One of the questions many investors have been pondering as markets continued to trend higher in recent months is how they should be positioned in the so-called post-Covid era.
At this point, no one can assume anything about where the pandemic is headed and how soon it will end. We are barely six months into this pandemic, and uncertainties abound.
Meanwhile, financial markets have been trending higher in anticipation that the worst of the epidemic may be past us.
Wall Street's main indices have regained most of their lost territory for the year. The tech-heavy Nasdaq is up some 45 per cent since mid-March.
This comes as the United States Federal Reserve added around US$3 trillion (S$4.1 trillion) to its balance sheet, growing its assets to US$7 trillion. This huge injection of liquidity has pushed down the price/liquidity ratio of the US market to 0.14, below the average of 0.18 since 1990, according to Bloomberg data.
In Singapore, a 13-week market rally has lifted the Straits Times Index about 25 per cent.
Much of the stock market rally worldwide so far has been fuelled by aggressive stimulus packages rolled out by central banks and governments to boost growth. Japanese fiscal stimulus is 10 times what it was during the global financial crisis, and US government assistance is 11 per cent of gross domestic product.
The reopening of businesses and economies is also underpinning optimism and hope.
Macro funds that sold out of the market during the February-March sell-off have been rushing to get back into the equity market. It is the Fomo syndrome - fear of missing out.
While crosswinds of negative news on the Covid-19, macroeconomic and geopolitical fronts will inject huge doses of volatility into the market, some experts like Mr Shane Oliver of AMP Capital believe its long-term uptrend remains intact.
Yet a recent OCBC survey found that 40 per cent said that they planned to reduce fresh investments in the light of the pandemic.
This is not ideal.
Investing is not an option, but a necessity. We earn to sustain our lifestyles, but we must invest to build up our wealth. And with interest rates sliding to zero, the value of your bank deposits will erode against inflation.
So it is important to invest if you want to grow your money. This will fund your life goals - marriage, buying a home, starting a family, planning for your children's education or preparing for your retirement.
"Now is a good time to start looking at potential investment opportunities as markets have pulled back and new investment trends emerge in the post-Covid-19 world," said Mr Vasu Menon, executive director, investment strategy, at OCBC Bank.
So how is one to position for a potential recovery?
"Stay diversified, have a spread of growth, cyclical and value stocks and buy some bonds too," said Mr Menon.
Many experts reckon the Singapore market looks attractive, despite last Friday's correction.
"Singapore is one of our most preferred markets, in large part because of its under-performance," noted Ms Tan Min Lan, head of Asia Pacific Investment Office at UBS Global Wealth Management's chief investment office, last week.
In my previous articles, I have highlighted value in S-Reits, food and supply chain stocks and technology plays. These remain very relevant amid increasing turbulence and volatility.
Stocks of companies with strong balance sheets, sound businesses, good management, proven strategies and which are leaders in their segments will be winners in the longer term.
In the tech sector, there are good names like AEM, Venture and UEM. Others include digital cabling specialist NetLink NBN Trust and specialist component maker Innotek.
In supply chain and food, stocks like Japfa, Sheng Siong, Thai Beverage, Koufu, Kimly and Dairy Farm stand out.
Wilmar and Olam are favoured on the agro-industry front. Telcos and selected transportation counters like Comfort Delgro are also seen as defensive.
For yields, the Singapore Exchange has become the bastion for Reits. Look for S-Reits with lower gearing and stable returns. There are also some non-Reits players which also offer strong yields and growth.
There are many other beaten-down stocks of companies with strong balance sheets and good long-term growth prospects. One is specialist engineering group Boustead Singapore, while another is Straco Corporation, which provides exposure to the massive China tourism sector. Both pay out dividend yields of over 4.5 per cent.
Stocks that seemed too expensive last year may look attractive. The local banks, which are leveraged on the recovery, fit this category. If some counters are already running up, buy incrementally through dollar-cost averaging rather than trying to time the markets.
But don't rush into the market. Be cautious and do your research.
Beyond stocks, many investment advisers also recommend a diversification into other asset classes such as gold and bonds.
Gold has become a go-to asset in times of uncertainty, and it has soared over the past year. The STI has a 5 per cent historical correlation to gold.
Many investment advisers reckon gold should account for about 5 per cent of your portfolio.
One efficient and affordable way to invest is via SPDR Gold ETF listed on the local bourse. The value of each unit is based on one-tenth of an ounce of gold.
Just for perspective, the Gold ETF gained as much as 20 per cent this year as the STI declined by 20 per cent. The average daily turnover of the ETF was US$6.1 million between January and May this year, versus US$1.9 million in 2019.
So do speak to your broker or adviser about this asset.
Then there are bonds.
These are essentially borrowings by companies, or other issuers, which are sliced and diced, then sold to investors. They can yield a coupon (or interest rate return) of anywhere from 2 per cent to 6 per cent. The higher the risk associated with the debt (that is, risk of the company), the higher the payout.
But minimum outlays for corporate bonds can be too high for most retail investors. Many require investment of $250,000, though part of it can be leveraged.
A better option would be government bonds, though their yields can be substantially lower than private corporate bonds. Singapore Savings Bonds, or SGS, can be purchased via bank ATMs in multiples of $1,000 and provide safe and flexible options for those who want to invest in bonds.
Also, these bonds are relatively liquid - meaning they can be sold easily.
There are also various bond funds that pay out coupons and need less capital outlay.
Finally, if there is one thing this crisis has taught us, it is that cash is king. So don't invest every last cent.
Leave one quarter of your investible funds in cash. This can be used to buy assets opportunistically, from time to time. There will always be spells of panicky selling which can make that stock you've been eyeing suddenly attractive on a valuation basis.
Remember, this market will go through severe bouts of volatility. You must have the stomach and financial holding power to ride through the turbulence.
However, the world has been through many crises. This is just the latest. We will get out of this one too. But be positioned for the recovery.