Overall Financial Outlook, 1st Quarter 2020

Every year, I send an investment brief to all my clients, giving them an overview of the market, and what to expect for their investments.  The fund statements and reports I regularly send are not always easy to read, and understand.  They are sent to fulfill compliance, and not necessarily to make the client understand the market.  This is why we need financial advisors, and investment analysts.

Personally, I do not believe in luck, gut feel, or chance.  Money is a serious matter, and other people’s money is a responsibility.  Investment is meant to be a science, and not another form of glorified gambling.  To give an example into my investment philosophy, I often speak about the California gold rush, which occurred from 1848 to 1855.  300,000 people from as far away as China, and Europe, descended on two main areas of the Sierra Nevada Mountains.

The question is who made money?  Not every miner did.  It was a hit and miss.  But the people who sold them the shovels, the wooded beams, and their supplies made a lot of money.  And that is what investment should be for the retail investor.  They do not necessarily have the financial resources to avail themselves to the higher, more volatile end of the market, and nether do most of them have the appetite.  They do not have the connections, or the expert support to take advantage of market movements quickly enough.  This means finding the lowest common denominator, and putting their funds in for the long haul, the extended investment horizon.  This is because, while the market may fluctuate in the short term, the overall trend is always to rise.

For example, if you were to put your money in a handphone company, we must remember that these companies may come and go.  Now, it is Apple and Samsung.  Once upon a time, it was Nokia and Motorola.  There are some gains to be made, but if you put your money in the underlying technologies that run these products regardless of the brand name, you will make a return regardless of the brand performance.  That is the longer trend.  This does not mean that they are mutually exclusive.  It is always better to hedge your bets by spreading across the market, diversifying to mitigate everything from currency risk to political exposure.

After the record market gains of the Barack Hussein Obama II’s presidency, Donald John Trump’s presidency shook the market, with multiple trade disputes, market uncertainty, and secondary issues such as Brexit.  The market can react positively even to bad news, since that is relative.  What the market hates is uncertainty.  When there is uncertainty, investments slow down, and institutional investors look for value in safer funds.

Reports across the board expect modest gains in the world market, with equity outperforming bonds.  Personally, I do not have a habit of putting client money in the US and Europe.  The growth region of the world is East and Southeast Asia.  Whilst there is concern that China will slow down, and their debt to GDP ratio is very high, we must still be cognisant that China is very much the factory of the world.  As long as there is some demand for electronics, consumer goods, and commodities such as steel, there will be growth.

Over the course of the last few years, there has been some diversification in manufacturing to places such as Vietnam and Thailand, for example, but that is still very much within the investment area.  I am personally bullish on Indonesia, and believe that there is tremendous untapped potential in that market, with sectors such as manufacturing looking at double digit growth.

In terms of property, the real growth in value is found in warehouses, and cold stores.  There is a shortage of this, and new developments in large swathes of the region have not kept up with market growth.

One of the advantages of being invested in this region is the availability of business intelligence, and a deep network of contacts.  This allows us some advantage when it comes to strategic placement of funds.  It is always wise to be involved in an area where the playing field is stacked to our advantage.  With the Federal Reserve being conservative with the interest rates, the US economy itself is expected to slow down.  The UK might slip into a technical recession after Brexit.  Asia, on the other hand, still has the native consumer market to absorb some of that.

With that, I wish all my client a Happy Lunar New Year, in advance.  As can be seen from your fund statements, the year has been good, and most of you have posted double digit growth.