Market Commentary: Sector rotation affecting tech | Drop in Gold prices

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. Is the recent selldown of the KWEB ETF a result of the Section 230 reform? [1:40]
2. Dropping Gold prices are a result of higher interest rates [3:53]
3. Managing risk by including bonds in your portfolio [6:04]

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, how are you?

Freddy | 00:11

Hi Philipp! Yet another week has passed. Lots of questions.

Philipp | 00:16

I know we're kinda not going to have a real market update, but it will come automatically by the questions today because we did get quite a good amount of questions that I think most people will be asking themselves after the last 7 days. So we'll get into that here in a second. Before we do though, I just want to ask anyone that if you like our show, if you enjoy the content to please like the video, subscribe to our YouTube channel or our podcast channel so that you get the most updates on time. So please do that. On top of this, I also want to announce we have a new episode of our other podcast called In Your Best Interest. And in the new episode of In Your Best Interest - that's out this week - you can find that anywhere you can find podcasts, Apple Podcasts or Spotify, wherever else you listen to a podcast, you can find it there as well as on our website. And our guest for this episode is Henek Lo. He co-founded Hype Asia, which is a venture builder helping high-growth startups expand into Asia. He did this after leading the growth of Airbnb and WeWork here in Asia as well. So in this episode, Henek shares with us his career journey and some of the hurdles in the road for startups looking to expand into Asia and the rewards that lay ahead of them if they do want to succeed here. So the link to the podcast will also be in the description box below as always. With that being said Freddy, let's get to the meat of it and let's start with Jason Lim. He had a question and he's asking, "Does the recent selldown in KWEB, so this is a Chinese-tech ETF for people who are not aware of this ticker symbol, has anything to do with Section 230 that we mentioned last week, when we talked about just tech sell-off in general, even in the US right, Freddy?”

Freddy | 02:05

Yeah, we talked about it in our show last week, and that's definitely a big cause for it because essentially now, the antitrust measures are going to be ramped up on big tech. It's harder for them to not be liable for content posted by users. But at the same time, there's other factors at play. We sort of know that; we've been talking about this last year Philipp - sector rotation. We talked about the vaccine development being a big reason that can drive fund flows out of the pandemic winners like tech into the other more beaten-down sectors of the economy from here, right? So I think that theme is now starting to really be in full swing, because if you look at the numbers on my screen, small-cap is up, let me just have a look, small-cap is up like 22% for the year-to-date. Energy's up 41%. So the rotation is there, REITs are starting to turn around as well. So sector rotation plus Section 230, yeah. I would say it's behind it. But I also would like to close with a statement. That we think technology fundamentally is a long-term theme. The disruption is going to brink, it's not just going to stop because the market is going to slow later. Especially in China, we've seen the NPC, the National People' Congress, they came up with the next 5-year plan heavily focused on rebuilding their own ecosystems for chip-making, semiconductors and of course, the 5G global network build up. Those things are not going to change.

Philipp | 03:53

Yeah, they're not going away, right? And I think, you know, when you think about technology where it was in the early 90's, then - you know - 2000's, you have also these corrections then, very normal in markets. It's also within sectors. It doesn't mean that in the long term they will not play out the way we think they will, right? So maybe it's even a good opportunity to put your money to work that was sitting on the sidelines. With that being said Freddy, the next topic that came up throughout the questions from quite a few people is Gold prices, right? So for Ng Jie Tson, he's asking, "Inflation expectations are rising, yet Gold prices have been trending down. One argument is that real interest rates are supposedly higher. What are your thoughts on this, Freddy?".

Freddy | 04:37

I think, let's simplify the problem. Inflation isn't really here. And what we've seen in Gold and the bond market has told us is that the market needs to digest a few things. First, the $1.9 trillion is about to be passed. It has to be paid for by long term issuance of government bonds. Second, under the Biden administration, $1 trillion to $1.5 trillion in clean energy in terms of grants and tax credits needs to be refinanced. Another trillion will go to the infrastructure of bonds because they need to rebuild the very antiquated infrastructure in the US, they have never invested. They're now going to do so after so long. That's going to be another trillion, right? So to us, the news is already almost out there, yet we are here. The world's not ending yet. So, it seems like it's good news in that these things are now coming out. The market is digesting it. Now is the opportunity, the role of bonds in portfolios don't just go away. And inflation expectations have risen a little. But the main reason behind Gold's drop was a rise in interest rate. A rise in interest rate was created by huge amounts of government bond supply expectations.

Philipp | 06:04 

Yeah, and that's actually the next question then, right? From blueandyellowfire, the person is asking, "Hey Freddy, Warren Buffett asserted into his latest annual letter that fixed income investors face a bleak future, right? And he's saying that bonds are not the place to be these days. So what's your take on that? And how do you see StashAway counter that or not?".

Freddy | 06:26

There's a bit of truth for that in high-yield bonds, because the credit ratings are... They're called junk bonds, right? And for taking that kind of risk, that kind of credit risk and market risk with a fixed income, with a fixed return is sort of not a good deal for investors. You should always be in the stock market then and do it in a diversified manner. But there are bonds with protective qualities and in particular, safe ones. And even if they don't yield anything today, when there's a big market crash, they will continue to function as protective assets. So we've seen it happen back in the 2009 cycle, the 10 years from there, European bonds - negative yielding. Went more negative, right? They were zero and people were saying the same thing. Now they’re -90 basis points. So, it doesn't matter. Its role as protective assets remains the same. The only problem is you can't get fixed income out of them, right? But for us at StashAway, it's about risk first, then return. You do what you can, but you fix your risk. You manage your risk first. That does not change.

Philipp | 07:35

Absolutely. Thank you Freddy, for this. And again, thank you, everyone, for your questions. We really appreciate it. If you want your questions featured, please drop them down under the video below or send us an email to support@stashaway.com and we'll pick those up over the next couple of weeks. We do also have quite a few webinars coming up. So if you want to learn more, you want to hear more from Freddy, there's things for you to look out for. So next week, for all of our regions actually, Singapore, Malaysia, as well as the Middle East, we have StashAway's Market Outlook run by Freddy. That's on Tuesday, 16th March, 7pm Singapore and Malaysia Time and 3pm Gulf Standard Time. So if you want to hear from Freddy more about his outlook, join that one. We also have a separate event for our Malaysian audience. It's called How to Invest (The Right Way) using ETFs. That's on Wednesday, the 17 March, 6pm local time. In the Middle East and North Africa region, we have Investing for Women. It's on Wednesday, 17 March, 1pm Gulf Standard Time. For Singapore, Bring StashAway to your Workplace. It's a new webinar that we are launching. That's on Thursday, 18 March 12pm, so noon. We hope to see as many as possible of you. The sign up links again are in the show descriptions below. We're looking forward to next week, again Freddy, and until then, we wish everyone a great week and good luck. Bye-bye.