If you are an investor, it is hard for you to ignore the broad-based stock rally globally this year. And if you are a rational investor, it is even harder for you to decide how to invest now.
How can you find the hidden gems in the current investment environments?
When you observe the investors around you, you will see two group of people.
- One group who consider that the market too high and you have to get out of it before it crashes
- The other group who believe the market will continue to go higher and you will miss a lifetime opportunity if you don’t invest
The interesting thing is that people often say that nobody can predict the market, but at the same time, they believe that they can predict what is coming.
Most people’s investment mindset can be summarised by the chart below.
I myself also went through the same journey. So after try and error for more than a decade, beaten left and right by the market, I have settled down with the GMC portfolio, a portfolio for my own investment and for my clients under my investment management service.
Current Portfolio Positioning
The GMC portfolio has a year to date return of 6.8% for the past 5 months. Since April 2017, the portfolio has been positioned in the following manners:
- 52% Global Stocks
- 36% Global High Yield Bonds
- 12% Asian Bonds
Despite the market correction in the middle of May, the portfolio continued inching up. Below is the chart of global stock markets and high yield bond markets.
If we look at these 2 charts 3 months ago, a lot of people would have sold all these holdings. Because it is easier for people to buy any form of investments, but it is extremely hard to hold the profitable ones.
What are the risks ahead?
Although we cannot predict the future of our investments, it is much easier to prepare for the risks. There are 2 main risks which all Singaporean investors face.
- An increasing systematic risk
- An appreciating Singapore Dollar
In a layman’s term, systematic risk means that all your investment holdings drop at the same time. In another word, it doesn’t matter whether you are holding DBS or Google stock, a REIT or an ETF. Everybody will lose money at the same time when the market drops suddenly.
Most investors think they have a diversified portfolio until they see that none of their holdings can escape a market crash. The stock market crash is a new norm, it is no longer something that will occur every 5 to 10 years, but every year now. The exponential growth of ETF funds and allowing the computer to trade for human are the biggest culprits for the tough investment environment today, but it is another topic which I will discuss in the future.
The only way to avoid a systematic risk is to avoid investing. But if this is what you want to do, you won’t need read my message here. I found that the most effective way of handling such risk is to adopt a systematic way of investing.
Strong Singapore dollar
Just yesterday, the Straits Times shares that Malaysia’ middle class is feeling the pitch due to rapid inflation. Why don’t we seem to feel the same way in Singapore?
We all know that Singapore has little resources and we import nearly everything we use. When our currency is strong, we effectively pay less for the same goods. Since the beginning of the year, Singapore dollar was growing rapidly against USD.
Why is a strong Singapore dollar bad for global investors like us?
This is because when we invest globally, many of our underlying assets are in USD.
- A strong USD is good because the currency appreciation will increase our return.
- A weak USD is bad because our return will be eroded by the currency lost.
For most retail investors, there are few options to hedge the currency risk. But one simple way is to channel your money back into Singapore stocks and Singapore bonds.
This is something which I am contemplating to do. But when I see the news that more than 10% of Singapore-listed companies have less than 20 cents trading price, I am jittered about how the current rally of Straits Times index, mainly driven by 3 banking stocks, can last.
I will leave it to you to decide.
The next Investment Opportunity
To put things into perspective, a weaker USD means that other currencies become stronger. Notably, Renminbi is the biggest beneficiary.
The price of Renminbi is not always in our headline because we are dominated by western media and reports here.
When I talked about the investment opportunity in China created by Shanghai-Hong Kong Connect in 2014 November, few people pay much attention.
Even today, many Singapore investors were not aware of the huge bull run of China stock market in the first half of 2015.
The secret of successful investing is to identify investment trends like this. What is the probability for China stocks and bonds to be the next big investment theme?
We need to pay a lot of attention to the Renminbi movement.
To summarise, there are always investment opportunities in this planet. It is up to us to identify the trend and manage our portfolio risks.
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