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 faces a second impeachment [1:00]
Conference Board Leading Economic Index showing dramatic improvements [3:08]
How investors can prepare themselves for 2021 [5:17]
BlackRock x StashAway Market Outlook 2021 [7:33]
00:01 | 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?
00:09 | Freddy
Hi Philipp and hi to everyone else as well. And once again, Happy 2021!
00:15 | Philipp
Exactly, Happy 2021, it's starting to be as eventful as we left 2020. But before we get to it Freddy, I just want to mention to everyone that we also have a new podcast episode out of our In Your Best Interest podcast. And in that episode, we have a great guest, his name is Mr. David Gerald. He's the CEO and founder of the Securities Investors Association of Singapore. And David and I, we talked quite a bit about investment scams, how you can spot them, how you can avoid being caught in them, and resources that are available to do the proper due diligence for you. So, you can listen to this episode by going to stashway.com/podcast or searching for In Your Best Interest in both Spotify, as well as Apple Podcasts, or Google Podcast, or wherever else you listen to your podcast. Freddy, obviously, like I said, eventful week already, right? We had the second impeachment of Donald Trump. I'm not sure if that's a record or if he's the first one to ever do it, but what are your thoughts on this and how is this shaping up?
01:25 | Freddy
It's probably a Guinness World Record and I hope it's the last time we will talk about Trump again. So, he's outgoing and we should move forward. But yes, there are complications and dynamics that comes with what Trump was impeached for. In particular, the incitement to the riots that stormed Capitol Hill. That's now put a lot of Republican senators in a bad light, especially those who supported Trump in decrying the election results, not acknowledging Biden's win. So, already a lot of companies and institutions that used to give funds, donations to these senators, they were pulling funds. So it comes with a price already for a lot of people. And I would take it one step further. We already know that the Democrats, they’re now split in the Senate with the Republicans, 50-50, and they have the swing vote in favour of themselves because of the vice-president, Kamala Harris. Actually, more than that, since Republican senators are looking bad, there's also a pressure now, right, to do something popular. And the last time, they were the reason why the fiscal stimulus package was so small. So, the chances now in the grand scheme of things, the chances for a new fresh stimulus under the Biden administration is a higher probability than before.
03:08 | Philipp
Yeah, I totally agree on that. And Freddy, I think that goes hand in hand with one of the questions we actually got from one of our listeners that we picked up from Garry T, and he said, "Hey, thank you for the videos. But what's the view of the market right now? Is the rally actually sustainable? What are the indicators telling you, Freddy?".
03:30 | Freddy
Well, so other than the reason being more stimulus coming in to disconnect the market again from the real economy, on the real economy itself, leading economic indices have improved quite dramatically. In particular, our favorite indicator, the Conference Board Leading Economic Index, has gone from -13.5% year-on-year back in March. The May, June quarter has now rebounded all the way to -2.2% year-on-year only. So, the contraction in the economy is a lot less severe than before. And this number is not distorted by the stock market or stimulus. So, this is a true indication. And we do have vaccine progress. So overall, there are reasons to believe that 2021 would not be another, it would not be as bad as March 2020. Having said that, I do want to caution that I think Garry T also probably drew inspiration on this, it's that valuations are not cheap, right? So, that just means that this is probably a year of a more normalised return in stock indices rather than a 20% or some crazy 30%, 40%, 50% numbers. Let's say for tech, you are looking at something more subdued, something more normal and more average of the past years. And that's pretty good news, it's not bad news at all. It just tells us to focus more on diversification and to source returns from more places than just a single source.
05:17 | Philipp
Exactly. It comes back to the diversification we always preach, right? And I think that goes hand in hand with another question that our customer experience team received from one of the clients, right? And the client wrote in to say, "What are your thoughts Freddy on the potential change in the control of the Senate?," which you already mentioned earlier, "But given the expected challenge to Big Tech, what is the outlook for US equities in 2021?". So we kind of touched on this, but I think I'm getting the same questions a lot, right? What do you think about big tech? Are they going to get broken up? Are they too powerful? And I think last week really highlighted this again as well, right? If someone can be just shut out of their platform to speak, what impact do these things have? Is this going to have an impact on these big tech companies?
06:08 | Freddy
Well, for sure, the greater presence of the Democrats across all chambers of the US Congress now will ramp up pressure in terms of antitrust measures against big tech firms, but they will put up a good fight. They will muck it up into a lot of legal processes and counter lawsuits, and protest, right? And it will be years before anything will happen. But the pressure itself would be enough for markets to start focusing not just on tech, but to start looking at other beaten down sectors during the pandemic. And tech being the pandemic winners, the vaccine itself already has the chance of creating a so-called sector rotation out of tech into something else. And now with antitrust probes, it's just going to make it more possible. And so I think for 2021, the biggest theme for investors to prepare for is sector rotation, and at StashAway we have been preparing for this for some time now. And diversification is also another way to minimise the impact of being too concentrated in tech names, right? So I would say, yes, we need to prepare for it.
07:33 | Philipp
No, absolutely. So thank you, Freddy, for this. I think we had another question, but it was kind of going into the same direction, right, of indices overheating, which I think we already covered with the two questions before. So, again, thank you to everyone for sending us a question. Always feel free to do that either if you listen to this on YouTube or Facebook, put them in the comments section. We'll pick this up. Otherwise, always feel free to send us an email to firstname.lastname@example.org. Otherwise, if you're interested, everyone, to learn more and see more about the market outlook, what Freddy thinks, we also have a guest joining Freddy next week, and it's actually BlackRock. So, we have a new webinar coming up. It's a regional one, so you can join from anywhere. It's Blackrock x StashAway Market Outlook 2021. It's on the 19th on Tuesday. Singapore and Malaysia, it's at 7pm for you. For the MENA region, it's going to be 3pm Gulf Standard Time. So please feel free to join, links are in the show notes below. You can also find this by Googling and going to Eventbrite or to our website or Facebook page as well. Again, thank you all very much for listening. And Freddy and myself will surely be back next week. Until then, have a great week. Bye-bye.
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