The CFAS panelbelieves a market correction is possible. The top concern for some of the 526 people at a Sept 2 seminar at the NTUC Auditorium was related to the US Fed raising interest rates and the unwinding quantitative easing - the vast purchases of government debt by the Fed. Here are some questions posed to the panel.
Q What is the market outlook? With share prices at an all-time high, do you expect a market correction coming soon?
A The economic outlook is looking relatively robust, with global economic indicators generally still expanding, contributing to the recovery in global trade. With inflationary pressures largely kept in check, this has provided upward momentum for corporate earnings.
Having said this, valuations of some stock markets (for example, US equities) are now looking expensive. There is also uncertainty over whether the US Fed will push through with its plans to unwind quantitative easing and implement interest rate hikes later this year.
Pursuing quantitative tightening and interest rate normalisation could trigger a correction in risk assets. In addition, geopolitical risks have escalated in recent weeks, with tensions in North Korea ratcheting up. As markets have generally delivered strong returns so far this year, we think there is a risk for a market correction in the short term.
Q Given the uncertain political situation in the US and geopolitical tensions in Asia, what is a suitable investment approach for retirees who are concerned with capital preservation?
A We strongly advocate having a diversified portfolio. It is difficult to properly position one's portfolio for geopolitical risks that may or may not materialise.
Spreading your investments across different asset classes like equities and bonds, and having some exposure to gold, will help dampen down the volatility in your portfolio.
Q Given the current economy, which are the industries/ countries you will invest in?
A You can see from the portfolios that we are still positive on Europe. Equities there have underperformed as the stronger euro has been a drag on European stocks, particularly the exporters. The stronger European economy, coupled with the implementation of structural reforms (labour reforms in France), will likely provide a boost for corporate earnings which could trigger a recovery in the stock market.