OCBC OneWealth App– Rat race or bat flu?

Equities

Global

Outlook

Vasu's views

Vasu Menon

Executive Director, Investment Strategy, Wealth Management Singapore, OCBC Bank

Rat race or bat flu?

31 January 2020

In brief

Markets did very well in the Year of the Pig and stock market valuations, while not expensive, are neither cheap nor compelling. This makes it harder for the Rat to climb a wall of worries in months ahead.
Nevertheless, as in past Rat years, markets could still offer modest returns to investors who are careful and realistic.
Given the prospects for economic stabilisation and recovery once we have safely moved past the coronavirus saga, ultra-loose monetary policy and the potential for fresh fiscal stimulus offer good reasons to expect relatively decent returns in the Year of the Rat.

Cheese and whiskers! The rat is sick!

The Year of the Pig proved to be a very good one for stock markets, but the Year of the Rat has gotten off to a shaky start as the coronavirus, which started in China, has rattled investors.

Will fortunes improve for global stocks in the year of the virus-inflicted rat?

Afterall, looking back over the past five decades, the Year of the Rat has typically yielded positive, albeit modest, returns for global equities, except during 2008-2009 period when the world was besieged by the global financial crisis.

No lasting impact on the economy

For a start, the market impact of the current virus outbreak does not seem as serious as it was during the 2008-2009 global financial crisis. The outbreak may impact economies and markets by way of business disruptions in the short-term, but we don’t see this creating a lasting impact.

Importantly, the outbreak does not pose a systemic risk to the world economy and financial system like the global financial crisis did more than a decade ago.

So, the Rat may regain its footing and reward investors with the patience and a medium-term horizon.

Lessons from the rat

The Chinese see the Rat as a sign of wealth and surplus. The Rat is the first animal in the Chinese zodiac for good reasons. While the Rat is often despised in the West, it is respected in the East, especially among the Chinese, for being resourceful, skilful and nimble.

The Rat is also well regarded for its ability to survive dangers which is a good attribute to have in the year ahead which will be filled with risks and uncertainties.

The virus outbreak aside, investors will still have to deal with other uncertainties in the form of potential flare-ups in trade tensions, the US elections and Brexit as the UK rushes to strike a deal with the EU before the year-end deadline.

Look beyond the virus

Markets have already done very well in the Year of the Pig and stock market valuations, while not expensive, are neither cheap nor compelling. This makes it harder for the Rat to climb a wall of worries in the months ahead.

Nevertheless, as in past Rat years, markets could still offer modest returns to investors who are careful and realistic.

Given the prospects for economic stabilisation and recovery once we have safely moved past the coronavirus saga, ultra-loose monetary policy and the potential for fresh fiscal stimulus offer good reasons to expect relatively decent returns in the Year of the Rat.

So, stay invested but manage risk by staying diversified across asset classes and over time (i.e. via dollar-cost-averaging).

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