23 December 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:
Congress approved a $900 billion coronavirus relief package [0:14]
UK uncovers a new mutation of the coronavirus [2:10]
South Korea’s export volume is an indicator of global trade [4:21]
Do we need to turn our attention to China’s loan prime rates? [6:38]
00:02 | Philipp
Hello and welcome, everyone, to another weekly market commentary from StashAway. Of course with us, our Chief Investment Officer, Freddy Lim. Hey Freddy, how are you?
000:12 | Freddy
Hey Philipp, how do you do?
00:14 | Philipp
I'm good, lots of news over the weekend. We were hoping that the stimulus deal was going to be passed and I think by the time we're recording this, it's getting really close. I think it's already passed in the House. Do you want to give the listeners a little bit of an update on what they can expect from this and what does it actually entail inside the stimulus package?
00:39 | Freddy
Well, some in the US may say that the stimulus package is a joke; yes, you give a one-time $600 and then a $300 per person paycheck thereafter, it really pales in comparison to what other countries are doing. And it came too little, too late. Most likely, the stimulus package, new ones, would probably have to be renegotiated after Biden takes office. But then, what the stimulus package really does is to alleviate concern that a government shutdown may actually happen into the year-end. As you know, the US government is always on a perpetual shutdown risk because it's one of the most indebted countries in the world and is always breaking the debt ceiling, the statutory debt ceilings, right? As the Congress tends to lump together the negotiation about raising the debt ceiling so they can borrow from the markets again to finance it, the debt ceiling is always revised up and is always used by politicians as a tool to negotiate. In this case, fortunately, the relief package is lumped together with the government budget and we averted a shutdown risk in the nick of time. But it is too little, too late for people who are already unemployed for a while. And I personally predict that Biden would have to do more as he took office.
02:10 | Philipp
Yes. So, that's probably something to look out for, for the listeners and investors out there. What's going to happen starting January 20 when we have the official start date for Biden in office? That's the US, obviously, the US has been hit quite hard on the coronavirus front. Obviously, also, vaccination has started, right? But we don't just see this in the US. We see also huge, well, we have a mutation in the UK of the virus so that country is going back on lockdown. Europe is cutting its ties with the UK for the time being. And we've also seen more flare-ups in regional parts; Sydney has some kind of clusters, there's some other countries as well. How do you see this developing and impacting the markets?
02:57 | Freddy
Yes. When the virus spreads enough, it spreads around a lot, it can mutate because viruses would learn from having a lot of daytime experimentation on people that, to survive, they need to mutate, to transmit easier. But doing so would also make them less lethal. So, that's the upside in this situation, is that they're likely to be less lethal, but the strain would be easier to pass around and is going to turn out to be like a seasonal flu in the future. The UK case is the first time that it's confirmed a strain is a new strain, and that the mutation has actually happened. So, it's the first confirmation, but it probably already has happened in the US and other places. And so there's concern that, eventually when we get a vaccine, would it still be effective against a mutated virus? So, that's one question. The good thing about it is that it's going to be less lethal, right? So, all this means that there is no room for complacencies. We do have to manage the current wave of infections while waiting for vaccines to actually arrive at my arm for a shot. But we can't ignore that responsibility.
04:21 | Philipp
No, I think it's like you said, right? You can't let your guard down, because every time any country has tried that for a little bit, you've got the big flare ups-again, right? So, I think that's really something to look out for because we're still in the early stages of the vaccine and supplies are still limited. So, let's see how this works out over the next few months. But, as Singapore is a big exporting nation as well, one of the biggest ones in the world is obviously South Korea, right? And their overseas shipments rose less at a slower pace for sure, in the first 20 days of December. What does it tell you?
05:02 | Freddy
Well, the South Korean export figure is actually a well-watched indicator for global trade, it's like a gauge for global trade volume. I remember during Trump's unilateral tariffs over the places, the trade war, people gauged the effect on trade looking at South Korea's export numbers. And these export numbers have actually improved a little bit, but it's doing so at a slower pace and there was some fear that the recovery may actually start slowing down and may even reverse. If you look at the numbers, exports to China, South Korea's largest overseas market down 2%-3% in December to date. Shipment of cars fell 3.5%. Oil products shipments also fell like 50%. So, there are some areas of concern and people are sort of very focused on that. I would say that hopefully the start of vaccinations in countries would raise optimism that global commerce will resume. But again, is very uneven and could be a drawn out process. We've seen mutation. We've seen vaccines yet to arrive. So, it's my view that we're going to be in this very strange situation in a large part of 2021, waiting for the good news to be shot into your arm and yet not getting it, that little gap where you still have to be very vigilant.
06:38 | Philipp
Very vigilant indeed. The final topic, Freddy, before we get to a question from one of the listeners from last week is, what is an update on China? I know everyone is currently looking at these Chinese loan prime rates, right? What do you think? What do you think the telltale signs of those numbers are? And what are they going to show?
07:03 | Freddy
Well, people look at it because when they look at the so-called aggregate social financing numbers in China, is a big one. You can see that it's like how the entire society, government, corporates, and individual finance themselves. That number is huge. And there seems to be a sharp drop in corporate bond issuance, meaning, is corporate not issuing money because they don't need it or because they couldn't find takers. So, that's sort of the concern. And that's a retreat in also longer term corporate loans, the volume there as well. So, in terms of corporate, the credit outlook, is it sort of getting tighter and that's sort of got people's attention to the one-year prime rate, however, it's going to turn out to be a non-event because the People's Bank of China actively manages that prime rate. At the moment, this seems like into the year end holidays and into Chinese New Year, where there tends to be less liquidity, the PBOC would tend to be a bit more active in supplying liquidity. So, that would sort of contaminate the signaling from the one-year loan prime rate markets, you wouldn't see anything there. So, I would suggest instead, people look at the underlying lending and borrowing volumes like bank lending activities instead.
08:24 | Philipp
Yes, that makes sense. Thank you, Freddy. One question we got from the audience from last week that we wanted to address today, I know we had a lot of market news today, but for anyone else, if you have any questions, feel free to put them down in the comments section below so that we can pick them up next week. But Simpson Toh, he had a quick question Freddy for you. He says, "With the vaccine starting to distribute over the world, things might become a little bit better in 2021, right? What are some factors that StashAway considers before going back to pre-COVID kind of portfolios, with a different stance in the portfolio?".
09:04 | Freddy
Actually, I personally think there's no point in thinking about pre-COVID, post-COVID, because even if you go back, the vaccine comes, and everybody gets vaccinated, it doesn't mean the world will return to be the same. I think it's unlikely because the pandemic has made a lot of changes, some are permanent changes to how we conduct ourselves. So, for example, technology companies were in the limelight because of the pandemic. Does it mean that if we all get vaccinated, tech stocks would stop doing well again? It's hard to say because we probably realised that we needed more innovations. We need to implement more applications of those innovations. And the world is probably not going to go back to be the same. Whereas in the case of real estate investment trusts, you can argue that traffic volume at the malls would be back to before and REITs are going to do well again. That's probably a good example of going back to before, but not everything would be. So, StashAway looks at lots of factors that do not tell us to go back to the past. We look forward to the future and we'll let the data take us to the future instead of trying to have a fixed reference point. So, we look at growth numbers, a basket of growth numbers around the world. We look at baskets of inflation numbers around the world. We look at a basket of interest rate numbers across different markets and many, many other leading economic indices and so on. But also, just to qualify it also, that the market actually disconnected from the real economy this year. So, even while the economy starts recovering to pre-COVID levels, what would happen to the market, could be an entirely different thing because the market was just fast and moving. So, it's actually a lot more complex than just pre-COVID, post-COVID, we're prepared nonetheless, based on a large number of data, what they tell us.
11:08 | Philipp
A good question from Simpson, I think many listeners were probably asking themselves the same question. Thanks for the insight from you and thanks for Simpson for asking that question. Thank you, Freddy. We'll be back with our webinars, as I explained on the last video already, in early-January. So, look out for new dates and new topics to come up in early-Jan. Otherwise, Freddy and myself will be with you again next week. For everyone, some nice holidays coming up hopefully, so we wish everyone some good holiday cheer and we'll be with you again next week.
11:33 | Freddy
What can I say, Merry Christmas to all first in advance and if we don't see you before that, Merry Christmas and a Happy New Year.
11:48 | Philipp
Yes exactly. Thank you, everyone. Have a great day.
StashAway Management (DIFC) Limited is regulated by the DFSA (license number F006312) for the provision of arranging custody, arranging deals in investments, advising on financial products, and managing assets, with a retail endorsement.
StashAway Management (DIFC) Limited (registration number CL 3982) is established in the DIFC pursuant to the DIFC Companies Law. Its registered address is Unit 1301, Level 13, Emirates Financial Towers, P.O. Box 507051, Dubai International Financial Centre, Dubai, United Arab Emirates.