Q1. With your wealth of experience in the industry Mr. Teng, can you please share some lessons of how Affin Hwang AM navigated the 1997 Asian Financial Crisis and the 2008-GFC? Also how is the current crisis different from past market crashes?

Let me begin by pointing out that markets staged a strong rebound last night with the Dow Jones up by almost 11% which was one of the strongest rally seen in years. What is clear today is that the markets are gyrating in an extremely volatile manner partly exacerbated by the presence of algo-traders that do not trade based on fundamentals. Any fund manager would tell you that the experience of investing in markets today is vastly different from before.

As the saying goes history never repeats itself, but it often rhymes. With that each financial crisis is different from the one before. What we are seeing today is a global shutdown of economies in a scale that we’ve not seen due to Covid-19. Markets are pricing-in concerns about its contagion effects, but we expect markets to soon reflect more than just concerns about the coronavirus itself.

The impact on economies will be significant as we see more countries like Thailand, Indonesia and eventually the US take more severe containment measures to curb the virus spread that will have impact on economic growth.

For investors looking to deploy, be prepared to average down because we don’t know how long this will last. Conventional wisdom suggests that the coronavirus may recede by the end of May, but that would depend on the effectiveness of containment measures.

Similarly, investors should refrain from timing the market and guessing when it would bottom or also start chasing again. Yesterday’s rally was partly spurred by stimulus hopes as the US prepares a $2 trillion stimulus package as well as a short-covering surge in markets. We can expect markets to continue to stay volatile or pullback slightly again as impact from the coronavirus stays prolonged.

Q2. What is our investment strategy to protect the portfolios and safeguard client’s wealth in this volatile period?

First and foremost in any type of financial crisis, we want to ensure that our portfolios have ample liquidity to meet any redemption requests and that investors have full access to their investments. We have been steadily raising cash for our portfolios ahead of this current downturn as a pre-emptive measure.

In today’s market environment, the strategic mind-set that we have is now tilted very much towards capital preservation and protecting the portfolios as much as we can. Holding cash as a buffer would also help cushion our portfolios from any further correction. But more importantly, it also serves as ammunition for us to redeploy back into markets again when the coast is clear.

Our experience in the 2008-GFC has taught us that sometimes it is better to walk away and stay defensive by raising cash. It was painful as we saw various financial institutions like Lehman Brothers and Bear Stearns collapsing. But over time, we maximised opportunities in this cycle and when markets finally recovered in 2009, we started to redeploy and recouped back all our losses.

We foresee a similar pattern for markets again, but we are not itching to go back into the market so quickly. The impact of the coronavirus particularly on the banking system has not yet been clearly quantified and there are expectations of higher NPLs and bankruptcies. If the coronavirus can be effectively contained as seen in Wuhan, China and infection rates start to peak, we may see less significant impact from the virus.

Q3. What about impact to Malaysia and the local market? Bank Negara Malaysia (BNM) had also just announced a 6-month loan moratorium for SMEs and individuals to cushion the economic blow from Covid-19.

We laud the measures taken by BNM in such unprecedented times. Policymakers today are figuring out how best to keep the pulse of the economy going as we also tackle Covid-19. What is clear is that the movement control order (MCO) will take a toll on businesses and individuals particularly those in the B40 and M40 groups.

The 6-month loan moratorium should provide more breathing space and less strain on the cashflows of businesses affected by the MCO and temporary office closures.

As the backbone of the economy, SMEs play a crucial role in supporting different industries and fulfilling supply chains that would have implications on finished goods. It is crucial that SMEs are provided the support they need to weather this period.

On the local market, Malaysia is in a more precarious position with a political landscape to also manoeuvre on top of other concerns like Covid-19 and slower economic growth. Shifting sands in the political terrain makes it difficult to capture upside if confidence cannot be instilled and there is a lack of policy clarity.

Q4. What is your advice to investors in navigating this period and how they should approach their portfolio?

The approach that investors should adopt is not to take any excessive risks and run a diversified portfolio. It is crucial that investors stick to their asset allocation and stay prudent in this current volatile landscape. Diversification is essential to help manage volatility in one’s portfolio to weather this period. Investors may consider increasing exposure to fixed income with its more modest drawdowns that can help cushion their portfolios.

A multi-asset portfolio with low correlations helps to smoothen the ride when faced with adverse market conditions and tends to reduce jitters in their portfolios. In turn, this would induce investors to stay invested and reap the benefits when markets eventually bounce back.