12 November 2020
Watch Freddy Lim, StashAway Co-founder and Chief Investment Officer, and Philipp Muedder, Head of Financial Planning, discuss the latest global events and their impact on the markets.
In this episode,
President Trump challenges the vote count [0:15]
COVID vaccine developments from BioNTech and Pfizer [1:51]
Market reactions to the US elections [3:59]
Will StashAway create a US-based income portfolio? [7:37]
Would StashAway consider a 100% equity-based portfolio in the future? [9:50]
00:01 | Philipp
Hello and welcome everyone, to another weekly market commentary from StashAway. With us, our Chief Investment Officer, Freddy Lim. Freddy, how are you?
00:09 | Freddy
Howdy everybody! What a volatile week it has been.
00:15 | Philipp
It's been a start to the week, huh? Obviously, lots of updates that we have had since last week. Last week the focus was on early election, we didn't even have a result the last time we spoke. I think the last time we spoke actually, Donald Trump was still leading in most of the polls, but we obviously knew that the mail-in votes were still to come, right? So, with that being said, obviously the president-elect so far is Joe Biden. We already talked a little bit about the implications in terms of the US government, stimulus, and things like that. Do you have an update now with at least 90% of all news outlets saying it is a Biden victory?
01:01 | Freddy
Well yes, by the electoral votes that we have seen, the president-elect is Joe Biden, and however, the problem is the Republicans and President Trump himself, they are now contesting and challenging the election results. What's going to happen is we're going to probably go to a recount for some states with that automatic recount mechanism in place. But for some states, the local courts have to decide whether they want to do a recount. So, it's going to be more uncertainty and the seeds for that, for more uncertainty, is being sown. And that's sort of making the market flip flop quite a bit the last few weeks other than the vaccine news.
01:51 | Philipp
Yeah, and that's the next topic I want to talk about. So, I think we gave a big vaccine update probably 6 or 7 weeks ago, right? And you already talked about some of the players that are getting closer to one. Obviously, big news from BioNTech and Pfizer, right? Maybe, to the people who haven't heard about it or at least are not sure what that means, give an update?
02:13 | Freddy
Yes, it's actually huge news. Pfizer in collaboration with BioNTech, that vaccine is the front runner right now, and they just finished the Phase 3 trials and they released the results with more than 90% of efficacy, with a large sample of 44,000 people being tested. There's still questions, which is, whether the subgroups, especially with the elderly groups, whether it works well, that data remains unseen. And also, we're still in a period where the next couple of weeks, the FDA is working with them to review upcoming data on safety. So, as you know, safety data is about the trials done in July and it requires two doses, right? And each dose, there's a 2-month period where there's a follow-up review to ensure safety checks and standards. So, that data is about to come somewhere towards the later part of November. So, it's going to enter into the next critical phase. And also around that time, the third week of November, Moderna, the second front runner is also finally going to release their Phase 3 July trials. So, they are very closely contending with each other. And it's a very high chance that by the end of the year, we may actually have two vaccines being on the emergency authorisation track. So, that's the good news where it has created a lot of.
03:48 | Philipp
We see some kind of light at the end of the tunnel here at least. And I think any news that is positive in that regard, it's getting cheered on by the markets, right?
03:59 | Freddy
Absolutely, and we've seen on Friday and Monday, what we call a ‘sector rotation’, where there's a huge amount of outflows from pandemic winners, like tech names, into the beaten-down sectors of economies. So airlines, hotels, and REITs are actually starting to have a life of their own. So, without the political uncertainty that the Republicans and Trump was sowing, it would have been a very, very good general feature for the market and with a sort of rotation out of tech into the other sectors. But that's now being complicated by the challenge on the election results. So, this is a very messy situation. We continue to caution investors to focus on risk management today.
04:51 | Philipp
And I think that's a good point that I wanted to get to. So, we talked about this because a few of the listeners, on earlier shows, they were already asking about the sector rotation. Is it coming when the vaccine comes? We already touched on this. So, what can investors do and what does StashAway do in order to be the rock in your portfolio like in your financial life? What can people do now with this rotation happening or in general for investing, right?
05:21 | Freddy
Well, like I said earlier, we have a very volatile market these last couple of days. But the truth is StashAway portfolios were pretty much flatlined. And that's a reflection of our re-optimisation back in mid-May this year where the algorithm has gone into an All-weather Strategy. So, as the name suggests, it's just balancing out reward and risk, and trying to be as resilient as possible, beefing up defenses for portfolios as much as we can into the elections. And it goes to show a lot because even with so much noise and flip flop, the portfolios were flatlined. So, I see that as a result of the re-optimisation back in May. In that re-optimisation, we reduced US Dollar exposure with Gold. We bought China Tech rather than US Tech because of the antitrust risk depending on whether the Democrats sweep both houses. There's just so much stuff going on. So, we're moving away from the most contentious area while retaining a huge balancing act. And that's showing up this month today so far, in resilience.
06:32 | Philipp
Absolutely. And to add to the goodness of the vaccine, for everyone in Hong Kong and Singapore, you're about to be able to travel again, right?
06:43 | Freddy
Yes. That's a piece of good news to end this conversation. You just have to do a COVID-19 test and you will be able to travel to Hong Kong without a quarantine. However, having said that, I also want to say that today's also the day where Hong Kong officially lost its independence back to China. In the news this morning, China came up with a Bill that it is a patriotic law or act and then it was agreed upon by the Hong Kong side of things. So officially, it's integrated into China. And as you know, China has got a new requirement. Any foreign visitor to China would have to take 3 COVID-19 tests, different tests before they are able to enter. So, who is to know whether the Hong Kong-Singapore bubble would end up with some changes as well with its requirements?
07:37 | Philipp
Yeah, lots of ifs still. But let's see how this works out for the people who do get to go. But again, I think all of these things, they at least lift the spirits up, right? Vaccines, some travel bubble after being so diligent in Singapore of staying home, right? I think maybe we do get rewarded for this soon. But, we do have two questions Freddy though, really quickly, that I wanted to get to from the listeners, from last week's video. And the first one is from Marc and he says, "Hey Freddy and Philipp, thanks again for the market commentary. It's not a question this time, but a comment,". He agrees fully that a US-based income portfolio probably would be very useful. That's something that you mentioned last week and looks forward to that addition. He's asking though, "Are there more products in other currencies like US Dollars, for instance, such as StashAway Simple™ in USD.".
08:34 | Freddy
It's actually one of the things that we are looking at, I'll be very open here, all the many things that we are looking at to do are certainly on the table. Its timelines are unclear at the moment, but also you have market realities, yields on the US side are really low, right? And also, two, the US Dollar actually faces depreciation risk as well because it is a country with the biggest muscle in terms of central bank stimulus. And if we somehow had another stimulus package, big or small, the effect is to actually see more US Dollar depreciation somewhere down the pipeline. And we've seen that as a continuing theme, these last couple of days, the Dollar just continues to depreciate. So, it's actually from the market cycle perspective, it's actually not a product with a lot of attractions at the moment. But it is one of the stuff that we are looking into doing. In my personal opinion, a more globally-diversified version of it is more interesting. A more income-generating one for that portfolio is actually more interesting than a pure US Dollar version precisely because of currency weakness.
09:50 | Philipp
Correct, yes thanks Freddy. Just to wrap it up, a question from Simon Chong. And he says, "Hey guys, just wondering if you'll consider having a 100% equity portfolio in the future, something like 70% US and 30% international, for example?".
10:07 | Freddy
Well actually, prior to our re-optimisation in May, we already have one, it's the StashAway Risk Index 36% risk level. That particular risk point was 95% exposed to equities and 5% in bonds. But because the algorithm has seen too much uncertainty back in May, we moved into an all-weather strategy. So, it actually brought about quite a good number of protective assets, up to 20%, particularly with Gold. It was a cyclical decision, but at some point when the economic numbers continue to come in and strengthen and confirm the growth track, you will go back to a 95-5 portfolio. So, it's almost like 100% equities in good times. As you know, we are not in good times right now, we're in a technical recession. Our algorithm is in an All-weather Strategy. That's why you're not seeing a 100% equity portfolio. But we already had it before.
11:09 | Philipp
Great, great explanation, Freddy. I think, Simon, if you want to learn more about this as well, you can always join one of our webinars, especially the one on ERAA® and the deep dive that Freddy does every other month. So, sign up for that If you want to learn more about this. For everyone else, we do have two more upcoming webinars. In Singapore, on 24 November, we have a StashAway Investment Certification class. So, you can take that class. It's from 9.30am to 12.30pm, 24 November, the links are in the show notes below for you to sign up. And in Malaysia, we have our Personal Finance Basics webinar, which is on the 18 November, 6.00pm to 7.00pm. Again, links in the show notes below, as well as on our website where you can find them also. Otherwise, Freddy and myself will be back with you next week and have a wonderful rest of your week. Goodbye.