20 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:
Developments for the vaccine are coming along [0:14]
Australia-China trade tensions develop [2:25]
China ramps up regulation on the tech sector [4:47]
00:01 | Philipp Hello and welcome, everyone to another weekly market commentary from StashAway. With us of course, our Chief Investment Officer, Freddy Lim. Hey, Freddy.
00:09 | Freddy Hey, Philipp. How are you doing?
00:14 | Philipp I'm doing OK. We got a lot of questions from the audience. We also have a few updates to share with our audience today, kind of building up from last week, Freddy, right? So, let's get straight to it. We already shared some great news on the vaccine during last week's talk. But there are more updates. Do you want to explain to the audience what that is?
00:39 | Freddy Well, the other contender with the Pfizer-BioNTech version of the vaccine also released Phase 3 trial results, and has 94% efficacy. Very similar results to the BioNTech version. The only big advantage with the Moderna vaccine is that the deep-freeze storage issue is not there. You can store it at around 0-2°C, which is a normal temperature for most vaccines. And that really helps with distribution in itself. So, we have great news there. They are ready. I think, Pfizer-BioNTech as well, they have released the safety data from those trials as well by now and Moderna, in coming weeks, would be doing the same thing. And if that goes well by the end of the year, another month to go, we have fast-track approval for these two vaccines.
01:39 | Philipp Absolutely, and I think this is where you're seeing the stock market react currently, right? Reached new highs, I think, on Monday this week, right? It's mostly driven by those vaccine news, do you think?
01:53 | Freddy Well, in my opinion, the markets did go up, but the momentum is sort of not as strong as I believe we would have been. And I think the biggest issue is there's a rebalancing that's happening between different sectors in the index. And in particular, we call it ‘sector rotation,’ where there's been a lot of fund flows out of technology names. They've been doing very well during the pandemic and into beaten-down sectors— more traditional sectors that actually may have a chance of bouncing back now.
02:25 | Philipp Absolutely, that's great on the vaccine front. One of the other tensions that's heating up: We always talk about the trade war between the US and China over the last 6-7 months. What also has happened is, there is some tension building up between China and Australia, right? And I think it came to a screeching halt this week when the Prime Minister, Scott Morrison, went to Japan. But maybe you can let listeners know a little bit more about why it is an important trade route between China and Australia and what's going on there at this moment?
03:03 | Freddy Well, instigation by Trump's presidency, obviously, emboldened Australia. It's been many years in the making where a lot of accusations, allegations, comments on each other have happened. So essentially, the Chinese side is saying that, well, it's up to Australia to revive the relationship. And China's been doing a lot of small gestures, you know, like a piecemeal approach, banning the import of this agricultural commodity and that, it's been stacking up to a list of at least more than 12 to 14 items now. Scott Morrison recently went to Japan and visited Prime Minister Suga and also to try to talk about other alternative trade relationships. And his comments were also not very reconciliatory towards China so far. It seems Australia is quite determined on diversifying their trade routes.
04:03 | Philipp So, do you see any bigger geopolitical risk there? Or is it just a small thing that will work itself out?
04:12 | Freddy Well it was a small thing. It just tells me that, I think I mentioned before, under the Biden presidency, it's most likely that the policy towards China remains the same as Trump, except that the Biden administration will work with allies like Australia now, and maybe Germany, and all the others to pressure China internationally and also to do so by lodging formal suits at the WTO. So, it tells me that more countries are actually going to join in and rally around each other to engage China, that's for sure.
04:47 | Philipp Yeah, absolutely. So, let's get to the user questions, Freddy. I said we have quite a lot, but actually three of them, we can actually basket together. So, Simpson Toh, Malvin Fang and Tan Yong Boon, I think all three of you want to know the same thing. So, they're asking us, "Philipp and Freddy, China has just proposed antitrust laws to curb the power of their Big Tech companies. What's StashAway's view on this issue, especially knowing that we do have KWEB as a portfolio holding?”
05:20 | Freddy Well, some of you may have seen me being on air with CNA or other channels. I have been speaking about it. Just to give you the numbers first, for quarter-to-date, between end of September to yesterday, Alibaba is down nearly 13%, and the KWEB, the KraneShares, China Innovations ETF, that StashAway has bought, up 7.4%: Completely different directions and how did that happen given that KWEB actually has 9.8% market value in Alibaba? It goes to show that there are other segments of the China tech sector that's providing the offset. And in particular, there's also chip makers—5G network beneficiaries—that are in the mix that provided some of those diversification. So, let me just give you the score first: We are not worried because, you know, +7.4% vs -13%. So again, power of diversification.
Now on the issue of China antitrust laws: It's long in the making. I was actually hoping for this to happen even many years ago, because the tech players, the digital banking players, are getting really, really huge in China and they're getting away from the traditional banking requirements on deposits, balance sheet insurance, and how safe are they? And they compete ferociously on acquiring users by sponsoring a lot of rewards programs. When you've got cash with these digital banking entities or microlending entities, you get a crazy-high amount of yield. And so from the regulator angle, it's actually about risk management before these entities are allowed to go into a public listing, the IPO. China is not going to change its view on trying to bring back more tech players to Hong Kong and China exchanges, that remains unchanged. They don't want to kill it. Why would they? The thing is that they wanted to be healthier first before that happens. It's really about consumer protection, and aside from all the rumours of Jack Ma's comments on the regulators and all that, but I truly, when I look at the actions in the laws, it's really about consumer protection, data privacy; finally that's been on the table for a long time, and also collusion among firms to to beat out smaller rivals. And also lastly, listing requirements: There's a lot that goes in there, like, for example, a lot of Internet companies use a certain structure called VIE, Variable Interest Entity, to list overseas. The accounting hasn't been very transparent, and the US has been having these issues as well. So, they want them to come back and list in domestic exchanges with more transparency, with more consumer protection that I welcome.
08:34 | Philipp And the other question we got was from Sebastian. Freddy, he's saying, "Hey both, thanks for the insights." He has more of a feature request and is asking, "Can you introduce a segment in the show where you discuss positions in the StashAway investment universe that have undergone significant movements? +5%/-5% or more in the previous week. This way you could discuss recent economic developments and it becomes more apparent how this affects the portfolios.".
09:03 | Freddy Yeah, actually, that's a fantastic suggestion. Thank you, Sebastian. And I mean, you probably wouldn't get a lot of +5%/-5% over the week, but it has happened quite a few times this year. So, they could actually invite interesting topics on air. We would definitely take that into consideration. But it's also, if I think back on this a bit more, our investment universe is a bit more complex because everybody's portfolio has some differences in asset allocations and if I may expand it to include everybody's portfolio, the list then gets bigger. But it's still not big enough to include everything in the world under the sun. And we may actually, by using this approach, still be missing certain important topics that Philipp and myself are talking on air. We try to look at overall, the world as it is, without trying to constrain ourselves in the universe. But I think we can combine the two approaches to make it more interesting. So, it definitely is a great suggestion.
10:12 | Philipp Absolutely, we'll take it into account, Sebastian, and you'll see maybe in the future, you'll see one of those segments featured from you. With that being said, thank you Freddy for everything. We do have a few things to share with you. We also have upcoming webinars. In Singapore, we actually have a StashAway Investment Certification program that's running for the first time on 21 November, 9.30am to 12.30pm, links are in the show notes below so you can just click the link down below. In Malaysia, we are also offering our Investment Basic seminar, that's on the 25th November, 6.00pm to 7.00pm. Again, the link is in the show notes below. On top of that, we also have a new podcast episode that is just released over the weekend. It's called In Your Best Interest, our podcast. You can find it also in the show notes below, as well as anywhere you normally find your podcasts. And this week, we talked about starting your own business with Daniel Walker, he's the founder of Zegel, a legal tech company, and he shares his experience on making a mid-career switch to be an entrepreneur. And if starting something on your own is something that's always been on the back of your head, this is a great podcast to listen to, so join it in the show notes below. Thank you, Freddy. Thank you, everyone, for listening. We'll be with you again next week. As always, we'll speak to you then, goodbye.
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.