Updated: Oct 23, 2020
The coronavirus has put the world on hold in many ways. More than ever, you’ll need dependable insight into various markets, the economy, and the changing future of global economic landscape. We look to add value to our clients by incorporating the best ideas from studying other research plus performing our own research. In times like these, we focus on the data, earnings, valuations, and many great companies' management teams. Listen, it is okay to be deaf to the media news. Most times, staying the course is the right thing to do. We know that statistically, people are more successful in relying on professional money management advice. No one knows it all, and neither would anyone ever succeed in thinking they know it all. We are here to help.
Here are the highlights of KW Wealth market insights for the month of October 2020.
1. Besides the 2008 recession, 2020 is one of the most chaotic and volatile years within the past 20 years. Economies will continue to lag behind pre-coronavirus trends as shocks to incomes and contagion fears limit demand. Although investing requires to bear risk, the risk can be controlled by constructing diversified portfolios and excluding any investments that offer an inferior return for a given amount of risk. One of the common indicators of expected volatility or implied volatility is to review the Volatility Index (VIX). It is what professional money managers review to form a portfolio hedging or investment stress testing. The chart below shows you that various global and domestic events can cause market corrections. But in the long term, the curve will be eventually be flattened.
Source: Cboe Global Markets, Inc
2. The United States has been hit far harder than any other nation by the COVID-19 pandemic. The US government’s ongoing stimulus approach will cause central bank balance sheets and fiscal budgets somewhat higher-than-target inflation. But what about China? According to Bloomberg News, more than 45% of China's 1.4 billion people traveled during the holiday, which began October 1st. Chinese consumption raise to $69.5 billion ($466.6 billion yuan) during October, according to data from China's Ministry of Culture and Tourism. It is an excellent opportunity to observe the COVID cases reported from China in the coming months. Can they manage the virus spread effectively? What about the opportunity of green development for the economic recovery after COVID-19? Don't we all need to think of these issues before investing globally?
Source: John Hopkins University and WHO as of October 15th, 2020
3. The combined deficit shall place downward pressure on the US Dollar. What does it mean? It is necessary to put an asset protection strategy in place. Our portfolio is positioned to hedge inflation by holding gold, soybean, other commodities, Treasury Inflation Protection Bond (TIP), or various option hedging strategies based on our client’s individual risk profile and preferences.
Source: Variant Perception Investment Research
4. Cold weather during the pandemic will have a more negative effect on dining than regular seasons. Restaurant recovery will mostly happen from the takeout business during the pandemic winter. But don’t just give up on the recovery of this industry. We can reflect on what have learned between nature and human. Renovation of the service-oriented industry is happening right now. We are currently researching investment opportunities in the takeout and fast food franchise business.
Source: Department of Commerce, OpenTable, Goldman Sachs Global Investment Research
5. Did you know that Tencent has almost $700 billion market capitalization, which almost the same as Facebook's valuation? Tencent also has a user base larger than the population of EU and Russian. Despite the Trump Administration's efforts to ban WeChat, a mobile app owned by Tencent, Tencent rebranded the WeChat app to WeCom within 24 hours ahead of the ban. However, look at the top executive managing team members. There are sixteen chief executives and three advisor Emeritus. I can understand they are all Chinese because it is a Chinese firm, but no women to lead any group. What is your opinion of company culture from this Tech Giant?
6. Most Real Estate Exchange Traded Funds (ETF) include some private prison investment. It’s not a question of right or wrong. It’s a question of how many investors understand and know the holdings of their ETF investment? The major advantage of investing in ETF is diversification and cost. The major disadvantage of investing in ETF is also cost and flexibility to diversify away from companies you do not wish to hold. Let’s face it! Most ETFs cost less than Mutual Funds but more than individual stocks. If you own an ETF such as Vanguard Real Estate (VNQ), you are also an investor in private prison investment. Not many people know that.