide, 5.1 months from February 19th.

[Philipp – 03:57]

So yeah let's move on from the virus because I think life, in general, is kind of moving on the field especially in Singapore. But with the U.S. right, we've always been with this looming thing that is hanging over everyone. This is exactly the election. Right. And before we get to the real election we have the democratic election. So the nomination run Super Tuesday. Yesterday it's just about to end in the U.S. right? Can you give us a little bit an update what's happening there, how's the field shaping up? Who is going to be the most likely to run against Trump?

[Freddy – 04:32]

It's getting less crowded for sure. On the Democrat side. So what happened is Amy Klobuchar and let me try again, Mayor Pete Buttigieg, have dropped out of the the the run for it. I think in third place jointly is now Michael Bloomberg and Elizabeth Warren; is the likelihood that Warren may drop out eventually. Mike Bloomberg, well-funded, can still go on but you never know. They may consolidate forces through Joe Biden right. We already see that in fact Joe Biden suddenly has a big run-up in winning in seven early states and starting to get neck and neck with Bernie Sanders. So that's sort of a welcome development for markets, one more business-friendly, a less extreme candidate, to try to fight the other one who is very left. So he's gonna get more interesting and I wouldn't rule out Michael Bloomberg just yet. But he may just decide to put his money in, put his money on someone else. I think his main goal is just to anyone but Trump correct?

[Philipp – 05:40]

All right thanks for that Freddy. We did get a couple more questions from listeners on the previous videos. So I want to start with the first one. It's kind of timely anyways right. One of the listeners was asking, "Hey, so when the market drops right in scenarios like you know last week or yesterday even right, should I put more money into my StashAway account or should I keep with my dollar-cost averaging that I do every month anyways like maybe this." I don't know this person how much they put in right? But if they stick to their plan I'll say, hey I'm putting five hundred/thousand dollars a month in it should I stick with that or what should I do with those?

[Freddy – 06:32]

I mean the...Personally, my base case answer is, if I'm not an expert, I don't know if I can market time correctly. I stick to my plans because in any case as long as my goals are long enough, I shouldn't really change anything yes because if I go and borrow money to invest more now that hurts me later because of leverage or if I front-load a lot of my contributions now and not contribute more later. That sounds like a nice idea if you get it right. But the truth is nobody knows and we can only adopt a data-driven objective approach to analyzing the situations. And yes we have studied all the pandemics and we've identified them as short-lived you know 2 months, 5 months. Nobody knows right. So as long as the plans are longer than 2 months and 5 months, nothing changes.

[Philipp – 07:27]

Nothing exactly. And I think that is a very valid point but so if you have some extra cash laying around more than your you know your emergency fund that you have to save up for right? Of course, if you want to, "Hey I want to add some more." That's fine right. But stick to your plan right. Because you've had it for a reason and

[Freddy – 07:46]

I think to help users a bit more, I think a way to think about it is right now I get it on the cheap. That's how I think about it. They would think about it but this is a situation when volatility in the near-term is also the highest. So by putting a lot right now in one go yeah, I'm subjecting a majority of my net worth to volatility right away. So the best thing to do is still to just average things out to avoid this unnecessary volatility. Yes. Because long term returns don't really change that much whether you time it now correct. You're getting it cheaper or not when you have a long enough time frame, it matters a lot.

[Philipp – 08:23]

Yes exactly. Thanks, Freddie. And then the last question that we got right. So this person you know is worried obviously, headline news when we talk about this quite a lot right? People are saying" Oh it's for sure gonna be a recession," it's you know it's like it's looming it's gloom and doom right. He says there are claims of StashAway being recession-proof. So, let's..we can talk about that first and then could you explain that.

[Freddy – 08:48]

Thank you for the comment. Yeah but I'll be, I will hunker down a little bit. Yes. But yeah it's a good question. I, we understand where are the investors coming from. The truth is, I rather let the data speak for itself and data is not lagging data but more of the looking at leading indices, looking at rates of change of economic numbers. If we have to go there, yes, a recession. There are reoptimization that StashAway does, things that would change to your portfolio that would adjust for the next cycle. However, we've got to separate that from a correction. A correction is short-lived. It's an emotional, rapid drawdown that quickly rebounds as well as very difficult to time. And if you miss out, if you miss out on the move, you may never know how to get back in on the rebound. So that was the greatest enemy to all investors. The whipsaw in the near term. Yeah, a bear market is different. It doesn't really start with a bang. It's a persistent sustained gradual steady decline in growth assets that last 18 months to even 3 years or more and because of the time frame being longer and being more gradual the reaction time to sort of reoptimize the portfolio into with more protective assets with a bit more gold, more long-dated bonds or diversifying it away from growth. That process can very well be handled quite easily right? A correction is very difficult.

[Philipp – 10:25]

And I think that people need to start putting these headline news also back into perspective again right. If you go back in time every year there's something actually going on. Right. So and something is bad right because news also sells only when it's bad news. So I think thanks for the explanation on that and I think that makes a lot of sense. So again, as always, if you have any questions that you want Freddy and I to answer please leave them in the comments below. Okay. With that being said we have a couple of great events coming up. We're going to have a live webinar in Singapore that is gonna be on March 10th. That's on Tuesday next week. We're going to have financial planning basics that will be me actually. So if you have any questions there as well you can raise them we'll answer them live during the webinar and then we have an event on Wednesday next week. That is March 11th and it's going to be in Kuala Lumpur. That is gonna be on how to invest with ETFs and you can learn and sign up for both of them on our website under Academy. You can also subscribe on Eventbrite or Facebook whatever you want. You can find all the links below the video as well for ease of use. And we hope to be with you again next week to talk more about markets and answer your questions so other than that, we wish you a wonderful day. Goodbye.