How did FSMOne investors navigate through tricky market conditions in 1Q21?

iFAST Content & Marketing Team
iFAST Content & Marketing Team16 Apr 2021 1919 Views
How did FSMOne investors navigate through tricky market conditions in 1Q21?

What went down in 1Q21? 


2021’s opening quarter was yet another volatile one. Better-than-expected economic readings and vaccine progress have led to a risk-on sentiment amongst market participants.

While nascent signs of an improving economic recovery momentum is a huge positive, the good news have also put upward pressure on longer term rates as investors recalibrated for higher inflation and growth expectations. A momentum-driven Treasury bond rout sent the 10Y treasury yield to a high of 1.74%, from 0.9% in the beginning of 2021, which sent reverberations across global bond markets. That said, inflationary fears did not just impact the bond market. Equity markets were affected too. Long duration assets such as the global tech and consumer discretionary sectors experienced a sharp drawdown as rising yields challenged their high equity valuations. A rotation towards Value on the other hand picked up steam, building on the outperformance that began with positive vaccine news in November last year. 

Chart 1: Value vs Growth performance in 1Q

 

So how did our investors navigate through this tricky market in 1Q21? In the following sections, we delve deeper into the products that piqued our platform’s investor interest as well as understand what the prevailing sentiments are. 


Asia remains the top investment choice given its spectacular recovery


Broadly, the health of Asian economies continues to improve, bolstered by i) a pickup in global demand, ii) robust exports and iii) a confluence of positive cycle dynamics (tech and manufacturing upcycle). Upon recognizing the aforementioned tailwinds, investors have since given their vote of confidence to the region’s equities. 

Chart 2: Asian countries manufacturing PMI 

 Source: Bloomberg, iFAST compilations. Data as of Mar 2021 


Market participants’ top pick to capitalize on Asia’s growth potential is the Schroder Asian Growth A Dis SGD. The fund aims to achieve long term capital growth primarily through investing in securities of companies quoted on some or all of the stock markets in Asia (including Australia and New Zealand but excluding Japan). Some of the fund’s top holdings includes the likes of Taiwan Semiconductor Manufacturing Company Ltd, Samsung Electronics (KRX: 005930), TENCENT and Alibaba Group Holding Limited, to name few. 

The fund’s outsize exposure towards the information technology sector, more specifically the semiconductor industry, will no doubt allow the fund to reap the benefits of an expansionary phase of the global semiconductor industry. In addition, the fund also has a significant weighting towards value sectors such as financials, providing a balance strategy to ensure the fund is well positioned within the market narrative of a cyclical recovery.  As such, we believe that the abovementioned reason is perhaps why most of our platform’s investors have chosen this particular fund to gain exposure to the region’s equities. 


China and Singapore are wildly loved by our platform’s investors


Delving deeper into the various countries in the region, investors have found favor with Singapore equities as their focus increasingly turns towards equity markets segments that are fundamentally improving and yet inexpensive. This change in thinking could be in anticipation of monetary tightening down the road, as a result of a fast improving global economy. Joining Singapore, is China, which has caught our investors’ attention as they have been increasing their exposure to the region despite recent headwinds. 

Singapore makes a comeback alongside the value rotation, investors’ increases exposure


Singapore is making a comeback after enduring a long period of underperformance as the market sees a shift in style and sector leadership. A rotation towards Value stocks benefitted Singapore equities as a whole since financials have a large representation within the Straits Times Index (STI). Together, the big 3 banks (DBS, UOB and OCBC) accounts for more than 40% of the index’s weightage. 

Chart 3: STI sector breakdown

 

Moving forward, we expect banks to be well-positioned to emerge as a winner amid the stronger global economic outlook. Due to a combination of favorable factors like i) rising net interest margins (NIM) – arising from the steepening yield curve, ii) greater loan growth and iii) lower loan loss provisions required for 2021, it has spurred investors to increase their exposure towards Singapore’s equities. 


Chinese equities sold-off but investors bought the dip 


Similar to other major equity markets, Chinese equity market was met with a violent de-risking late into the first quarter of 2021. The anatomy of the sell-off in our view was because of two reasons: i) market participants were piling into Chinese equities at a pace that was unsustainable and ii) the realization of Chinese policymakers’ desire to keep its house in order (reducing leverage, improving the use of capital within its economy and financial system). Hence, the combination of frothy valuations and dissipating confidence may have set the stage for the selloff. 

Having said that, Chinese equities remains in favor amongst our platform investors. The JPMorgan funds – China A (acc) SGD which aims to provide long term capital growth by investing primarily in companies of the People’s Republic of China (PRC), is the most popular unit trust product in 1Q21. This is likely because investors saw the recent de-risking event as an opportunity to increase their exposure towards Chinese growth names, which offer ample potential over the longer-term horizon. 


Value rotation ongoing but growth names should not be forgotten 


With the Covid-19 disrupting almost every aspect of our lives, we have seen dramatic changes to our lifestyle. Much of our day-to-day affairs have migrated online, accelerating the trend of digitalisation. For much of 2020, growth-oriented Technology-related were the darlings of equity market.

While its popularity has dwindled in the reopening of the economy, they should not be written off yet. There’s still growth potential ahead – and that’s a fact you already know, since technology related funds are one of the more popular products for Q1.

Paradigm shift adds to the immense growth runway  


The paradigm shift towards a digital economy is near irrevocable. Consumption trend like 5G upcycle, rising e-commerce penetration rates and increasing online media consumption will continue to drive superior earnings growth for technology enabled companies. 

In the US market, the names that are wildly loved by our investors are Tesla, NIO, Nikko AM ARK Disruptive Innovation B SGD, to name a few. More notably, the ARK Genomic Revolution ETF, have piqued the interest of our investors lately. These products in our view are well liked because they fall under the idea of megatrends and thematic investing, which have gained popularity in recent times. 

Transitioning to the Asian markets, iShares Hang Seng TECH ETF and Lion-OCBC Securities Hang Seng TECH ETF continues to be the top picks of our platform’s investors when gaining exposure to the burgeoning Chinese tech sector. With the following ETFs designed to capture the growth potential of the 30 largest tech-themed (cloud, e-commerce, fintech, to name a few) companies listed on the Hong Kong Stock Exchange, investing in it will give a good representation of the flourishing Chinese tech sector. 

Table 1: Top 10 Traded Stocks in 1Q21 

 

Table 2: Top 10 Traded ETF in 1Q21 

 

Table 3: Top 10 Traded UT in 1Q21 


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