Market Commentary: Chinese economic recovery | Looking past dividend payouts

17 April 2021

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

In this episode:

  1. China’s GDP jumps a record 18.3% from lockdown year [0:18]
  2. Why you shouldn't only focus on dividend yield [2:28]
  3. Why you should stay invested in China tech despite recent antitrust measures [6:07]

FULL TRANSCRIPT Philipp | 00:01

Hello and welcome everyone to another weekly market commentary from StashAway. Of course with us, our Chief Investment Officer, Freddy Lim. Freddy, good to have you back. How are you?

Freddy | 00:11

I'm very well and TGIF! Happy Friday to you and everyone else.

Philipp | 00:18

Yes. Happy Friday, everyone. We are recording this on a Friday, 16th of April. Time is flying by, right? Time is flying by faster than we think it is. But hey, Freddy, some good news out of China or mixed news? Expectations are always higher than what was reported, but I think... Some positive news coming out of China. Do you want to give it a little bit of an update, what's happening over there and what kind of numbers I'm talking about?

Freddy | 00:47 

Well, if you read the news headline, they would tell you that China disappointed against expectations. So this morning, slightly down. But if you look at the actual numbers, they are immense. So for example, I have here on screen, says - GDP jumps a record 18.3% from lockdown year. That's great! March retail sales rose 34.2% - beaten 28% estimate - that's great. Industrial output gained 14.1% - missing 18% estimate. Jobless rate falls to 5.3%. Property investment rose to 25.6%. These are all really huge numbers with some part of it - the industrial output being the only one of two missing estimates. But in most cases, China has shown the world that its economy is really kind of the first to rebound. It's like a first into COVID and first out of COVID. It's done well so far actually.

Philipp | 01:48

Done well so far and I think most other countries in the world are very jealous of those numbers. They would love to see those in their own numbers report, right?

Freddy | 02:00

Yeah! I [00:02:00] mean, people would sort of be worried about the recent wave of antitrust rule change in China that will be slapped on all tech firms in China. People wonder what to do about that. But people are also torn with China's very long-term 5/10/15-year plans and restructuring its economy towards more tech revolution. So, you know, what do people do, right?

Philipp | 02:28

No, absolutely, those are good numbers. And good to get some insights from your side on that as well. So that's great. We do have a couple of questions, actually. Three of them that we want to address today, Freddy, from our audience from last week. And again, if you're new to the show, please feel free to always drop any of your questions in the comments section below. Or you can also send us an email to so that Freddy or myself can pick those up. So Freddy, the first one is actually from Wilsven Long. And he's saying, "I've recently done some of my own research and due diligence on the 36% SRI holdings, more specifically on the VNQI ETF. And I found that it pays investors a rather high dividend yield, which is great, of course. However, in 2020 they only paid out dividends less, much, much less than in 2019, right? Now that it has possibly continued,". So, I think that's the first question - "It's lower dividend payment. I don't see our investing in this high-risk ETF is justifiable anymore. What is other than a possible hedge to the US Dollars, the view on that ETF?".

Freddy | 03:37

I think you've got to go back to the mandate of the portfolio and our global Core portfolios, they're sort of growth-oriented. So we tend not to focus too much on dividends. We actually think more about dividend reinvestment at the portfolio level because that minimises the withholding taxes on dividends. Unless you are in the Income [00:04:00] portfolio, which we have one in Singapore for now - that one actually, it still maximises total expected returns, but it has a certain minimum requirement for dividends. But in a global case, it was actually different. But if I actually look at VNQI, which is international ex-US REITs - actually on a total return basis, it's done very well for the year. It's actually up, let me see - 6.13% so far year-to-date annualising 22.98%. I'm not sure if the focus on just the dividends would have missed the big rebound in REITs that's outside the US, right? And part of the things that the investment committee at StashAway looks at is that, we leave the algorithm to sort of be given a risk target, we give the algorithm the room to optimise for maximum returns. The investment committee, including myself, our role is to sort of present evidence on risk concerns. If it's severe, we would present the evidence at a committee, we vote whether to overwrite the algorithm or not because of risk reasons. And in this case, we've been discussing it for a long time. The reopening of the economy is still not really that close, but the vaccine drive is accelerating, the market is forward looking and it's going to sort of start rebounding. And that's exactly what VNQI has shown us. That's exactly what the Straits Times index - which is not a lot of tech, a lot more blue chips - shows us the same, the sector rotation. Even in Singapore, the REITs have rebounded as well. So in internationally ex-US, that team, the sector rotation team, the reopening team is still gradually being played out. And so from that angle, I don't see - at least the committee do not see any warring [00:06:00] room in terms of risk. And in terms of return, it has already done amazing for the year.

Philipp | 06:07

Yeah, no, absolutely. So great question Wilsven, hopefully that answered your question from Freddy as well. Let's move on Freddy for the next question, it's from Leehiung Chong -and he's asking, "Hey, in view of the continuation of China government to control tech behemoths, would you consider reducing exposure to China tech?". I think he's also referring to, I think there was some more about Ant Financial this week as well in the Chinese news and Alibaba. So what's your view on that? And how do you see that play out?

Freddy | 06:41

Well, there's a short view and a long view. Actually it's true. In the next 1 year or 2, you're going to see some headwinds in China tech exposure - the ramp-up on antitrust that I alluded to earlier. I see it actually as a healthy development going forward. But maybe the next 1 year is going to sort of slow the growth in the stock markets for these firms. But it's actually an important one because - as you know - China's tech ecosystem is dominated by a few kingmakers. So the Alibaba Group is one, Tencent is the other one, and maybe Baidu in the past was closer - now it's a bit further. So there's really a few kingmakers and you've got all your new economy stocks, all the startups, and you've got Ant Financial under the Alibaba Group, and you have Meituan and Didi Chuxing, they're all belonging to different kingmaker factions, right? Now to level the playing field and to reduce systemic risk - because if something happens to the kingmakers, there's chain reactions. And so antitrust is actually a way to reduce systemic risk, level the playing field for even smaller firms for them to start growing with more fair play. I actually see it as a positive long term. [00:08:00] Now, let's talk about long term, right? You cannot not invest in China, especially China's new economy and technology stocks. The government is embarking on the 5/10/15-year, the largest investment in human history, to restructure the entire economy even further for tech revolution, right? Already you see the US-China trade war has created a breakup in the global ecosystem into two. You look at semiconductors, China is going to build its own, is going to spend so much more money in the next 5-10 years to build its own - doesn't want to rely on the West, so you cannot not invest in China. These are opportunities. And you also see 5G network build-up, China is already talking about 6G, and so you simply cannot not be in China if you're a long-term investor. So ultimately it comes down to your financial plan. If you are a dollar-cost-averaging type of investor who invests your savings every month, it's actually great news to have the next 1-2 years that this part of the portfolio is down because you're averaging in the market at a much cheaper level and you're building up your portfolio. If you're a lump-sum investor, it will be more noisy, more volatile for you. So it's time to revisit that plan. If you are nervous about it, you either reduce the risk level because it's a lump sum or you actually break up the lump sum into pieces that you would deploy at different times in the market. It's really ultimately about how you want to build up your financial plans. And so I don't disagree that short-term have wins. But we are here as savers and we're here to invest for the medium and the long term.

Philipp | 09:41

Yeah, great analogies. And great to say that as well, Freddy. So next question, Jerry Kiat, he's saying, "Hey, StashAway, in January, Freddy showed us 2020 returns. Is there a similar chart for annual dividend payouts based on each risk profile? Having [00:10:00] an overview will be great to understand the best risk profile to choose during retirement.”.

Freddy | 10:06

Well, we have charts for not just 2020, but any period even pre-StashAway, we have the backtest data as well, and the actual data for the last 4 years. However, I'm a bit concerned about the focus on dividend versus risk, looking at that rather than the total expected return versus risk. Like I said, that approach would have missed out on Singapore REITs, would have missed out on international ex-US REITs that have rebounded strongly. VNQI, as we mentioned earlier, has gone up by 6.1% for the year-to-date, annualising 22.98%. So that approach would have meant that you will miss that. So it's not really a focus on the ratio. The ratio also would sort of drive you into a concentrated portfolio as well, because if you look around the whole list, if you really just do a return divide by risk ratio or dividend yield by risk ratio, you always end up with only a few top-ranking ones and you end up with a portfolio that tends to be concentrated because it fails to account for correlations. It fails to account for when the economic environment changes, how the relationship changes. So it's a lot more complex than just looking at returns versus risk or dividends versus risk. So it's a great question. It's a great thought process. Thank you by the way Jerry. And however, I want to take a more holistic approach to it. If you really want to see it, do post it. I think our customer engagement can come back to you Jerry. We'll get someone to come back to you with the table of data, but I would caution against overemphasising on it.

Philipp | 11:44

Oh, absolutely. Great, thank you, Freddy. Thank you, Jerry. Thank you, Leehiung. And also thank you, Wilsven, for all the questions. As always, happy to answer any of them during our weekly calls. What I do want to mention really quickly before we get off Freddy is, we have a couple of, a [00:12:00] few actually, upcoming webinars coming up in all of our different regions. So in Singapore, we actually have two different ones. We have Buying versus Renting A Property. So if you're interested in learning more about Buying versus Renting, that's on Tuesday, the 20th of April, 7pm to 8.30pm. Sign ups are in the show notes below, as well as on our website and Facebook and any other social channels you can find us. We also have another one, which is called What You Need to Know to Start and Manage Your Business in Singapore. That's actually a combined event between StashAway and Sleek. That's on Friday, the 23rd of April, 4pm to 5pm. In Malaysia, we have an event called An Inside Look into StashAway. So, it really shows you what StashAway is all about. You can ask a bunch of questions. That's on Wednesday, 21st of April, 6pm to 7pm. And then for our MENA audience, we have an event called How to Plan for Your Retirement, Wednesday, 21st of April, 6pm to 7pm local time. Again, all of those links are in the show notes below so you can sign up and we hope to see as many of you as possible. Otherwise, Freddy and myself, we'll see you again next week and hopefully we'll get a bunch more questions from all of you. Looking forward to that. Freddy, you have a wonderful weekend coming up. Same to the audience and we'll be all with you again next week. So bye-bye.

Share this

  • linkedin
  • facebook
  • twitter
  • email

Want more?

We thought you might.

Join the hundreds of thousands of people who are taking control of their personal finances and investments with tips and market insights delivered straight to their inboxes.