Everything you need to know about the investment outlook in 2020, even with the COVID-19 outbreak.
SingCapital hosted yet another successful annual Investment Outlook Seminar for 2020 on Feb 8, along with its supporting partners PropNex, Phillip Securities, and Aberdeen Standard.
The event took place at an opportune time – the day after the DORSCON alert was raised to Orange – when investors were feeling particularly jittery about the direction of their investments.
Nearly 150 attendees turned up at the Lifelong Learning Institute auditorium, masked and otherwise, to hear from esteemed speakers.
Alfred Chia, CEO of financial advisory firm, SingCapital, opened with a candid discussion about the implication of the DORSCON Orange alert and commended the attendees for their attendance. “You braved the novel coronavirus situation to come here today, to find out what investment opportunities are available. Because you understand that opportunities can mean wealth,” he said candidly.
Here’s what the speakers talked about during the seminar.
Climbing the wall of worries
The seminar commenced with a discussion by Peggy Mak, CIO, head of managed accounts, Phillip Securities, entitled “Climbing a wall of worries”.
“The key word here is ‘climbing’ and not ‘worries’,” Mak said jokingly.
Mak’s team predicts the Federal Reserve will make 3 rate cuts in 2020, following the 3 rate cuts in 2019. She noted that other countries had followed suit in cutting rates last year, leading to a yield hungry environment. “When there are rate cuts, everybody jumps into yields, so our REITs did very well last year,” she said.
This year, she expects more of the same.
“We see demand for REITs coming back this year, as the Fed continues to cut rates and as we see more uncertainty in the market. When there is uncertainty and anxiety, the first thing people will do is protect their capital in real assets, like REITs which have underlying assets, and even physical property,” Mak explains.
Compared with Sars in 2003, Mak believes the impact of COVID-19 will be much greater, because China is presently a much bigger force to be reckoned with, as a producer, trader, and consumer of the global economy.
For instance, China’s demand for metals represents 69% of global demand in 2019, compared with just 23% in 2003. At the same time, China is also responsible for 20% of global tourism spend in 2019, compared with 3% in 2003. In terms of imports, China imports over US$300 billion of goods from Europe and Central Asia, and over US$125 billion from US.
“When China consumption slows down, everyone will be affected,” she says. “So you can expect the market will correct more sharply with this disruption caused by the virus.”
On a more optimistic note, Mak pointed out that the Sars outbreak had a relatively good ending for the economy. After a 15% dip during the height of the Sars outbreak, the market rebounded to pre-Sars levels when Singapore was declared Sars-free by the WHO. By the end of 2003, the market had risen 33% for the whole year.
While she concedes that the global economy now is very different from 2003, and that China has put greater restrictions on the movement of goods and people compared with Sars, she still sees some bright spots in the horizon. “This virus might be short lived, but it could weaken currencies which helps exports in longer term, and it could weaken oil prices and help our margins as oil importers.”
For 2020, Mak expects COVID-19 to cut global growth especially in 1Q2020. Her preferred country exposure for equities includes Singapore, Indonesia and China. She remains negative on travel and tourism, materials and commodities, and discretionary spending, but is positive on real assets, consumer staples and the healthcare sectors.
“Things will be okay,” she concludes.
Return to prudent financial planning
Chia of SingCapital – who was both presenter and emcee for the event – spoke about one of the biggest fears about the current COVID-19 outbreak: Unemployment.
“During Sars, I did not feel as fearful as I do now,” he explained. “Tourism is at a complete standstill. This is affecting hotels, restaurants, and airlines. Cathay Pacific has already asked its staff to go on no pay leave, showing how serious the situation is.”
“Will this spark a wave of retrenchments? If people have properties and loans to pay, this will affect mortgage payments. And when it affects mortgage repayment, the whole vicious cycle will start.”
To that end, Chia emphasised the importance of financial planning, particularly among self-employed persons like property agents, during a crisis.
“If clients are too scared to visit showrooms or show houses, will this affect the property market? Yes it will,” he continues. “I hope it does not come to that stage, but it is important to plan your cash flow, debt management, and how to make good use of your wealth.”
He also recommends that people review their insurance to ensure they have the right coverage, particularly for medical needs, critical illness, and personal accidents. While Singaporeans who are suspected or confirmed to have COVID-19 have their medical expenses paid for by the government, he reminds attendees that all other ailments need to be self-borne.
“If you are self- employed and you are hospitalised, you lose business opportunity everyday. Who is going to compensate you?” Chia said, adding that they could speak with a trusted advisor like SingCapital for financial planning services.
The third thing people need to do, is to get advice on their mortgage from an advisor like SingCapital with experience in mortgage planning, he says. Chia believes that interest rates will fall this year, as governments take pre-emptive measures to cut rates in light of the COVID-19 outbreak. “So for homeowners, you should take the opportunity to lower your interest rate by refinancing. If you think that your employment is at risk, you need to do your finance plan properly so you can get through this crisis, because any change in your employment will definitely affect your loan eligibility.”
What about investing now?
Chia re-emphasised his 5 steps to building an investment portfolio.
- Understand your risk profile
- Know the purpose of your portfolio
- Design and build your portfolio
- Monitor your portfolio
- Rebalance your portfolio
“There is no right or wrong way to build an investment portfolio, because it depends on yourself,” he reiterated. “Understand your risk profile. The market may have gone up but you must also look at the risk, and know whether you can tolerate the volatility.”
“Every crisis presents an opportunity,” he continued. “If the market really comes down, it presents a tremendous opportunity to invest.”
“If you had dared to invest during the Global Financial Crisis, you would have made very good money with 3 digit growth,” Chia concluded. “This crisis might still be evolving, but bear in mind that the investment market tends to overreact.”
Continuing the China investment story, COVID-19 or not
Alfred Foo, director of wholesale sales at Aberdeen Standard Investments, explained why he remains bullish on China, in spite of COVID-19.
“We believe very strongly in the Asian story, of which China is a big part. Why? Because the greatest concentration of middle classes will be in Asia by 2030.”
Foo explained that China was moving away from manufacturing cheap products to making more sophisticated technology products. This is leading to higher incomes, and a greater ability to spend among the growing middle class.
Fu also notes that Asian markets including China have delivered positive returns in the past 1 year but have lagged global markets on trade war tensions and slowing growth. Asian company valuations have also been cheaper than global peers, despite their sound fundamentals. They even have good corporate fundamentals with healthy earnings, and stronger balance sheets than their US peers.
However, he noted that the best way to invest in the China consumption story is by investing in A-shares – domestic Chinese companies listed within China – or through a fund like Aberdeen Standard Investments’ China A Shares Equity Fund. “China is a global powerhouse, contributing close to 40% to global GDP. Yet they lack representation in global indices,” said Foo.
Foo explains that there are over 3000 A-shares in the market, so his team analyses the entire universe of listed companies using a process known as “quality” investing. With that, the team looks at various metrices from management pedigree, strong balance sheets, execution and track record, sustainable competitive advantage, to good margins and returns on capital to sift out 30 to 40 companies to be included in the fund.
The four key investment themes in the fund includes travel, higher end food & beverage, life insurance, and health related sectors. Some of their holdings include Ping An insurance Group, China International Travel Services, Kweichou Moutai, China Merchants Bank, Midea Group, China Vanke.
Investing in real assets again
Ismail Gafoor, Executive Chairman & CEO, Propnex, rounded off the seminar with a discussion on the current property market.
Gafoor pointed out that property prices have been going up steadily, including prices of executive condominiums. “If you are waiting for prices to drop, it is not likely to happen in the next 12 months, because developers are now operating on smaller margins from higher land costs, and they still have time to hold on to their properties,” he said.
On the other hand, sales volumes have been lumpy over the past few years, though he attributes it to announcement of various cooling measures and the market adjusting to them.
Gafoor explained that the government prevented an overly exuberant collective sale market with the cooling measures announced in 2018, to prevent an oversupply. They continued with a few more rounds of cooling measures to curb runaway property prices.
“If the cooling measures didn’t happen, we would be in trouble. The supply would have gone haywire and the property market would have collapsed,” said Gafoor. At present, there are about 30,000 unsold properties (with planning permits) in Singapore that Gafoor estimates will be fully absorbed within 3 years.
He also noted that 2019 saw the largest number of newer (between five and ten years old) HDB flats changing hands in the resale market. That means increasing numbers of HDB flat owners have been selling their BTO flats shortly after achieving their 5 year MOP (Minimum Occupation Period), in order to purchase larger HDB flats or condominiums. “There is an appetite for Singaporeans to have a better lifestyle and upgrade, and we see that as one of newer trends in Singapore,” he said, adding that over 24,000 HDB flats will reach MOP in 2020, fuelling that trend.
Gafoor believes demand for property will continue to grow, as Singapore’s population continues to grow, effectively avoid a supply glut in the property market. “Our population has been steadily growing. Even though we don’t have a healthy replacement by birth rate, we still bring in the necessary talent and workforce to help our economy function. So when the population increases year on year, there will be demand for property.”
Globally, Singapore’s properties remain the most affordable, with a median home prices to income ratio of 4.6 times in 2019, from 7.3 times in 2010, for properties in the CCR. At the same time, Singapore is known for being a safe, secure and stable country, with good governance, and high-quality healthcare.
“Singapore’s property market is resilient, and globally, Singapore as a city is very resilient,” said Gafoor.
That explains why more wealthy individuals are buying property in Singapore, including Dyson founder Sir James Dyson who purchased the super penthouse at Wallich Residence for $73.8 million, and a $45 million bungalow at Bukit Timah.
“This market favours Singaporeans, and will continue for the next 3 to 6 months,” Gafoor concludes. “But there is a lot pent up demand from overseas buyers who cannot travel right now because of the virus. Once the masks are off, the floodgates will open, and you won’t be able to compete. So you should look at buying property now.”
Missed out on this investment outlook seminar? Look out for the next one on SingCapital.