SINGAPORE (Apr 16): The past couple of months have been one of the most difficult periods to invest in recent times. The big price swings in both directions, which also include some huge intraday fluctuations, can be nerve-racking, especially after the calm we have come to take for granted.

What makes it even more difficult is that stock prices are being driven by momentum more than underlying fundamentals, based on big macro developments. That includes the evolving trade conflict between the world’s two largest economies and a crisis of confidence in the high-flying tech sector, owing to privacy concerns.

It is impossible to currently quantify the impact of a trade war — its extent and domino effect on the global supply chain. We do not know if it will even happen at all. What we have right now is a lot of rhetoric and mixed signals, especially from the US side.

Similarly, we do not know what type of regulations, if any, will be imposed on tech companies, the impact on business models and profitability and if the new rules will ultimately check the sector’s growth.

The back and forth on trade and regulatory uncertainties have kept volatility in markets elevated. Still, there are some positive takeaways.

While the rash of triple-digit gains or losses for the Dow Jones Industrial Average — the world’s most closely watched bellwether index — make for dramatic headlines, they are not out of the norm. The Dow is down 9.1% (at the point of writing) from its January all-time high, which is within the range of a typical correction. There is no discernible panic in the market.

Our Global Portfolio has performed fairly well against this backdrop of increased volatility and uncertainties. The chart below shows our portfolio’s weekly performance against the benchmark MSCI World index. Save for the first two weeks from inception, when the portfolio was not yet fully invested, it has done consistently Global better than the benchmark index. Crucially, the portfolio has been making absolute profits, not just relative outperformance against the index.

Our strategy has always been about value investing — that is, focusing on both underlying fundamentals (secular trends and business model, sales, margins and growth) as well as prevailing valuations.

You would also notice that our portfolio consists of a mix of very large global names and smaller, lesser well-known companies. This is by design. The large global stocks allow the portfolio to leverage the broader global market movements. The smaller companies, on the other hand, often have an “undiscovered” element that could give us outsized returns.

The performance of our portfolio so far seems to validate this strategy. As seen from the comparative performance chart, our portfolio was ahead of the MSCI World in January, when global markets were rising, driven by tech stock gains. Total portfolio returns reached a high of 10.6% by Feb 1, double the benchmark index’s 5.3% gain (see chart on right).

The global market selloff started in February, driven by momentum and macro events, as mentioned above. Accordingly, portfolio returns suffered too, falling from their high.

Notably, though, our portfolio remained in the black even as the MSCI World fell into negative territory, thanks to our picks of smaller-cap companies, which held up very well amid the broader market weakness.

Total portfolio returns currently stand at 6.0% since inception. We are still outperforming the benchmark index, which is down 0.4% over the same period.

Although it has been only four months, we made bigger gains when markets were up and smaller losses when markets fell.

In the table below, we show the performances of individual stocks in our portfolio (including those we sold), classified by geography and sector. There are some interesting trends here.

US stocks as a whole clearly bore the brunt of the selling in the past couple of months, while Chinese stocks did far better, especially the two domestic-oriented manufacturing companies. Shares of China Sunsine Chemical Holdings and Shanghai Haohai Biological Technology Co and are up 41% and 47.5%, respectively, underscoring the relative robustness of the country’s economy.

The performances of our two Japan-listed stocks were mixed, with DIP Corp gaining 17.4% so far while Towa Corp had lost 16.4% when we sold the stock.

Australia-listed G8 Education got off to a poor start, falling 6.7% since we bought the hares three weeks back. But we believe it is still early days yet. Growth stalled last year, owing to increased competition, affecting investor confidence in the stock. However, we believe its outlook will improve this year, underpinned by mature contributions from the 58 centres acquired in 2016 and 2017, economies of scale as well as higher government subsidies for childcare, which will come into effect only in July 2018.

Meanwhile, technology as a sector did poorly. Facebook shares tumbled after news of a massive data scandal broke. Founder Mark Zuckerberg testified before Congress amid growing calls for regulation of social media platforms.

Shares in Alphabet and were also sold down as the debate over data privacy heated up. US President Donald Trump added to the downbeat sentiment by singling out Amazon for criticism and threatening to formulate policies against the e-commerce giant.

New York-listed Alibaba Group Holding was not spared from the US tech selloff, albeit to a lesser degree, reversing earlier gains.

The other poor-performing sector was auto. We managed to dispose of General Motors Co for a marginal profit in January. Its shares have fallen another 9.4% since then.

For the week ended April 12, we sold our entire holdings in Chinese-based BYD Co, taking a 4.3% loss. Its share price fell after the company guided for sharply lower 1Q2018 earnings on the back of subsidy cuts for new-energy ve hicles despite rising volume sales.

The earnings outlook appears weak in the near to medium term as China gradually pares existing subsidies while shifting them from lower-range models to higher-range and lower-energy consumption electric vehicles. Subsidies will be phased out altogether by end-2020.

The poor outlook for automakers jives with our current belief that the industry is facing a major structural shift. The future of mobility will not only be electric but also autonomous and on demand. This could translate into far fewer cars sold worldwide and, importantly, will pit traditional automakers against tech companies.

In the not-too-distant future, cars might become almost commoditised, just like the PC and smartphone — and carmakers will simply be the OEMs, or original equipment manufacturers, while the network value accrues to tech companies that own the software platforms.

Tong Kooi Ong is chairman of The Edge Media Group, which owns The Edge Singapore

Disclaimer: This is a personal portfolio for information purposes only and does not constitute a recommendation or solicitation or expression of views to influence readers to buy/sell stocks, including the particular stocks mentioned herein. It does not take into account an individual investor’s particular financial situation, investment objectives, investment horizon, risk profile and/or risk preference. Our shareholders, directors and employees may have positions in or may be materially interested in any of the stocks. We may also have or have had dealings with or may provide or have provided content services to the companies mentioned in the reports.

This article appeared in Issue 826 (Apr 16) of The Edge Singapore.

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