Despite the COVID-19 pandemic, its resultant economic fallout and the weakening of the global economy and job markets, the stock markets have recovered promptly.

Why has there been such a big divergence between the financial markets and the struggling economy? Will this divergence end in the form of a recovering economy or a stock market correction? How can we navigate markets with the risk of prolonged second and emergent third waves of COVID-19 observed across the world? Will news of emerging vaccines continue to prop up investor sentiment?

Should you diversify your investments in view of uncertainties ahead?

Financial Horse and Sam Rhee, Chairman and CIO of Endowus discussed how to make better financial decisions in these uncertain times.

0:00 Introduction

6:11 Background of the current crisis – US market demand and fiscal stimulus

18:15 Impact of fiscal stimulus on GDP, in comparison with other crisis

32:02 Impact of quantitative easing (QE) on inflation

42:10 Impact of QE on the strength of the US Dollar and FX risk

50:22 Negative interest rates and bond investments; what about gold?

1:10:54 About Endowus Cash Smart and QnA

Excerpts from the session

Can you share the sentiments of the market before and after COVID-19? (6:57)

The year was expected to be a fantastic year for the equities market from the China US trade deal made in January, and Trump was expected to prop up the stock market for the elections. Things were rosy quite then. Before we know it, everything fell apart in March when the virus started spreading quickly around the world. The US government carried out unlimited QE and the Fed even got the point where it purchased corporate bonds, which is unprecedented. This helped the market to rally very strongly.

Is the fast recovery surprising to you? What are your views about it? (20:55)

As seen from the charts, once the Fed started the QE or any aggressive monetary policy, that usually ends the market crash and the markets start to rally, be it the Great Depression, Global Financial Crisis or the COVID-19 pandemic. The only difference is that this time it happens so quickly. This type of quick and huge response by the Fed is unprecedented. The logical question next is whether there is any sustainable recovery of the economy? Do we see an inflationary or deflationary phase?

Sam: The goal of the Fed’s monetary policies is to stop companies and individuals from being bankrupt, to that extent the Fed and many central banks have achieved what they set out to do.

What are your views of USD and SGD in the short- to mid-term? (42:10)

My longer-term view for USD is that it is going to depreciate. In the mid- to longer-term, the Fed will want the USD to depreciate to make US goods and services more competitive. In the short-term, the USD has fallen very quickly and significantly from its peak in March. I am not sure if the USD is oversold at the moment.

Sam: We are not in the business of forecasting short term market movements, but I have a colleague that came up with the term “Dollar Smile”. One scenario where the USD will strengthen at the start of financial crisis, when there is a flight to safety. The other scenario is when the US economy is doing well and it will appreciate. Currently there are some questions posed about the viability of USD being the reserve currency of the global economy, and there is some shift to safe haven currencies like Japanese Yen and even Singapore dollars.