2nd July CIO Letter

2 July 2019

Dear Client,

About six to eight weeks ago, the traditional maxim of “sell in May and go away” seemed to be playing out well, when global markets declined by about 6% in a month. In the brutal last week of that month, the temptation would have been to say, let me cut losses or take profit (whatever the case), sell all my stocks and go away on vacation with the kids on school holiday in June. After that, we would have greater clarity on the US-China trade war and whether we would have a recession and I would know what to do then with the stock market. After all, isn’t that what being a prudent and well-informed investor is about?

Let’s see what happened in June. The MSCI All Country World Index went up by 6.6%; the S&P500 by about 7%. In fact, the S&P 500 has posted its best first half of the year in 22 years and reached new record highs on the first day of July.

What has changed for markets to go back up? Essentially, the major central banks have more strongly signalled that they would be open to rate cuts to support any faltering economy. This was a reversal from some of the previous statements or outlook.

But what has not changed? Actually, not that much has changed as far as the major geopolitical risks that had caused the sharp decline in May are concerned. The US-China trade war issue is not resolved, even as another truce has been called. There are heightened, rather than lower tensions in the Middle East with Iran, to the point of attacks in Saudi Arabia and on ships, though Trump has said he would rather talk.

What has happened in the past few months tell us, once again, that market timing, under whatever euphemism, has poor odds of success. It is futile to try to guess which combination of macro, market and political events will come to play in stock prices at which point in time. If you had sold in May, you would have missed out on the recovery in June and you will be wondering when would be a good time to go back in, as all the psychology of missed opportunities comes into play. Investing is one area of life in which doing nothing often beats doing something.

As someone once said, markets fluctuate – that’s what they do; and sometimes they fluctuate very wildly in the short term. But we know that markets will always recover and go up in the long term, as long as the fundamental global economic machine of long-term population growth and global demand translating into earnings of listed companies is still running. So keep investing regularly and stay invested. That, more than anything, is the most prudent and most well-informed investment strategy that gives you the best possibility of reaching your goals.

Yours sincerely,
Chuin Ting Weber, CFA, CAIA
CEO & CIO, MoneyOwl


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