Impactful investing during and after the pandemic.

On September 17th, we discussed the recent performance of both local and international equity markets during and following the COVID-19 pandemic.

Based on these insights and historical performance trends, we explored the importance of portfolio diversification for investors to achieve their long term investment objectives.

Myles Zyblock, Chief Investment Strategist at 1832 Asset Management L.P., Scotiabank, shared key insights on the fallout from the pandemic, as well as a review of international markets and provided recommendations on investment strategies. Christopher Clarke, Head of Investment Management, Scotiabank T&T gave an overview of the domestic economy, its implications for local investment markets, and made recommendations for a TTD investment strategy.   

About the speakers.

SB

Myles has been the Chief Investment Strategist at 1832 Asset Management L.P., the asset management arm of Scotiabank, since 2013 working closely with the portfolio management team to guide and oversee $150 billion in assets invested globally. He also serves as Lead Portfolio Manager for a number of funds offered through Scotiabank’s retail mutual fund businesses.

Myles is a recognized strategist in North America, regarded for his investment insights that blend the tools of finance and psychology in order to capture major inflection points in financial markets. He has over 20 years of experience in guiding and advising on asset allocation for a diverse set of institutional and retail advisors across North America, Europe and Asia.

Prior to joining Scotiabank, Myles held a number of similar roles including Chief Investment Strategist at a large Canadian financial institution, the head of the U.S. and global equity teams at a privately-held U.S. financial institution, and led the global equity sector strategy team at a major independent investment research company.

Myles has an M.A. in Economics from Queen’s University and is a CFA Charterholder.

Chris joined Scotia Investments as Lead on the Investment Management team here in T&T in 2018. He is responsible for oversight of over TT$3BN in assets under management invested across both local and international markets, inclusive of Scotia’s two TTD Mutual Fund portfolios.  Chris is a respected expert in the local industry, with over 10 years’ experience in investment management at leading domestic financial institutions across mutual funds, pension plans and insurance. He holds a BComm in Economics from the University of Guelph, and an MBA in International Business from Ryerson University.

desha

Desha joins us as facilitator for the upcoming episodes of our original web series, Scotia insights. She currently anchors the country’s number one newscast: the CCNTV6 News at 7pm and has been in the news and current affairs business since 2004. She began her career in newspaper, moved on to radio then into TV. Desha recently founded her own company Suite Salyut Ltd– a Professional Media Services business that specializes in the provision of on-air presenter and recorded voice-over talent for a range of platforms including:  News Broadcasts; Live Events; Documentaries; Audio Books. 

Outlook on Global Markets and Economies; Investment conclusions.

Climbing out of recession.
The global economy has likely passed its trough and the horizon is looking brighter.

Record stimulus packages have been introduced.
Unprecedented monetary and fiscal stimulus have been injected into the system to help reinforce the safety net under the economy.

Risk-on continues.
Policy stimulus, a bottom in economic activity and a brighter outlook for earnings have helped lift equity prices. Bond yields will likely remain pinned down especially in the U.S. with the Federal Reserve recently announcing a fresh mandate on inflation.

Remain diversified.
There remains a wide disparity in potential economic outcomes from here. Aside from another major wave of infections leading to economic shutdowns, the upcoming U.S. election poses as a potential risk to derail the equity market rally. Broad-based portfolio diversification should help to remove some of the unnecessary guesswork from investing.

Outlook on Trinidad and Tobago Economy and Markets; Investment conclusions.

Stick With Strength
Local Large Cap equities (Banks, Conglomerates) have rebounded strongest from April lows and have relatively strong balance sheets to weather the economic lull brought about by COVID shutdowns.

Horses for Courses
Persistent low growth environment, now coupled with the pandemic impact have driven changes in consumer behaviour and Government policy that will benefit some companies more than others.

Evaluate New Opportunities
Significant equity price declines in traditional bellwether companies may present opportunities for medium to long term investors.

Diversify
Pandemic risk to both the global and local economy remains. Investors should seek to diversify across names and asset classes to reduce downside risks as uncertainties persist over the short term.

 

Questions & Insights

What you need to understand about financial markets is that they tend to be forward looking. We’ve seen stock prices rise with the implementation of economic stimulus. Investors are looking to 2021 and beyond. Governments are providing the spark to get the economies going. We’ve already started seeing some markets, such as housing, begin to recover. The markets are discounting mechanisms, meaning, they are behaving on what they expect the future to behold. And so I’m not sure there is a disconnect. I am in agreement as well, that the economies and earnings are likely to improve in 2021, so we’re seeing that reflected in prices today. 

I don’t know if anyone remembers that four years ago, the prognosticators at the time said that if Trump got elected, the world was going to come to an end. In fact the night that president Trump was elected, US futures markets were down 5% and by the morning, they were back to flat. Low and behold, here we are today.

To me it’s like a soap opera. It’s great if you’re in the news business, because there is a lot of stuff to talk about, but ultimately it comes down to “Is anything, with respect to the election, going to impact the fundamentals of American or global companies?” I think right now, the answer is no. You can agree or disagree with the policies of each party, but that’s not a question for markets. That’s more about your personal preference.

Ultimately, the policies in place are pretty consistent across both sides of the isle, in the sense that both parties understand that the economy is strained and they are both trying to do their best to get us back on track. As an investor, I say there is nothing in the works on either side that’s going to fundamentally alter my view of the corporate earnings trajectory.

On the local market we do have a couple of interesting plays available. We have close ended mutual funds, that have large USD components to them. So you’ll actually be investing in TTD but getting USD exposure. So if there is a depreciation, then you would see that the value of your investment in TTD would increase. That’s also true of a number of open ended mutual funds available on the market. We also have TTNGL that trades on the local market, which is a completely USD company. All their cash flows are in USD so you’d expect that there earnings when reported in TTD or their dividend payout in TTD would increase if there is a depreciation in TTD VS US. So those are just a couple of ways that you can seek to hedge against the potential for depreciation in TTD going forward. 

The interventionist policy behaviour that we’ve seen over the last 10 or 15 years, this is just an extension of that behavior. What they want us to do is to push out along the risk spectrum and take on more and more risk. So basically they are doing that by taking away our returns from risk free assets, so to find returns we are having to push out into corporate bonds. From corporate bonds into high yield bonds. Bond yields are down so we’re pushing out into equities. Equities into riskier equities. So this has been something that has been going on for a long time. And for the central bank to say that they are going to keep interest rates down? I don’t think anyone in the market who does this for a living expected interest rates to rise anytime soon. Ultimately this is more of the same and what it does is raise the floor under market prices. So now you have this higher equilibrium level for market prices but ultimately you do need the fundamentals to carry you higher so good news is that I do think that earnings will be the next important fundamental support for the market going into the end of this year and early next year.  

Are there certain pockets in technology that look expensive or elevated? The answer to that is yes. Is it a bubble? I’m not sure that we have a broad based technology bubble. There is no indication of that. You know, just think back to the last technology bubble where you had the whole sector, not just one or two companies, trading at 50 – 70 times, not earnings, but sales. And that was pretty common and a lot of companies did not have any earning back then in the dot com bubble so it really was a classic investment mania. Today you are truly seeing a huge demand for companies who can put up some sort of earnings growth and or top line growth in a world where growth is scarce. In fact when you look at the supply of companies who are able to grow revenues for example of excess of 10% per year that has been a shrinking number of companies through time. So growth scarcity at the company level has been increasing and that’s why the demand for these growth companies has been so great. Again…are there pockets of excess? Sure you can find them but I don’t think that we’re at the stage of a broad-based bubble now. I think some companies are generating absolutely fantastic  earnings but as an investor we have become more selective in the technology sector because there are pockets of excess.  

As it stands right now, unfortunately no. We don’t have any pure IT companies listed on the local exchange. I would however like to mention WiPay. WiPay is a Trinidad based technology company that’s based around a payment solution and payment app, similar to what we see with PayPal in the US. WiPay has been flirting with the idea of listing on the Jamaican stock exchange, however I’d hope they’d also consider cross listing onto the TT market, I think that would be a great investment opportunity into one of our own. We do wish to see a lot more listing of local companies on the market. We have the SME market now that provides great tax incentives for the businesses who list so I think that should encourage more companies to list on the public market. And as for technology companies, we would really love to have them.