Market Commentary: TikTok saga | Banks' suspicious transactions

Watch Freddy Lim, StashAway Co-founder and Chief Investment Officer, and Philipp Muedder, Head of Financial Planning and Partnerships, discussing the latest global events and their impact on the markets.

In this episode,

• The Fed pushes Congress to provide more aid [00:16]
• ByteDance files lawsuit in the US [02:22 ]
• Global banks come under scrutiny for suspicious transactions [03:47]
• Dollar-cost averaging versus lump-sum investing [05:37]
• What causes market corrections? [07:36]
• Freddy’s book recommendations [09:16]

FULL TRANSCRIPT

00:01 | Philipp

Hello and welcome everyone to another weekly market commentary from StashAway. With us, our Chief Investment Officer, Freddy Lim. Hey, Freddy.

00:13 | Freddy

Hi! Good morning, how are you doing?

00:16 | Philipp

I'm well! We have a lot to cover actually today. Lots of questions from the audience as well as a couple of topics that came across our news desk, right? Over the last week. Obviously we don't want to get too much into details about the election but I think we'll be covering this quite a bit more over the next few weeks. But, in terms of markets, there's a couple of things that are currently happening, obviously, the markets trending downwards a little bit at this moment. And, a couple of pieces of news that came out was, for example, the Federal Reserve right, came out with some statements, you know, getting Congress to act a little bit more because of the uncertain economic future. How do you see that and what was even being said there?

01:03 | Freddy

Well, the Fed has been sounding repeatedly for a while now. In every meeting they're consistent and they say, the government needs to step up on fiscal policy. They need to direct more aid for households, consumers, and small businesses. And, in a way, Congress actually grilled Chairman Powell last night as well, like what are you doing about Main Street and Powell said well we are here to help Main Street. The truth is the Fed is more of a financial engine and it does help the papers, the financial markets more whether it is a Main Street lending program that's designed by them or not, the effect is bigger on the financial markets. The Main Street program take-ups have been low. And so, there has been a lot of grilling by Congress. So there is a bit of a subtle back and forth, "Why didn't you do something for Main Street?" The Fed going back and saying, "Well, you know we need you to step up too. You've been bickering." The two parties, the bickering and it's no concrete action so far, right? So, that message, sort of not music to the markets so didn't quite like it but it's not the reason why the market falls. It's just not positive news.

02:22 | Philipp

Not positive news at all. And then, of course, the TikTok saga is continuing, right? There are lawsuits being filed from the from the TikTok side, there was a deal, now it's up in the air again, right? From both sides, China and the US, what's your take on that?

02:41 | Freddy

We have seen repeatedly, the entire time when Trump's president and when he picked the trade war with people, you never really know when he says, "Wow it's a good deal," whether he will go through with it, if he flips and flops. I think the Chinese are playing the right game as well that synchronising with him, right? They changed their own domestic law, national security reasons, export controls of sensitive technologies that put them on the table to say no, that's a smart move. And, was the same move as what the US is trying to do in the first place, why TikTok is a danger to national security. So, I think when you have two elephants in the room, this deal is not going to go through. What ByteDance has done is to buy time by suing the White House for unconstitutional moves just to make sure they tide things over until the US general election in November completes. So, that's not surprising really to myself, the deal was never going to work.

03:47 | Philipp

Yes, I agree. And then, the other big news that we had obviously that a lot of the big banks got into the crosshairs because there are some reports by investigative journalists across the world that have uncovered some suspicious transactions, right? You might have a little bit more information on this but bank stocks are getting hammered by this, right? And obviously, this could be quite bad news for them. What's happening there?

04:16 | Freddy

So, reading the news flow, we've seen HSBC on the prop, J.P. Morgan on the prop and Deutsche Bank on the props and there are many other banks too. The list is not exhaustive and a total of $2 trillion of suspicious transactions has been flagged between 1999 to 2017 and a lot of these transactions were flagged by internal compliance teams at the banks. And today, it surfaces to be a problem. I think some of them were slapped with some puny fines before and again as you know, if you are the optimiser, you think about costs and benefits only, then the legal bills certainly tended to be a lot smaller than what you really have violated, right? It's almost like stealing $100 from someone and giving them back some recovery value on the $100. Maybe I give you $4 back and so, that's sort of the regulatory environment in the past. Even in the case of, Goldman's case in Malaysia, it says to the regulators that they may need to toughen up. And again, this is probably in my opinion, the main reason what we have said today as to why the markets were a little concerned.

05:37 | Philipp

No, absolutely I think this all came together, right? So, let's get to some of the users’ questions. So, for anyone listening for the first time, we take always users' questions from the week before. So, feel free to put those questions in the comments section below the videos so that Freddy and myself will be able to pick those up. Let's go with the first one it's from Marc Tan, he says, "Hey Philipp and Freddy, I have a question. If I have a sum of cash funds, should I deploy all of it now, more time in the market? Or should I do dollar-cost averaging into the market, right?” There are conflicting arguments he says, he would love to have your take on this Freddy.

06:16 | Freddy

Well, it's a great question and there are several dimensions to it. First of all, it's about yourself and if you truly know yourself as a person who is sort of more long term-driven and you're not going to overreact to even a correction in the near-term, then obviously, the lump sum approach could help. But, there's also another dimension to this which is, if you invest in actually a very low-risk portfolio or up to balanced-risk, you might want to do a greater portion of the cash today because they are not as exposed to the stock market. They are more income-driven. So, that's a different story. However, if you go for a sort of a growth-oriented portfolio to aggressive, risky portfolios then the dollar-cost averaging approach really helps to navigate and smooth out the volatility or the noises to your net worth. So, you've got to make a decision as to what risk level is suitable for you first. Once you choose the right risk level and if it's very low risk up to medium, you can think about accelerating your contributions faster but if it's a higher-risk profile, you still want to stick to dollar-cost averaging. So, that would be my take on this.

07:36 | Philipp

Yes, I think Marc will like that answer. Let's go with another question, it's actually two questions from one person by Weiqing Toh, he's asking, "It seems like the recent tech sector corrections were mainly position-driven from the recent gains," so people are selling those high gains that they had in those tech stocks and he's interested to understand what happens in the converse situation i.e. when the market declines.

08:02 | Freddy

I think he meant that when the market declines for other reasons than positioning. There's a variety of reasons, but in general, a bigger crash tends to happen when there's a significant deterioration in the economic numbers like leading economic indices showing a pretty poor rate of change, that could actually generate a surprise correction, that's another reason or you're actually in a serious recession and obviously that drives a market correction beyond a correction, it goes to something more long-lasting. So, there could be a variety of reasons but the positioning or the liquidity reasons tends to be very short-lived because central banks are pretty active today in ensuring ample liquidities, right? Banking insolvency laws are also more geared towards liquidity, so liquidity positioning risk is very short term in nature so they tend to result in a  much shorter, much shallower correction in the markets. So, it really depends. The factors that are more fundamental-driven could last longer, could have a bigger impact.

09:16 | Philipp

Yeah, absolutely. And the second question he's asking is actually a more personal one for you Freddy, but it's something that we get quite a bit actually and he's asking, is there any favourite books that you recommend on understanding markets?

09:31 | Freddy

Yes! I mean too many but off the top of my head, there are five books that make it very comprehensive like an all-round financial education. Number one, starting with financial planning, The Richest Man in Babylon, it’s a very old book written in a very storytelling manner. Easy to read, very thin book that gets straight to the point as opposed to reading Anthony Robbins's Money, which is a huge encyclopedic book. So, read The Richest Man in Babylon. About trading, Jack Schwager's series of interviews on top market visit. So, I think its called Market Wizards, Interview with Top Traders or Top Hedge Fund Managers, he's got a series of it. It’s written by Jack Swagger. The first one came in the late ‘80s  and it's been written over and over and updated with different modern style management. So, he's got a series, pick up any one it's fine, it's a very interesting read. And lastly, about risk, Against the Gods: The Remarkable Story of Risk. So, this is a story about how insurance first came about with sea voyages, how people do trade, and how they want to protect the merchandise, how to manage risk with the long sea voyages to the East Indies, right? And, going to a more modern style of risk management. So, it's a very good book by Peter Bernstein and I highly recommend it.

11:06 | Philipp

Yeah, those are all good books to learn more about so thank you Weiqing for those questions. I think a lot of the listeners will appreciate that. We have a couple of webinars in store for everyone in both Singapore and Malaysia. So, in Singapore, we actually have an interesting webinar on 6 October. It's called Ask Me Anything, and it's investing using your SRS funds. So, if you want to sign up for this there are links in the show notes below as well as on our website. And also in Malaysia, on 30 September next week, we have An Inside Look Into StashAway, so if you want to learn more about StashAway, ask us any kinds of questions about StashAway, please join us for that. Again, links in the show notes below as well as on our website as well. With that being said, thank you, Freddy,  for being here and we will all see you again next week. Have a great week. Bye-bye.