Post-Covid Investing - 2022 and Beyond

Many changes in the world have taken place 1.5 years after the first wave of COVID-19 struck the shores of Singapore. How are the markets and the world going to develop and what should be expected going forward?

Well, the key change is vaccinations.

With the initial news of COVID-19 vaccinations rolling out, many investors have turned to what we called COVID laggards - sectors that have tended to underperform in the year 2020.

This is in contrast to the COVID winners - companies that have benefitted from the WFH syndrome, such as eCommerce, telecommuting, EV.

The key observation though - is the slow but gradual shift from the growth to value stocks.

While inflation was a concern, it has gradually receded over the course of the past few months. Inflation is elevated only in a few countries at the moment, and in the case of the US, it is mostly concentrated in goods and services sensitive to COVID (hence the view that inflation is transitionary - This is due to the demand outstripping supply chain issues )

With ample liquidity from the central banks as well as the supportive policies around the world, equities still remain favorable compared to bonds or credits (and if your risk tolerance is up for it - cryptocurrency should definitely be a mainstay in your portfolio)

COVID-19 and the delta variant, together with concerns over the efficacy of the vaccines will continue to create volatility for the markets in 2022 and beyond.

How should we be investing in the various asset classes then?

Equities

Global equities should continue their run relative to fixed income, likely driven by developed markets. Within equities, I would personally be neutral towards Asian equities in the short term given the region-specific headwinds including China's ongoing regulatory scrutiny and low vaccination rates among the Asian countries.

China's regulation changes have been largely due to an attempt to normalize wealth equality and well as providing data security, thus impacting the education, tech, and property sectors. That being said, I would continue to observe the Chinese region to see if further regulatory crackdowns are implemented. Meanwhile, I will still continue to hold on to Chinese equities and do steady Dollar Cost Averaging into a broad-based Chinese fund. However, I will not be attempting to buy the dip with excess cash reserves.

Bonds

For US investment-grade credit bonds, the default rates remain below historical averages, and as such, the downside risk remains low. However, we will continue to see limited upside for US IG credit given the tight spread range and its higher sensitivity to interest rate movements. Comparatively, Asian credit remains more attractive. For me personally - I would continue to use CPF as the bond aspect of my portfolio, utilizing CPF Retirement Sum Top Ups to provide myself with a safe 4% p.a. I would also utilize the Supplementary Retirement Scheme when required and look into purchasing endowments and annuities to complement my low-risk portfolios as well.

For US Treasuries, treasury yields declined recently due to a short-term imbalance in supply and demand. That said, my view is that the temporary debt ceiling resolution should lift the Treasury supply and the eventual path of tapering asset purchases should put a dampener on Treasury performance.

How do I recommend you adjust your portfolio?

Everything here is personal opinion only:

For individual stocks, I would suggest a slight tilt towards value-based, large-cap companies as they play catch up.

If you are still interested in investing in US Treasuries, I would suggest using Treasury futures to reduce interest rate exposure for efficient portfolio management. In a rising rate environment, you can actually sell the futures to reduce portfolio duration and portfolio value decline.

While value companies have been playing catch up from last year, the ongoing growth trends (E-commerce, Cloud computing, and Healthcare) will not be derailed by interest rate increases. In fact, I personally feel that recent price falls are driven by profit-taking and a change in market sentiment, rather than fundamental issues. I would suggest continuing to hold on to companies with strong economic moats.

For those interested in Factor-based investing, I would believe that the following factors would play a strong role moving into Q4.

• Momentum
• Quality
• Growth
• Value
• Size

For those who have a higher risk tolerance, I strongly suggest everyone start learning more about decentralized finance. Cryptocurrencies are here to stay, and I encourage everyone to start holding a small allocation of their investments with De-Fi.

You can slide into my DMs here.

Or connect with my Linkedin here.

Talk more,

Ngooi