Positioning your Portfolio in a Downturn
02 April 2020
As investors brace for further volatility in a market downturn and whispers of a recession grow louder, many might be wondering how they should position their portfolio to ride out the turbulence. Anton Tan, Senior Director, Product, Wealth & Advisory shares why it is important that investors stick with quality, but more importantly keep a cool head and stay calm.

Recession Whispers…

Technically a recession constitutes 2 consecutive quarters of negative growth. To confirm if the economy is in recession, paradoxically we actually have to wait until it has already happened which would of course be too late by then.

Our best guess is that we are already in a recession as the COVID-19 pandemic forces a global shutdown of economies in an unprecedented scale.

But in the investment realm, this is actually secondary because asset prices have already moved ahead and priced-in any recessionary risks. If you look at global equity markets especially from the peak-to-trough, it has plunged by over 30% and has mainly stayed range-bound.

In the fixed income space which tends to be able to predict or price-in a recession quicker, we have seen a sharp widening of credits spreads which indicate stress. For investment grade (IG) bonds, credits spreads have widened by over 400 bps. The typical spread for IG bonds should range just between 200-300 bps.

Within the high yield (HY) segment it has surpassed 1000 bps, though we see some normalisation since global central banks like the US Federal Reserve injecting stimulus and providing liquidity.

As a team, we have been closely monitoring the COVID-19 pandemic and the daily change in infection rates. We can certainly expect a higher rate as testing is ramped-up especially in the US which has begun to acknowledge the severity of the situation. It will be important to see a peak of infection levels in order for markets and the economy to recover.

The impact on the economy will be significant as this is a global phenomenon. It is necessary to gauge the impact this would have the on the balance sheets of businesses and corporates. But, it is crucial that we do not see this turning into a systemic risk that could impact the balance sheet of banks.

Any risks of the coronavirus being prolonged coronavirus could lead to businesses suffering permanent loss in their balance sheets.  

Tilt Towards Quality

If liquidity is crucial especially for investors who have retired or are approaching retirement, we believe that it appropriate for them to reduce exposure in equities. There is still little clarity on outlook and what impact the coronavirus would have on the real economy. So, the prudent thing to do may be to estimate the worst.

This might forego some future upside, but is ideal to help preserve and protect capital. Within fixed income, conservative investors should tilt their allocation IG bonds and avoid HY.

For investors who sit in the middle of the risk-profile spectrum and want some equity exposure, an important question they need to ask themselves is if they can stomach the volatility for the next 3-5 years. If the answer is yes, then investors should average down and split your investment into a few tranches to ease your way into the market. 
This article has been prepared by Affin Hwang Asset Management Berhad (hereinafter referred to as “Affin Hwang AM”) specific for its use, a specific target audience, and for discussion purposes only. All information contained within this presentation belongs to Affin Hwang AM and may not be copied, distributed or otherwise disseminated in whole or in part without written consent of Affin Hwang AM.

The information contained in this presentation may include, but is not limited to opinions, analysis, forecasts, projections and expectations (collectively referred to as “Opinions”). Such information has been obtained from various sources including those in the public domain, are merely expressions of belief. Although this presentation has been prepared on the basis of information and/or Opinions that are believed to be correct at the time the presentation was prepared, Affin Hwang AM makes no expressed or implied warranty as to the accuracy and completeness of any such information and/or Opinions.

As with any forms of financial products, the financial product mentioned herein (if any) carries with it various risks. Although attempts have been made to disclose all possible risks involved, the financial product may still be subject to inherent risk that may arise beyond our reasonable contemplation. The financial product may be wholly unsuited for you, if you are adverse to the risk arising out of and/or in connection with the financial product.

Affin Hwang AM is not acting as an advisor or agent to any person to whom this presentation is directed. Such persons must make their own independent assessments of the contents of this presentation, should not treat such content as advice relating to legal, accounting, taxation or investment matters and should consult their own advisers.

Affin Hwang AM and its affiliates may act as a principal and agent in any transaction contemplated by this presentation, or any other transaction connected with any such transaction, and may as a result earn brokerage, commission or other income. Nothing in this presentation is intended to be, or should be construed as an offer to buy or sell, or invitation to subscribe for, any securities.

Neither Affin Hwang AM nor any of its directors, employees or representatives are to have any liability (including liability to any person by reason of negligence or negligent misstatement) from any statement, opinion, information or matter (expressed or implied) arising out of, contained in or derived from or any omission from this presentation, except liability under statute that cannot be excluded.
Hello, I'm Nadia. How may I help you?
Talk to Nadia
Not sure what to ask? Try these.
  1. I forgot my i-Access password.
  2. How to perform redemption?
  3. What is the minimum amount to open an investment account?
  4. Checklist for deceased redemption.
  5. What is the best fund for me?
<  Slide to cancel
I'm listening ...
Click to stop recording
Generic Popup