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A woman is using her mobile on the escalator; image used for HSBC Malaysia Stay Calm, Invest Smart article.

Stay Calm, Invest Smart

As the markets panic over the coronavirus outbreak, it is important to understand how to keep your money safe and come out on top at the other end.

We live in unprecedented times. It is difficult to stay calm and level-headed at the moment amidst the uncertainty that the COVID-19 outbreak has created globally. No one can predict what will happen in three months or six months or a year from now. Most of us are taking things in stride day-by-day trying our best to cope and hoping that governments, the medical fraternity and our fellow people make the right decisions so we can all emerge from this in a relatively good place.

Certainly, the prolonged impact of the outbreak brings our financial situation to the fore. Questions will arise about our income security, what effect it may have on the wealth we have built, how will it impact our future retirement plans, and so on and so forth.

We understand that it can be difficult to make informed financial decisions that are not driven by fear or emotion amidst the volatility and dramatic sell-offs in the markets which can challenge your commitments to long-term investment plans.

While there is no fool-proof method to navigate the markets in times like this, we believe there are still actions you can take that can make a difference in putting yourself in a safer, if not better, financial position at the other end as we all try to get through this challenging period.

5 TIPS TO HANDLE MARKET VOLATILITY

We hope these tips will provide you with a better idea of how to manage your financial situation and navigate the investment landscape through the market turmoil we are experiencing.

1 KEEP CALM
Short-term volatility is part and parcel of the investment journey.


Markets can fluctuate depending on geopolitical events, economic data release, special events or expectations on valuations and corporate earnings.1 In spite of the severity of the COVID-19 outbreak and its knock-on effects, it is important to remember that volatility is to be expected from time-to-time in financial markets.1

History does not necessarily repeat itself, but we can learn from prior lessons.1 Short-term volatility can happen, but they do not necessarily derail the long-term growth in stock markets.1 Historically, significant recoveries occur following major setbacks including economic downturns and geopolitical events (see Fig. 1).1

While news flow such as what we have experienced with the COVID-19 outbreak – as well as other instances like Brexit, trade wars and Middle East tensions – can affect short-term market sentiment and lead to loss in asset valuations, share prices should ultimately be driven by fundamentals over the long run.1 Therefore, you should avoid panic selling as an investor during volatile periods to avoid missing out on any potential market recovery.1

2 REMAIN INVESTED
Long-term investing increases the chance of positive returns.  


When markets get rocky, it is tempting to exit the market to avoid further losses.1 However, if you focus on short-term market volatility only, you may end up buying high and selling low.1 Again, history has shown that financial markets go up in the long run despite short-term fluctuations.1

Though markets may not always follow the same recovery path, periods of correction are often critical times to be exposed to the markets.1 Staying invested for longer periods tend to offer higher return potential.1

Based on the performance of global equities represented by the MSCI AC World Total Return Index over different time frames between 1999 and 2019 (see Fig. 3):

  • You can see that the longer the investment time frame, the less likely of a negative return.1
  • The 1-year bar graph on the left shows that the performance of the index over any 1-year period between 1999 and 2019 ranged between -51% and 79%. However, for any 10-year period, investment performance of the index ranged between -23% and 225%.1
  • Therefore, the longer you stay invested, the more likely you are to enjoy positive returns.1

3 STAY DIVERSIFIED
Diversification can help achieve a smoother ride.


Diversification simply means the old adage: Don’t put all your eggs in one basket.1 Different asset classes often perform differently under various market conditions due to their unique characteristics and correlation (relationship to behave in a similar or opposite way at the same time) to one another.1

By combining assets with different characteristics, the risks and performance of different investments are combined, thus lowering overall portfolio risk.1 That means, a lower return in one type of asset may be compensated by a gain in another (see Fig. 3).1

4 TAKE ADVANTAGE
Market downturns may create opportunities.


When markets decline, don’t be passive or follow the herd mentality.1 Valuations tend to be driven down to attractive levels when market sentiment is negative, which often provides investment opportunities.1 In bull markets, people tend to invest as they chase returns for fear of missing out.1 In bear markets, people tend to sell. When investors overreact to market conditions, they may miss some of the best performing days.1

While no one can predict market movements, periods when everyone is overwhelmingly negative can often turn out to be some of the best times to invest (see Fig. 4).1

Market downturns may create opportunities

  • Price to book ratio (P/B Ratio) is a ratio used to compare a stock’s market value to its book value – the company's assets minus liabilities.1 It is calculated by dividing the price of the stock by its book value per share.1 A lower P/B ratio could mean that the stock is undervalued.1
  • The chart shows that high levels of selling during economic crises drives valuations down, which can provide buying opportunities.1
  • Sometimes, company valuations are at their lowest during these times because everyone seems to have a negative view.1
  • Opportunities can arise when market sentiment is the lowest – when all the news is negative.1 For example, between November 2008 to March 2009, valuations reached the lowest point over this period at 1.28x.1 This was followed by a lengthy period of positive returns.1

5 INVEST REGULARLY DESPITE VOLATILITY
Stay invested for the long haul.


Investing regularly means continuous investment regardless of what is happening in the markets.1 When you make fixed regular investments, you buy more units when prices are low and less when prices are high.1 This will smooth out your investment journey and average out the price at which units are bought.1 It reduces the risk of investing a lump sum at the wrong time, especially amidst market volatility.1

The longer time frame you hold your investments the better the potential outcome, because it allows more time for your investments to grow – the compounding effect.1

The illustration in the chart (see Fig. 5) shows what happens to US$1,000 invested monthly. More shares are purchased when prices are lower and fewer shares are purchased when prices are higher.1 This approach can help you stick to an investment plan, while reducing the impact of short-term market movements on your portfolio versus a lump sum investment of the same amount.1

So, take a moment and a deep breath. There is light at the end of the tunnel if you make the right decisions now, and act on facts rather than on fear. HSBC Malaysia offers a wide selection of diversified global portfolios and Asia managed solutions that can form part of your investment strategy to tackle these volatile times. Your Relationship Manager and our specialists are here to assist so you can make financial and investment decisions that will put you in a better position.  

HSBC Global Asset Management viewpoint amidst volatility

Things have been changing daily and markets have been fluid. As HSBC Global Asset Management followed the developments, here were their key views as things continue to unfold…

  • Global risk assets have sold off sharply and volatility has surged amid the global outbreak of COVID-19.2 The current environment suggests that a global recession is now the most probable scenario.2 The only question is for how long and how deep.2
  • In response, the US Federal Reserve has cut federal fund rates by 100bp to 0.25% and committed to at least US$700 billion of asset purchases in the months ahead.3 The European Central Bank and Bank of England have also made similar moves, delivering comprehensive easing packages in the face of the health crisis we face.3
  • HSBC Global Asset Management believes it makes sense to adopt a more neutral tactical view in the one to three-month period on developed market equities in such a highly uncertain and volatile environment.2 However, they maintain a strategically pro-risk stance in the 6+ months outlook in the context of hugely improved relative valuations for risky assets.2
  • Be prudent and practice greater selectivity in risk assets that you hold as an investor.4 HSBC Global Asset Management sees greater potential for policy stimulus in the US, China and many Emerging Markets (EM) and believe it makes sense to allocate a higher weight to EM and US equities relative to the Eurozone and Japan.4 With the Eurozone economy facing significant challenges from the outbreak and policy makers facing some constraints to prompt action, HSBC Global Asset Management is cautious on exposure to the eurozone.5

HSBC Diversified Portfolios

Diversified Global Portfolios

  • Selection of global portfolios offering broad multi-asset diversification managed to five different risk profiles (see Fig. 6).

HSBC Asia Managed Solutions

  • Selection of Asia multi-asset portfolios (see Fig. 7) to cater for three different risk profiles, capturing both growth potential from equity markets and income from fixed income assets.
  • While being Asia focused, the portfolios also allocate a reasonable exposure to global assets to enhance portfolio diversification benefits, mitigating unsystematic risks.  

Important information

This information is prepared by HSBC Global Asset Management (Singapore) Limited (“AMSG”).

This information does not constitute an advertisement, offer, invitation, commitment, advice or recommendation to make a purchase of securities or enter into any such transaction. The information and the presentation represents the opinions and judgements of the respective speaker. HSBC Bank Malaysia Berhad/HSBC Amanah Malaysia Berhad (the “Bank”) has not been involved in the preparation of this information. The Bank neither endorses nor is responsible for the accuracy or reliability of, and under no circumstances will the Bank be liable for any loss or damage caused by reliance on, any opinion, advice or statement made in this document or given in the presentation. Investors are solely responsible for making his/her own independent appraisal of the contents herein. Do not invest in them unless you fully understand and are willing to assume risks associated with them.

This information is for investors’ information only and not to be distributed to anyone or in any jurisdiction that would make such distribution unlawful. You should refer to the offering documents and/or relevant documents for further details. You must make your own assessment of any such transaction and the risks and benefits associated with it and of all the matters referred to above in view of your investment experience, objectives, financial resources and circumstances. You should enter into transactions only after having considered, with the assistance of your external advisors, the specific risks of any such transaction. Past performance and future forecasts are not indicative of its future performance.

Sources:
1. HSBC Global Wealth Insights, 5 Tips to handle (persistent) market volatility, 14 February 2020.
2. HSBC Global Asset Management, Investment event: Adapting to a volatile environment, 16 March 2020.
3. HSBC Global Asset Management, Investment event: Federal Reserve goes all out, 16 March 2020.
4. HSBC Global Asset Management, Investment event: Uncertainty breeds volatility, 9 March 2020.
5. HSBC Global Asset Management, Investment event: ECB – Focusing on liquidity, 12 March 2020.