Midyear Outlook: Investing under the new norms

02-07-2020

In planning investments, investors must deal with two new norms in the world: the near-term behavioral change due to COVID-19 and the increased liquidity and the extended low interest rate era, a combination of both implied a tectonic shift of investment markets nowadays. The result of these two factors has become even more vivid as the pandemic disrupted the economy.

Post-pandemic new orders

At the beginning of 2020, the market enjoyed an upbeat start, which was reflected globally in the prevailing risk-on sentiments. The concerted bullish views of the majority were then disturbed by the outbreak of COVID-19. In a nutshell, affected countries contribute more than 50% of global GDP growth. Amid the lockdown, people have to stay and turn to online services and content instead of spending at brick and mortar locations. The hit on the economy brings the world unprecedented monetary and fiscal easing. The asset purchase programs implemented by the Central banks in the west has  flooded the financial system and extended the low interest rate era. Under such backdrop, virtually risk-free instruments, such as government bonds, have returned so little that it propels investors to raise risk appetite for higher returns.

Familiar and unfamiliar challenges

Following the two new norms and the challenges, , we manage to spot selective opportunities that remain relevant. For instance, Asia’s “first-in, first-out” experience surfaces better investment values. The region’s equities are trading at a 35% discount compared with the U.S. equities, which is more than one standard deviation from the historical average discount. Asian equities had an upturn in the second quarter as the region’s economic recovery has been on track. The risk-on sentiment was also supported by synchronized monetary and fiscal policies, which continued to fire on all cylinders around the globe. 

The views expressed are the views of Value Partners Hong Kong Limited only and are subject to change based on market and other conditions. The information provided does not constitute investment advice and it should not be relied on as such. All material has been obtained from sources believed to be reliable as of the date of presentation, but its accuracy is not guaranteed. This material contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.

For Singapore investors: This commentary has not been reviewed by Monetary Authority of Singapore. Value Partners Asset Management Singapore Pte Ltd, Singapore Company Registration No. 200808225G.

This commentary has not been reviewed by the Securities and Futures Commission in Hong Kong. Issuer: Value Partners Hong Kong Limited.