EP: 19 - Investing through uncertainty.

You’re encouraged to be invested all the time. It’s not about looking for a particular time to invest. There are studies which show if you try to time the market, you will lose more money in the long run, versus just staying invested. However, you should note, staying invested also means having a strategy. Strategizing your investment portfolio is key and will determine whether it’s a good time to invest.

There are numerous dynamics at play such as Investor sentiment. For example, an Investor may notice market volatility in another market and decide to move their investments. However, the local market has not been impacted by the same factors that are driving the current sell off in international markets. For example, one of the main factors impacting the international market is an increase in interest rates by the federal reserve, but, short-term local rates are still relatively low as reflected in the graph below.

Therefore, you will still get a much higher return on a dividend yield vs short term paper locally. You should note, local stocks trade at a significant discount on a valuation or PE type basis versus international stocks. The companies which have been impacted in the international space are those who traded at really stretched valuations, hence, when interest rates rose, they were no longer able to support those valuations. Thus far we have not seen this trend in the local space. There are much lower valuations locally (PEs locally range between the high single digits to low-double digits vs 18 – 25 times in the international space). As such we don’t expect the same impact locally even if local interest rates do start to rise. There are numerous local companies with solid cash flows and solid dividend yield. These factors will help them retain value and attractiveness to investors. Thus, we don’t expect to see the same international sell off trend in the local market.  

There are several risk factors impacting the current market outlook this year,but, inflation rates is the most important one. Emerging from the pandemic inflation rates have been rising. If this continue to be dominant in the outlook and something, we must deal with for many quarters this will be a long-lasting risk factor which most investors will have to weight into their analysis.

Both Fixed income, Equity segments of the market have performed poorly, thus only Commodities performed relatively well YTD. There are a couple segments of the market example high quality Corporate Bonds funds for instance focused on the intermediary part of the curve which now look relatively attractive. In general the balance sheets for these are good with much better yield compared to a couple years ago with low risk in the coming quarters. Most firms have managed to tap into the market and refinanced shorter term debt, moving maturities out to 2028-2029. Market conditions will be tough this year but some pockets in the segment in corporate bonds are going to be the most attractive segment in the market for investors. 

It’s a Multifaceted impact. Commodity prices have been affecting the consumer e.g., increase in gas prices in Trinidad will impact disposable income and decision making e.g. Should I buy a car at this time?  What may override this is the impact it will have on Government balance sheet. The Government is the biggest spender and employer. So, the income they will get from high commodity prices they can turn over into increased hiring, increased development type projects and investments in new industries etc. This would have an overriding positive impact on the local market. It will also impact local stocks as the larger companies in the market are direct suppliers to the government. Therefore, increased spend will have a positive impact on our locally listed equities.