Should you stay invested or hold off until better times?

The Covid-19 pandemic seemingly still weighs heavy on sentiment, highlighted by the US Republicans unveiling their latest 1 trillion dollar Covid-19 stimulus bill and the geopolitical tensions between the US and China still on the rise. With all this going on, investors are wondering what is the best strategy to take?

On Bigger Picture, Elliott Danker & Manisha Tank from The Breakfast Huddle get the opinion of Vasu Menon, Executive Director, Investment Strategy at OCBC Bank.

Manisha Tank: As we see a second, or possibly even a third wave of Covid-19 infections in Hong Kong, Australia and some parts of Europe, what will be the impact on the global economy and how are the growth curves going to look like?

Vasu Menon: Our view is that Covid-19 is going to be a fixture, it's going to be in the minds of market investors for quite some time and is not going to go away anytime soon. The second wave is played out not just in Hong Kong but also in China, and other parts of the world.

The question is whether it is going to be a big second wave. We’ve already seen the international monetary fund reduce its growth forecast from -3 per cent to -4.9 per cent this year so if this continues, they may take it down even further. Clearly, a big second wave will not be good news for the global economy [as it] means more restrictions or shutdowns.

As you see in Hong Kong right now, they have tightened the noose. But I think as long as the second wave is not a big one, I think the markets have [already] discounted and internalised it.

Elliott Danker: Republicans have unveiled major parts of the new US Covid-19 relief plan, including cutting the unemployment benefits by nearly half. Do you expect this to provide a boost to the markets if [the plan] gets the go-ahead by Congress?

VM: If [the plan] gets the go-ahead by Congress, it will provide a backstop. I am uncertain if it will provide a big boost. The Democrats are looking for something bigger - 3 trillion dollars (S$- 4.1 trillion). Republicans have offered 1 trillion dollars and cut the enhanced unemployment benefits of $600 to $200 a week, which is something that is not going to be easily digested by the Democrats.

So, there will be a push back and negotiations, and that's going to create some nervousness in the markets. But eventually, I think they’ll agree. It's a relief measure which need not necessarily boost the economy [but] just to provide some relief which will run out in time to come as well.

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The question is how long will Covid-19 drag out because governments will eventually run out of money. They can't keep spending money the way they've been doing so we hope that Covid-19 will come to pass very soon.

MT: Amidst the US-China tensions and the uncertainty around it, is it a good time for investors to invest now, or is it best to hold off until better times?

VM: Investors should stay invested. Make sure that you have some investments in the market, but don't fire all your bullets. Invest gradually over time [such as] adopting a dollar-cost averaging strategy or perhaps put money in over the next 12 to 15 months.

[I say that] you have to stay invested because if a vaccine is discovered or the second wave doesn't appear to be as significant, if earnings set up to be better than expected or economic gives us surprise on the upside, then the markets will continue to head higher.

Taking reference from the tech sector, tech stocks did exceptionally well despite the fact that they've already done so well.

So, you can’t take your foot off the pedal, you just have to go slow and continue investing gradually in the markets, and that is one of the ways to manage risk in volatile times like this.

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ED: Warren Buffett has been quite vocal about his disdain for gold as an investment and gold has hit a new record high, climbing past $1900 an ounce. What is your opinion on gold as an investment strategy? Is it also a subtle warning because more people are flocking to safe haven?

VM: Definitely. I think gold is emerging as a distinct asset class on its own and it's not just about the uncertainty. Gold has appreciated 27 per cent so far this year, equities are down 3 per cent and bonds are up about 5 per cent.

So, gold has really done exceptionally well and we think that investors should have gold in their portfolio [because of] uncertainty, ultra-low interest rates are going to persist for many years and the weak US dollar. Central banks around the world are also ‘dedollarising’ their portfolios.

In other words, they are changing the compo sition of the reserves away from the US dollar towards gold, so gold has strong demand from both individuals and institutions. You want to make sure you have some gold in your portfolio as an insurance policy given all the uncertainties in the horizon.

Listen to the full podcast:

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