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IC Speaks5 Mins Read

Six Months of A Long Year: Volatility, Valuations, and Viewpoints.


One of the perks of having your office in Singapore’s Financial District is that you have a good view when you sit down to ponder the state of global affairs. And mark my words, there is a lot of pondering that needs to be done. Volatility has always been an investor’s nemesis; hiding like the proverbial monster living under calm surfaces. Entering into 2020 though, the monster has now become hydra-headed. Every tweet, rumor, misquoted thought, or sentiment is enough to get the markets in a roil.

Many of our investors have asked me about my predictions for the upcoming months. I wish I had a Kristal ball (pun intended); in absence of which I turned to the next best thing – our partners and market leaders, and asked them for their opinions. I would like to extend my gratitude to them for the same.

Below is what our partners had to say when we asked them about their views on the current market scenario and where they believe the bull is headed next:

Angela Chow, Chairlady and CEO, Cachet Group, Hong Kong angela-chow-cachet-funds-kristal.ai

“The short term market is very cautious, risk-averse, and taking a wait-and-see approach before the possible G20 meeting between Presidents Xi and Trump at the end of June. That said, we see stock valuations in Hong Kong becoming more attractive after recent correction and some sectors falling below ten-year average valuation. Share markets will continue to attract foreign investors with its inclusions and weighting increase by MSCI and FTSE.”

Key Takeaways for Investors:

Interim results in August, robust fundamentals and decent growth of the HK market improves the chances of a late summer rebound.

  • Investors need to be very selective as the impact of the trade tension does have a detrimental impact on some sectors as well as investor sentiment in general.
  • Hong Kong investors should remain stock pickers for the remainder of this year rather than betting on general market direction.

Sanjay Guglani, Founder and CIO, Silverdale Funds, Singapore sunjay-guglani-silverdale-funds-krital.ai-partners

“The U.S.-China trade war is consequence of China’s fight for global dominance, and would continue for couple of decades, resulting in polarisation and new economic equations. In the backdrop of ageing populations and slowing global growth rates, the next few years would be excellent for leveraged fixed income assets as cost of leverage would come down while bond yields would relatively lessen (since credit spreads will widen).”

Key Takeaways for Investors:

  • Widening credit spreads will reduce the cost of leverage while bond yields will lessen.
  • Savvy investors should look for internally leveraged funds which are different than typically fixed maturity plans (or direct bond investments) where the investor takes a loan and thus, runs huge credit risks.
  • However, one needs to focus on credit quality; hence the bottom-up approach of active managers is likely to outperform passive funds.

* In case you were wondering, Silverdale’s Leveraged Funds have been very popular this year. Silverdale Fixed Maturity Fund 2021 with a dividend of 7.50% p.a. has been a top pick for investors.

Nitin Jain, Lead PM, KOTAK Funds, Indianitin-jain-kotak-funds-kristal.ai-partners

“Indian markets had a volatile month on the back of the ongoing Lok Sabha elections in India, crude oil price movement, and global geopolitical developments. The focus should now shift to earnings growth trajectory post the election results. As per our internal estimates, we expect Nifty EPS growth at 18-20% for FY20E; Banks to be the driver of earnings, and rural consumption the key to watch out for.”

Key Takeaways for Indian Investors:

  • The Q4FY19 earnings season and annual results for Indian companies is underway – this is an important event for investors as it will set the tone for 2020.
  • Private sector banks and IT services companies have reported consistent growth so far. For NBFCs, growth is clearly a challenge given the issues surrounding availability and cost of funding.
  • Within the IT sector, growth numbers have been close to expectations, though macro developments in the U.S. and Europe, and U.S. visa-related issues would need close monitoring.
  • Cement is another sector which has also reported an improving trajectory. The sore patch has been the automobile space where there has been pressure both on growth and margins.

And Then There Was Uber…

Elections in India, Brexit, and President Trump on Twitter – the tech industry had its own equivalent to each of these geopolitical events. A number of marquee names like Uber, Lyft, Pinterest and a number of SaaS companies have been listed in the recent past – most with a lot of hype, but only a subsequent whimper. For Uber and Lyft the meltdown was a result of price action faring very poorly.

Uber’s case is very interesting: it was the first biggest tech IPO since Alibaba in 2014. Of the U.S.-based companies, it was the largest since Facebook going public in 2012. And the crash was equally significant – in the last five years, only 10% of VC-backed tech IPOs have gone kaput in their first day of selling. Seen this way, Uber is among only a handful of its peers!

Trade war tweets and headlines about striking drivers and losses in the ride-sharing industry have obviously not helped its cause. Rival company Lyft had a similar show at the markets – opening with pomp and show, but falling soon enough to trade well below its opening price (27% fall since opening in March). It would seem that Wall Street is not happy with companies that bleed money but fail to make profits. Tech companies that have come to market in recent years have not traded above their IPO price – so that’s something investors should take note of in the coming days as the likes of Pinterest, Yunzi, AirBnB, and Zoom join the IPO bandwagon.

As a fin’tech’ company, the news about fellow tech brands not doing well makes us wonder whether too much ‘value’ was extracted in the private market space post the Jobs Act rule change (increase in the allowed number of private investors before the company has to go public). While the initial premise of this was to encourage entrepreneurs to build out their business without incurring onerous exchange listing costs and regulations, the unintended side effect has been that a large section of the society (non-accredited individuals) has not been able to profit from the rapid valuation growth of these tech companies. All-time low-interest rates coupled with excessive liquidity has also led to yield/return hungry capital owners chasing opportunities in the riskier end of the curve leading to stretched valuations and dare we say a tech bubble.

While share prices have come off from listing day, markets do tend to overreact and if we take the case of Uber whose listing valuation was already substantially lower than what initial market expectations were, the Kristal Advisory team has created a strategy to take advantage of the high volatility in the share to earn an attractive yield. Please reach out to your RM for further details.

Our Market Outlook for the Next 6 Months…

Geopolitics is more important to investors today than ever in the past 30 years, and this is not going to change anytime soon. The trade war is not about trade but about technology and ideology – and as Sanjay Guglani said above, we can expect it to continue for some more time, and bring many ideological changes in the way the East trades with the West.  The technology sector in the U.S. is under threat of negative headwinds from multiple fronts: trade, regulation, and valuations being a few. TL;DR: things aren’t going to be easygoing for a while.

So, to those still ruffled by the tweet storms and rumor mills, I’d like to quote a little Jeff Bezos – “long-term thinking squares the circle.” The times may be turbulent, but we can weather them together.


The materials and data contained herein are for information only and shall in no event be construed as an offer to purchase or sell or the solicitation of an offer to purchase or sell any securities in any jurisdiction. Kristal Advisors does not make any representation, undertaking, warranty or guarantee as to the update, completeness, correctness, reliability or accuracy of the materials and data herein. All opinions, forecasts or estimation expressed herein are subject to change without prior notice. Kristal Advisors and its affiliates accept no liability or responsibility whatsoever for any direct or consequential loss and/or damages arising out of or in relation to any use of opinions, forecasts, materials and data contained herein or otherwise arising in connection therewith.

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