Market Sentiment: Buy or Sell

Market sentiment is not based on analysis or logic, but the emotions of the crowd.  It is essentially meaningless.  It is a beast to be ridden to advantage at times, or a distraction to be avoided.  Investment should be treated as a science, and not a lottery.  There is a clear difference between an investor, and a gambler.

Third Quarter 2021 Market Outlook: Navigating the Delta Wave without Losing the Plot

This report draws on analysis from our fund managers, simplified as far as the subject matter allows.  Market conditions this cycle remain unprecedented within living memory for most investors, and there is a considerable amount to weigh when balancing a portfolio through it.  I will not insult anyone’s intelligence by pretending otherwise.

The Delta Variant and What It Changes

The Delta variant now accounts for the overwhelming majority of new global cases.  Since the start of July 2021, the global effective reproduction number has sat above the 1.0 threshold and continued climbing, confirming that COVID-19 transmission has returned to exponential growth.  Economic recovery, however, remains highly policy-driven, and Delta is more likely to extend the timeline of reopening than to reverse it outright.  Critically, in countries with high vaccination rates, hospitalisation and fatality rates remain manageable compared to previous waves.  There is no credible reason to expect a return to the tight lockdowns of March and April 2020.  Governments are structurally incentivised toward gradual reopening even as case counts climb, because the fiscal and political cost of another full lockdown has become considerably higher than the cost of managing Delta in the open.

The Valuation Picture

Relative valuation continues to favour equities over bonds and credit, and that gap has widened on the back of lower Treasury yields and improving corporate earnings.  I expect this gap to narrow as the Federal Reserve turns hawkish on inflation and begins raising rates.  US inflation currently sits at 4.2%, more than double the Federal Reserve’s 2% target.  Every fund in our range underperformed its benchmark last quarter, driven by a rotation from growth into value stocks that will take time to unwind.  Since inception, however, every fund has still outperformed its respective benchmark, a direct result of maintaining a higher equity allocation through the cycle rather than flinching at quarterly noise.

Economic Recovery, Region by Region

Recovery remains on track across major economies, even as market expectations recalibrate from earlier, more elevated levels.  The services sector is recovering strongly at the global level, supported by eased social distancing, active policy support, and continued vaccine rollout.  Solid manufacturing activity should support strong growth for the remainder of the year, and inventory restocking, once supply-chain disruptions ease, will provide an additional tailwind.

China stands as the exception among major economies, given its strict provincial lockdowns wherever cases appear.  Hong Kong follows the same pattern.  China’s growth slowdown is eroding the first-mover advantage it built earlier in the pandemic cycle, though recent policy actions should ease some of that pressure.  The broader pattern holds regardless: countries with high vaccination rates will diverge clearly, in both economic performance and inflation trajectory, from countries with low vaccination rates.  Vaccination remains the single variable that matters most to the reopening timeline.

Inflation: Transitory, Not Structural

Inflationary pressure has receded over recent months and remains elevated in only a handful of countries.  In the United States, that pressure concentrates specifically in goods and services sensitive to COVID-19 and the reopening process itself, rather than broad-based structural inflation.  In China, producer price inflation has likely peaked as commodity prices stabilise, while consumer prices remain benign.  The anticipated rapid rise in inflation prints across major economies is most plausibly transitory rather than structural.

Corporate Earnings, and Why They Matter More Than the Headlines

The first-quarter 2021 earnings season closed strongly, with over 85% of S&P 500 constituents reporting an earnings surprise, and that momentum appears set to continue into the second quarter.  Among companies reporting so far, the average magnitude of surprise sits near 20%.  Announced share buybacks are already beating the trailing three-year average across US markets.  Together, these factors provide meaningful tailwinds for developed market equities in an environment still flush with liquidity.

Asian Equities: A More Complicated Picture

The outlook for Asian equities is considerably less rosy at present.  Chinese equities continue to soften under mounting regulatory scrutiny across key sectors, compounded by fears of cascading corporate debt defaults tied to the impending collapse of the Evergrande Group.  The ongoing structural reform of Chinese capital markets could prove positive over the long run, but investors are pricing in a materially higher near-term risk premium in the meantime.  Outside China, sentiment across major ASEAN markets, Singapore excepted, remains weighed down by renewed Delta infections layered onto relatively low vaccination rates.  Momentum in Taiwanese and Korean equities is also receding as the current upcycle in electronics and chip manufacturing becomes increasingly priced in.

Central Bank Policy: Still Accommodative, For Now

The current recovery remains highly policy-driven, and Delta continues to extend the reopening timeline while its uncertainty weighs on sentiment.  Policymakers will need to sustain accommodative policy for some time yet, with managing the eventual transition away from ultra-loose settings the market’s central preoccupation.  Jerome Hayden Powell, the sixteenth chair of the Federal Reserve, has reiterated that recent inflationary pressure is likely transitory, and confirmed the Fed will continue discussing tapering in upcoming meetings, with advance notice attached to any eventual decision.  The European Central Bank remains similarly dovish, with no sign of moderating its Pandemic Emergency Purchase Programme, and expects rates to hold at present or lower levels until inflation reaches 2% well within its two-to-three-year forecast horizon.

In Asia Pacific, the People’s Bank of China surprised markets with an unexpected cut to its reserve requirement ratio in July 2021, and future guidance is expected to skew dovish as recovery continues.  Beyond Delta and the idiosyncratic risks already noted across Asia and China, other systemic risks remain on our radar.  None of them, at present, appear sufficient to derail the broader direction of relative performance between equities and fixed income, or between developed markets and East Asia and emerging markets within equities themselves.

Fixed Income Positioning

Treasury yields have declined recently on reduced inflation compensation.  The eventual tapering path for asset purchases should dampen Treasury performance further.  With US investment-grade default rates sitting below historical averages, downside risk remains contained, though upside is similarly limited given tight spreads and high sensitivity to interest rate movement.  Asian credit looks comparatively more attractive, with spreads having widened while default risk remains stable, and spillover risk from certain distressed Chinese corporates appears contained rather than systemic.

Equity Positioning

Global equities should continue outperforming fixed income, led by developed markets.  Major central banks remain accommodative for now, and any tapering discussion appears well communicated in advance rather than sprung on markets.  In the United States, reported earnings and sales continue surprising to the upside with rising magnitude, and strong buyback activity provides an additional tailwind.  Within equities, I remain cautiously neutral on Asia, given China’s regulatory overhang and the low vaccination rates weighing on most ASEAN markets outside Singapore.

The Long View

Delta remains the central concern as governments adapt to living alongside an endemic virus rather than eliminating it.  Relative valuation continues to favour equities over bonds and credit, and that gap has widened as Treasury yields fall and earnings improve.  Agility in adding or trimming equity exposure during corrections, or for profit-taking, remains necessary to balance return potential against risk.  The very factors currently weighing on Asian equities may well provide the entry point the region needs.

Every investment in our range is made with a long-term outlook, and portfolio performance has delivered positive returns since inception despite short-term volatility.  Our Adventurous, Balanced, and Conservative Funds have remained overweight equities throughout the quarter, adding to that outperformance.  Global recovery continues to draw on the flood of liquidity from fiscal and monetary policy, and the lifting of lockdown restrictions worldwide remains broadly on track even after two months of rising Delta infections.  Further mutations may delay recovery.  They will not derail the reopening narrative outright.  Global and regional economies cannot afford to remain closed indefinitely, and every government involved knows it.

In Conversation with Iain McCombie, Baillie Gifford

Iain McCombie, sub-manager of the AIA Global Quality Growth Fund at Baillie Gifford, shared his perspective on stock selection, the macroeconomic backdrop, and short-term volatility.  On the advantage of a long-term growth thesis in the current cycle, McCombie’s central argument is that this year has made the case against market timing and economic forecasting better than any theoretical argument could.  Early 2021 saw “re-opening” stocks come into favour as investors bet on a sharp economic recovery, only for that enthusiasm to fade back toward defensive names once case counts spiked again.  Rather than attempt to call that pendulum swing, which he regards as close to impossible to do consistently, the Fund concentrates on owning a small number of exceptional growth businesses with structural advantages, differentiated cultures, and large addressable markets.  Positioning follows bottom-up stock selection reflecting where the most attractive growth opportunities sit on a five-to-ten-year view, with key themes spanning the climate and energy transition, innovative healthcare, and a new wave of technology companies offering what McCombie calls “scale as a service”, firms such as Amazon Web Services, Shopify, and Twilio, which lower the barriers to entrepreneurship by levelling the playing field between the largest and smallest players.

On the risks to that thesis, McCombie acknowledged that rising rates and inflation dominate market commentary, and for good reason: higher discount rates typically hurt growth equities disproportionately, given how much of their earnings sit further out on the horizon.  His counterargument rests on portfolio construction rather than macro prediction.  The Fund favours companies with strong balance sheets, net cash positions, genuine pricing power, and market leadership, citing subscription-based software businesses and firms such as Alibaba, Netflix, and Amazon, all of which have demonstrated that customers tolerate price increases when the product commands genuine loyalty.  McCombie describes the team as broadly unconcerned about a modest uptick in rates and inflation, on the basis that their focus sits a decade out rather than on the next earnings cycle.

On recent portfolio developments, healthcare emerges as the theme generating the most excitement internally, tied to the broader thesis that the 21st century may prove to be biology’s century as genetic-level disease analysis transforms medicine.  McCombie pointed to the 2020 COVID-19 vaccine race as the moment this potential entered public consciousness, noting that Moderna, which the Fund does not hold, needed only four days to develop its vaccine candidate, built on two days of genome sequencing work by Illumina, a long-standing Fund holding, followed by two further days for Moderna to apply its own technology. Alongside existing positions in Illumina, STAAR Surgical, and Denali Therapeutics, the Fund has taken a new stake in 10x Genomics, which builds instruments and consumables for single-cell analysis, and added to its holding in Exact Sciences, a molecular cancer diagnostics firm.  It also holds companies improving drug discovery efficiency, including Dassault Systèmes and Codexis.

On identifying quality growth across Asia’s idiosyncrasies, McCombie traced the Fund’s global outlook back to Baillie Gifford’s founding in 1908, noting that the firm’s very first investments were in Malaysian rubber plantations, made on a bet about the growth of the American car industry.  That global, open-minded posture, he argues, still shapes how the Fund approaches China today.  He is dismissive of the lazy comparisons that dominate Western coverage of Chinese technology, casting Alibaba as “the Amazon of China” or Meituan as “China’s Grubhub”, arguing these labels ignore both the scale differences between the two markets and the extent to which Chinese internet businesses are frequently leading on innovation rather than copying it. Baillie Gifford’s research process leans on decades of cultivated relationships spanning industry experts, market specialists, and academia, including a sponsorship of the University of Oxford’s China Centre and a relationship with Tsinghua University’s Computational Biology Department, alongside a growing Shanghai investment research office intended to deepen existing company relationships and sharpen the firm’s cultural lens on the region’s genuine pace of innovation.

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Terence Nunis | Executive Chairman, Equinox Zenith | Author, The 1% Playbook: The Billionaire Cheat Code

S$670,000 Loss: A Cautionary Tale

Ashley Wong was a UOB relationship manager.  That designation carries a specific legal meaning in Singapore.  A licensed representative operates within the scope of their principal’s authorisation.  They recommend products their principal has approved, through channels their principal controls, to clients whose suitability they have formally assessed.  Wong did none of this.  He recommended PixelTrade to Mr. Andy Poh in his personal capacity — outside UOB, outside his authorisation, and in direct contravention of MAS guidelines governing licensed representatives.  A financial adviser cannot solicit investments in products unconnected to their principal.  It is a clear regulatory violation, and Wong knew it.  The moment he crossed that boundary, he exposed himself to personal liability and handed MAS a violation on a platter.  That UOB bore no legal responsibility for his conduct was the correct judicial outcome.  Wong was not acting as UOB’s representative.  He was acting as himself — and the consequences were his alone to answer for.

Mr. Poh invested US$500,000 in PixelTrade on the promise of 7% to 8% annual returns from a company lending to “big institutions.”  He signed PixelTrade’s documents — not UOB’s.  He transferred money to PixelTrade — not UOB.  He received no UOB trade confirmation, despite having received one for every prior bond purchase.  He claims he did not read a single document he signed.

Judicial Commissioner Andre Maniam found that Mr. Poh had failed to prove Wong misrepresented PixelTrade as a UOB product, noting that the documentary evidence contradicted his account at every turn.  Mr. Poh’s own wealth planning document, dated 4^th October 2017, stated: “I want to maximise my return. I am comfortable with taking significant levels of fluctuation to the value of my investments, including the possibility of losing more than my initial investments.”  He signed it.  He claimed in court to be risk averse.

His investment history contradicted this further.  Just before investing in PixelTrade, he made four bond investments with UOB — non-risk-free.  After discovering PixelTrade was not UOB-approved, he went on to purchase ten more bonds from UOB — again, none guaranteed. The man who claimed extreme risk-aversion continued purchasing risk instruments without interruption.  His police report against PixelTrade made no mention of Wong deceiving him into believing the investment was UOB-approved.  The judge noted this pointedly: if Wong had genuinely defrauded him, Mr. Poh would surely have told the police exactly that.  The Court of Appeal upheld the High Court ruling entirely.

The first failure was professional.  Wong violated the boundaries of his licence.  A licensed representative exists within a regulated framework because unsupervised personal recommendations carry exactly this risk.  MAS guidelines are the architecture that protects both clients and practitioners.  Wong dismantled that architecture for reasons we can only speculate about.  The consequences for Mr. Poh were catastrophic.  The consequences for Wong’s career were terminal.

The second failure was personal.  An 8% annual return from a single, unlicensed, unverified counterparty is not a conservative investment.  It is a yield that demands explanation of where that return comes from, what risk underwrites it, and why a licensed institution is not offering it.  Mr. Poh asked none of these questions.  He relied on friendship and the promise of yield.  MAS’s Investor Alert List is publicly accessible.  PixelTrade appeared on it one month after Mr. Poh invested S$670,000.  A basic search before transferring funds would have surfaced it.  He did not search.

For investors, the obligations are clear.  Read every document before signing it.  Verify every investment against MAS’s registers and alert lists.  Understand that a yield significantly above market rates reflects risk — not opportunity.  A relationship with a banker is not a guarantee.  It is a professional engagement governed by regulatory requirements, and those requirements exist to protect you — but only if you engage with them honestly.  The investor who signs without reading, chases yield without understanding risk, and then claims ignorance in litigation is not a victim of the financial system.  He is a participant in his own loss.

For practitioners, the lesson is simpler.  Your licence defines your boundaries.  Operating outside those boundaries — regardless of personal relationships, regardless of the investment's apparent merit — exposes your client to unprotected risk and yourself to regulatory and legal consequences.  The regulated framework is the infrastructure that makes professional trust possible.

Wong destroyed that trust.  Mr. Poh compounded the destruction by refusing to exercise the basic diligence that would have prevented it.  S$670,000 plus legal fees for lessons that cost nothing to learn in advance.

This is the article: Man's $670,000 Investment Loss, a Cautionary Tale, dated 12^th September 2021.

SINGAPORE - There are plenty of cautionary tales about mishaps in the financial world, but few come with a price tag of $670,000 plus tens of thousands of dollars in legal fees.  This sorry saga began in 2017, when a bank customer, Mr. Andy Poh, plunged headlong into an investment on the recommendation of a bank relationship manager at UOB at the time.

Mr. Poh sunk US$500,000 (S$670,000) into a British investment company to supposedly earn 7 to 8% of annual returns through its business of giving loans to big institutions.  He did not read the documents he signed, but still invested in the company because he had relied on what bank relationship manager, Ashley Wong, supposedly told him - that the company PixelTrade would continue to do well and that Mr. Wong’s own colleagues were also dealing with the firm.

Mr. Poh viewed Mr. Wong as his friend, as he had made substantial bond investments with the bank through his help and guidance.  But about a month after he completed his transfer of funds to PixelTrade, the Monetary Authority of Singapore put the company on its Investor Alert List in January 2018 to caution the public that it was not licensed to do business here.  Mr. Poh tried to recover his money, but when this proved futile, he lodged a police report against PixelTrade in October that year.  Mr. Wong had resigned from UOB by then due to personal reasons.

As it turned out, Mr. Wong had recommended the company to Mr. Poh on his own, without the bank’s knowledge, because PixelTrade products had nothing to do with UOB.  Mr. Poh tried to get back his money from PixelTrade, and Mr. Wong, who knew “the main person” at the company, helped to arrange a meeting.  That attempt also failed, so Mr. Poh asked UOB’s senior management “to find a way” to recover his hard-earned cash.  A UOB team met Mr. Poh to discuss the situation, but no compensation was offered because the investment was not made with the bank; Mr. Poh had dealt with PixelTrade directly and signed its documents.

Mr. Poh’s next step was to file a lawsuit, claiming that Mr. Wong had defrauded him by making various false representations about investing in PixelTrade.  But the suit was directed not at Mr. Wong, but UOB, on the basis that, as it was Mr. Wong’s employer, it was liable for his alleged fraud.  Mr. Poh also claimed that UOB had been negligent in not protecting him against the loss of the money that he had transferred to PixelTrade.  But his case was dismissed by the High Court last year.  Mr. Poh appealed, and the case was heard by two judges of the appellate court recently.  Their decision last month upheld the High Court ruling on the case.

Mr. Poh’s main argument was that he was misled by Mr. Wong into thinking that PixelTrade was a UOB-approved investment, which was why he put in so much money.  When Judicial Commissioner Andre Maniam heard the case in the High Court, he found that Mr. Poh had failed to prove the manager had indeed said that, noting that he was no novice investor.  Just before he bought into PixelTrade, Mr. Poh had made four bond investments with UOB, and he had to sign bank documents.  If PixelTrade were indeed a UOB investment, he would also have signed similar documents.  But in this case, he had signed PixelTrade’s own documents and transferred money to it and not to UOB.

“Indeed, Mr. Poh’s case is contradicted by the documents which he received from UOB and PixelTrade, all of which he claimed he did not read even though he had signed them and returned the signed copies to UOB and PixelTrade,” noted the judge, adding that Mr. Poh was clearly negligent in “blindly” investing hundreds of thousands of dollars.

“Mr. Poh says that if he knew the contents of the documents, he would not have signed them.  The short answer to that is: Mr. Poh should have read the documents, and if he did not agree with the contents, he should not have signed them,” the judge added.  Judicial Commissioner Maniam also noted other evidence that would have alerted Mr. Poh that PixelTrade was not a UOB investment - UOB sent him trade confirmations for his bond purchases, but there was no such confirmation for his PixelTrade investment.

During the trial, Mr. Poh said that he was very “risk-averse” and that he would not have bought into PixelTrade but for the fact that he was misled into thinking UOB was selling it.  But this was contradicted by his own investment record with UOB because he had signed documents on “understanding your investment decision”, and such documents stated that even the bonds that he bought were not risk-free.  For instance, his wealth planning document, dated 04^th October 2017, stated: “I want to maximise my return.  I am comfortable with taking significant levels of fluctuation to the value of my investments, including the possibility of losing more than my initial investments.”  Mr. Poh said that he just signed documents whenever they were given to him without reading them, even though they warned customers not to sign if they did not understand the contents.

The judge also looked at Mr. Poh’s police report against PixelTrade.  The report focused on the company and made no mention that Mr. Wong had deceived Mr. Poh into thinking his investment in PixelTrade was “UOB-approved or UOB-guaranteed”.  “If Mr. Wong had defrauded him, Mr. Poh would surely have told the police that,” noted the judge, who concluded that Mr. Poh had known all along that PixelTrade had nothing to do with UOB.  Judicial Commissioner Maniam said that as a frequent investor, Mr. Poh should have known that even bonds issued by banks or financial institutions were not risk-free.  “Indeed, Mr. Poh went on to purchase 10 more bonds from UOB, after he had been informed that his PixelTrade investment was not a UOB-approved investment product,” he noted.  “Those 10 bonds, like the first four he invested in, were neither risk-free nor guaranteed by UOB, but that did not deter him.”

Mr. Poh’s claim that the bank was negligent in transferring his money to PixelTrade was dismissed as well, with the judge saying that the transfers were according to his instructions to UOB.  The bank had no duty to ensure that Mr. Poh did not lose money by investing in PixelTrade, simply because bank transfers were common transactions for many purposes.  “To take a simple example, if a customer remits money to buy gold, a bank is under no duty to check whether that is a good purchase or investment, let alone to reimburse the customer for any losses if the price of gold falls,” Judicial Commissioner Maniam ruled.

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Terence Nunis | Executive Chairman, Equinox Zenith | Author, The 1% Playbook: The Billionaire Cheat Code

The Origin of “Mayday”

“Mayday” is an emergency procedure word used internationally as a distress signal in voice-procedure radio communications.  It is used to signal a life-threatening emergency, primarily by aviators and mariners.  In some countries, firefighters, police forces, and transport organisations also use the term.  Convention requires the word be repeated three times in a row during the initial emergency declaration: “Mayday, mayday, mayday”.  This is to prevent it being mistaken for some similar-sounding phrase under noisy conditions, and to distinguish an actual mayday call from a message about a mayday call. 

It is a French word, meaning, “help me”.  In English, we spell it the way it sounds, but the French spelling is “m’aider” but it is pronounced the same. 

The mayday procedure word was conceived, by Frederick Stanley Mockford, as a distress call in the early 1920s.  He was the officer-in-charge of radio, at Croydon Airport, England.  He had been asked to think of a word that would indicate distress and would easily be understood by all pilots and ground staff in an emergency.  Since much of the air traffic at the time was between Croydon and Le Bourget Airport in Paris, he proposed the term “mayday”, the phonetic equivalent of the French “m’aidez”, “help me”, or “m’aider” which is a short form of “venez m’aider”, “come help me”.  The new procedure word was introduced for cross-Channel flights in February 1923.

Swedish “Gift”

In Swedish, “gift” has two meanings: “married” and “poison”.  How appropriate.

Spanish & “S” Words

In Spanish, the “s” sound cannot stand alone at the beginning of a word.  It is always an “s” blend such as “espalda” or “esta”.  This is why Spanish speakers add an “e” to the beginning of words beginning with the letter “s” in English.  For example, they would say “esquid” instead of “squid”.

Results are In or Out

The phrase “Results are out” is used for results of tests and examinations, while “Results are in” is used for election results.