Making sense of the macroeconomic trends affecting financial markets can often be confusing and intimidating for many investors. This is especially so in the current pandemic situation, with financial markets roaring to new highs despite the real economy showing massive dislocations and problems.
What are we to make of the globally widening gap between the haves and have-nots, the rich and poor nations? How should we be looking at the cheap credit from central banks and the pace of recovery of battered economies, and what can we make of the outlook for the rest of 2021 and beyond?
In this session, we have invited Jamus Lim, Associate Professor at ESSEC Business School and Chief Economist Emeritus at ThirdRock Group, to be in conversation with Samuel Rhee, Chairman & Chief Investment Officer of Endowus. They will be discussing various topics, including:
- Do economists invest better than others?
- How do economists make sense of markets for investment firms and sovereign wealth funds?
- How should investors use macroeconomic indicators? How should they approach the latest buzz around things like inflation & interest rates?
- Do these even matter? How should investors adapt to different macro environments?
- What is the macro and market outlook for 2H 2021, including threats and opportunities?
0:00 Introduction to Endowus
9:33 Introduction to Jamus Lim
13:48 Insights on the direction of the global economy
16:32 Overview of G4 and BRIC Growth Performance
19:27 Recovery and growth projections around developed and emerging markets
23:14 What is the outlook for EM vs.DM from a growth perspective?
27:59 Inflation pressures on DM and EM economies
31:48 Understanding inflation trends, expectations and concerns in global markets
34:48 Poll: What do you think is the biggest macro-economic threat to the markets now?
41:53 QnA: Given the Fed’s generous quantitative easing policy, what is the likelihood of runaway, uncontrollable inflation? How should we hedge against hyperinflation?
47:41 What are your thoughts on the Fed being too market friendly?
50:45 Jamus’ thoughts on market and investment strategy
1:00:06 QnA: How do economists invest and do they time the market?
1:08:12 Poll: How do you think the markets will do this year?
Excerpts from the webinar
Insights on the direction of the global economy (13:48)
Jamus: We are a year and a half past the depths of the global crisis that resulted from Covid-19 and what we are seeing is that the recovery has been very divergent globally. You have clear laggards when it comes to regions of the world like Latin America and areas closer to Singapore. However, there is a global uptrend in the economy which is led by the U.S. and China. The rest of the world is a little bit more heterogeneous in terms of the rates of recovery but even in the laggards the uptrend is clear, we are no longer in the nadir that we experienced a year and a half ago.
Concomitant with that recovery has been the fact that inflation bells have begun to ring. As you may have heard, there are inventory shortages, especially in agricultural commodities and in industrial metals. Furthermore, energy prices have started to creep up past what had been a fairly standard trading range for a long time.
The third point I wanted to bring across is that the steepening of the yield curve, which began earlier this year, has since stabilised over the past few months. The long end of the curve has stopped creeping up but real interest rates have begun to gradually rise from negative levels.
Recovery and growth projections around developed and emerging markets (19:27)
Jamus: If you look at developed markets you’ll see that the U.S. is clearly the leader among the economies and the Euro area is likely to be the next big winner because of their willingness to reopen.
Emerging markets tend to face a double whammy. Not only have they faced challenges insofar as export performances are concerned but they also face the challenge of being far behind in their ability to address the pandemic’s issues. This in part has to do with the fact that most of the vaccine roll out were distributed first in the developed markets. Therefore, depending on the rate of vaccinations and the comfort level that these economies have in reopening we will see varying degrees of rebound in emerging markets.
QnA: How do economists invest and do they time the market? (1:00:06)
Jamus: Vanguard has a retirement date fund that I like to use. How it works is that you choose your retirement date and Vanguard will then adjust your risk exposure consistent with your age as you move closer to that retirement age. This is a diversified fund that distributes between stocks and bonds depending on your age. Given my age, my retirement date fund is still predominantly stocks -- maybe 75% stocks and 25% bonds -- and most of those stocks fall within U.S. equities and the rest are DM equities and EM equities.
A lot of economists, especially academic economists like myself, do not have the wherewithal to focus on the day-to-day basis of the markets, so our ability to get in and out quickly is very limited. So our general recommendation is if you can’t allocate your whole focus on your investments and if you want to sleep calmly at night look to a long-term investing strategy.
QnA: Given the Fed’s generous quantitative easing policy, what is the likelihood of runaway, uncontrollable inflation? How should we hedge against hyperinflation? (41:53)
Jamus: While it’s true that the Fed has traditionally had a dual mandate, the more relevant regime and policy element is the recent change in the stance from a 2% inflation target to an average 2% inflation target. Though this might be a subtle change, it is a very important one because over the past year the Fed has undershot this target. This leads us to expect a higher realised set of inflation rates by the Fed.