At the beginning of every month, I send an investment letter, the GMC Notes, to all my clients. The purpose of sharing this is to document my thinking process, both right and wrong, during my investment journey and also invite constructive discussion so we all can learn from each other.
Note this post will only be published one month after I send it to my clients. So by the time you read it, there might already be material changes in the financial markets and some assumptions may not hold anymore. You should NOT take this as investment advice.
Below is the takeaway from my February 10, 2020 report.
The coronavirus has occupied much of our mindshare in recent days. Who has thought that a roll of toilet paper and a bag of rice will be the best CNY gift? Jokes aside, we need to understand that this is not the end of the world and just a ripple for the financial market.
Will there be an impact on Singapore and the global economy? Definitely!
But it is not going to be permanent or even long-lasting. That is why on Jan 30, I wrote the article on my analysis of the Wuhan virus’s impact on the stock market.
I told you that if you were to panic sell your investment, you will sell at one of the worst prices. True enough, both GMC Income Portfolio and GMC Growth Portfolio have rebounded sharply and hit a new high.
The coronavirus is a “black swan” event, but the real damage is not going to be caused by it. It is the “grey rhino” which we all know (A grey rhino is a “highly probable, high impact yet neglected threat. Grey rhinos are not random surprises, but occur after a series of warnings and visible evidence”). For example,
- Excessive debt level due to the low-interest rate.
- Artificially supported stock market through share buybacks.
As far as I can see, the market still chooses to ignore the grey rhino for now.
A jam break for the global stock market rally
Intuitively, China’s stock market was hit the most due to the coronavirus. And it did have a brutal start on Feb 3 (Monday) with 9% loss. Although it has recovered swiftly, the upside momentum has been broken.
I believe the market has already anticipated that the peak of the virus infection will hit the second week of Feb and the Monday price level is likely the near term bottom.
Impact on the global supply chain is unclear
The interesting thing is how the global stock market has shrugged off the panic and continue to rally. US stock market even hit new hit in the past week. This may mean either all the “global emergency” panics may be an overreaction, or the market has not figured out the real economic impact due to the crisis. I believe the first. We need to remember that
We cannot trust what the newspaper says, but we can trust where the money flows. – Ivan Guan
Income assets back to favour
As the growth forecast dampened, income assets are in favour again. That is why GMC Income portfolio has done extremely well in the past two weeks.
In the past few months, the market sentiments are shifting at a lightning speed.
- Prior to Sep – Income focused strategies did well.
- Oct to Jan – Growth focused strategies did well.
- End of Jan till now – Income focused strategies did well again!
US treasury bond yield drops to the lowest since October. It means the price of investment-grade bonds has been increasing.
The high yield bonds and emerging market bonds are also doing well.
Healthcare sector – the expected and unexpected
In my Jan 2020 updates, I already talked about the healthcare sector and we had 10% allocated to the stock portfolio.
It is healthcare’s turn anyway and the coronavirus just accelerated this progress. Below is the performance of the fund which I chose to allocate into the GMC Growth portfolio.
Global infrastructure spending – the unavoidable
I also talked about infrastructure stocks in my Jan 2020 updates. The global central banks are already struggling to keep the economy afloat. With the hit due to the coronavirus, they will definitely beef up fiscal spending to “save the market”.
With all these in place, I believe that both the GMC Growth and Income portfolio are well positioned in the current market environment. The diversified and macro trend following approach has paid off.
If you are interested in understanding more about my investment management services and how GMC portfolio works, submit your request below for a non-obligatory investment discovery meeting.
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