Stephanie Leung, Group Deputy CEO at Southeast Asia’s StashAway, a digital wealth manager, notes that the COVID-19 outbreak has accelerated three key trends: a new inflation regime, China’s economic recovery, and the Fourth Industrial Revolution.
According to Leung’s observations, the Coronavirus pandemic has continued to affect international events in “sometimes unpredictable ways this past year.” He pointed out that we all saw “unprecedented stimulus spending in the US, weakened economic growth in China, and now, a new COVID variant creating uncertainty in the markets and our portfolios.”
He added that the global response to the pandemic “resulted in record-high inflation rates.”
He believes that we got here because of the following:
- Stimulus measures flushed the economy with cash to encourage more spending
- Supply chain disruptions further pushed up prices
- The US Federal Reserve shifted its stance back in August 2020 to allow inflation levels to run past its usual 2% target to support the economy’s recovery and growth.
Leung believes that these measures worked well to “keep the global economy afloat, but it also resulted in inflation spreading to many consumer goods and services, from food and rent to energy prices.”
The Federal Reserve has “acknowledged that inflation will persist with us well into 2022, and so will start winding down its pandemic-era stimulus and hiking interest rates,” Leung noted.
He pointed out that the markets are anticipating interest rates “to rise next year by 2.5 times the current rate.” This rate hike would “aim to slow down inflation by making it more expensive for people and companies to borrow and spend money,” he explained.
Leung added that since inflation rates are likely to remain higher than interest rates, “we can still expect negative real interest rates.”
He added:
“In this scenario, cash value will still depreciate faster with inflation than it can gain from interest rates, such as from a bank savings account. That makes risky assets more attractive to investors, as they’re more likely to give higher returns compared to fixed income assets.”
At StashAway, they recognize that inflation is “likely to stay with us throughout 2022, and that’s why [their] portfolios are balanced with assets that give us inflation protection, including stocks and corporate bonds,” Leung revealed.
He further noted:
“We’ve also been prepared for inflation’s effects since our last reoptimisation. In July 2021, we identified a new economic regime: the US economy was entering inflationary growth, and non-US economies disinflationary growth. Our investment framework, ERAA®, then buffered our portfolios with other inflation-hedging assets, such as US Consumer Staples and Energy, REITs, Emerging Market bonds, and equity allocations to commodity-exporting countries like Australia.”
He added that their investment team is “keeping an eye on the big picture behind China’s growth, which is why they’re staying invested by maintaining an allocation to China in all of their globally-diversified portfolios.”
He also shared:
“We’re confident that [emerging] technologies aren’t just passing trends but are structural ones that will change the world. That’s why we’re providing exposure to these technologies early on with our Thematic Portfolios. Our thematic investing approach currently focuses on 3 themes: Healthcare Innovation, The Future of Consumer Tech, and Technology Enablers.”
He claims that their portfolios “are ready for 2022.”
He further noted that their portfolios are “resilient and ready for the new year: they’re highly diversified across asset classes and geographies and include allocations to inflation-hedging assets and the China market.”
Meanwhile, their thematic portfolios “allow investors to invest in the high-growth themes they believe in,” Leung explained.