Kathy
in Memos & Musings · 5 min read
Welcome offer of up to 1x Nike share and 1x Tesla share if you fund and trade today with CMC Invest. Sign up now: https://bit.ly/3yXvv7T
The beginning of 2024 has seen a dynamic shift in stock market activity. The Magnificent Seven has driven a 10.2% gain in the S&P 500 in the first quarter, accounting for 37% of this increase. However, broader participation from other stocks helped to alleviate some of the weaknesses observed in Big Tech, and suggests improved market breadth, signalling a potentially sustainable rally. Now, the pertinent question arises: how should investors strategically position their portfolios to capitalise on the current market dynamics?
Now regardless of passive or active management approaches, a good brokerage platform will always be an edge. Just like credit cards ‘hacks’ to maximise your rebates or miles, the same applies for prime brokerage platforms.
So, we’re checking out CMC Invest’s initiatives that help investors access global trading at super competitive rates. If you didn’t already know, CMC Invest is the cash-funded arm of licensed veteran CFD provider, CMC Markets.
CMC Invest’s current promotion offers the Invest Tier free for 12 months for both new and existing clients, along with a lower FX settlement rate of 0.20%, while investors will receive 45 free trades per month for many markets including SG, US, UK, HK, CA which will significantly reduce fees.
In this article, we’d be sharing our market insights and also on how to maximise your brokerage fees, joyfully.
In the dynamic realm of investment, the current conditions of the global stock markets are of paramount interest to many Singaporean investors. The U.S. markets have witnessed considerable growth over time and persist in demonstrating resilience, notably in sectors such as AI-related stocks, which have garnered significant attention. In fact, JPMorgan Private Bank estimates that about 40% of companies have cited “AI and machine learning” for shifting their focus back to growth and innovation. Nevertheless, amidst the allure of high-performing markets dominated by a select few stocks, it is imperative to grasp the accompanying risks and opportunities.
Conversely, some Singaporean investors may be avoiding markets like China and Singapore. This reluctance is understandable given the challenges faced by investors in these markets over the past couple of years.
However, improvements in these markets, particularly in China with its earnings recovery and supportive government policies, suggest potential opportunities and is reflected in the positive inflow of funds since February. Similarly, Singapore’s REIT market, specifically in the realm of local REITs, is showing early signs of a potential rebound, better performance metrics, presenting opportunities for capital appreciation beyond dividend yields.
Understanding the complexities of global markets beyond the U.S. is essential for making informed investment decisions.
Screengrab from Bloomberg TV: China’s PMI rose into expansionary territory for the first time in one year showing that perhaps the government measures are working.
Diversification is a fundamental principle that can help investors mitigate risks, especially in high-performing markets dominated by a few sectors or stocks. While investing in ongoing winners may seem tempting, over-concentration in any single market or only a few selected stocks can expose investors to substantial risks. It would be helpful for investors to have access to brokers that offer access to several markets. One such example is CMC Invest that lets us trade shares, ETFs and more across 15 markets: Belgium, Canada, Denmark, France, Germany, Hong Kong, Japan, Netherlands, New Zealand, Singapore, Spain, Sweden, Switzerland, UK and USA.
The recent allure of AI-related stocks in the U.S. highlights the need for diversification. While these stocks have shown incredible growth, their high valuations and potential for volatility make it risky to rely solely on them. An overreliance on a single sector leaves investors vulnerable to volatility and market fluctuations when the eventual pullbacks happen. To minimise the potential pitfalls of over-concentration, diversification to other sectors or markets for investors remains imperative to mitigate risks and capture sustained growth.
At this juncture, the other US sectors that have been laggards thus far may offer attractive valuations and growth potential going forward. According to FactSet’s consensus estimates, earnings growth for the “Magnificent Seven” is projected to decelerate, while the remaining 495 companies in the S&P 500 are expected to show significant growth. This suggests potential opportunities in other sectors, emphasising the importance of sector rotation – moving investments from overbought sectors to oversold ones.
Meanwhile, markets like Singapore and China offer compelling diversification opportunities. Chinese stocks have shown a potential shift towards stability. With CMC Invest’s current promotion offering the Invest Tier free for 12 months with 45 free trades per month for multiple markets including SG, US, UK, HK, CA – essentially that means you can get 540 free trades to capitalise on this sector-rotation diversification strategy.
For example, internet platform firms like Alibaba, JD.com and Tencent are attracting interest due to historically low valuations following regulatory scrutiny. Certain funds have initiated the accumulation of shares in China, anticipating a potential upswing with the emergence of favourable catalysts. The growing indications of China’s economic resurgence and the recent uptick in Chinese equities have fueled optimism that the market could finally be bottoming out.
In Singapore, REITs have been facing significant headwinds due to rising interest rates, putting pressure on share prices and valuations. As of early April, the S-Reit sector is currently trading at a discount of close to 20% compared to its long-term average in terms of price-to-book ratio. The S-Reit sector is also trading at one standard deviation below its historical PB ratio, representing an 18% discount.
In terms of prices, some of the common REITs ETF such as Phillip SGX APAC Dividend Leaders REIT ETF, Lion Phillip S-REIT ETF and NikkoAM-StraitsTrading Asia Ex Japan REIT ETF, have fallen back to their Covid lows or are just hovering above that. This may present some potential opportunities for investors looking to capitalise on undervalued assets in the REITs sector in general.
Source: The Business Times
So how can an investor operate in such an environment that we are in now? Seizing current market opportunities and remaining vigilant for future ones can enhance an investor’s portfolio. Strategies like dollar-cost averaging (DCA) and the Moneyball investing approach offer ways to navigate diverse market conditions, and can effectively spread risk and capitalise on diverse market opportunities over the long term. This approach is particularly beneficial for investors who may not be well-versed in fundamental or technical analysis but seek to build a diversified portfolio overtime.
1. Dollar-Cost Averaging (DCA)
DCA involves investing a fixed amount regularly, spreading risk and leveraging diverse market opportunities over time. This method is particularly beneficial for those less familiar with fundamental or technical analysis but aiming to build a diversified portfolio gradually.
For instance, investors can automate regular contributions to gain exposure to various markets or sectors through ETFs, and some examples include:
2. Moneyball Investing Approach
The Moneyball investing approach by The Joyful Investors, which involves identifying overbought and oversold quality stocks through technical analysis, can offer strategic advantages in various market conditions. This strategy allows investors to overweight or underweight certain sectors or stocks based on risk-reward ratios. As market conditions evolve, positions are adjusted accordingly, aiming to maximise upside potential while minimising downside risk.
For example, instead of chasing tech stocks that have run up too quickly like for example, Nvidia, Facebook and Google, we may personally prefer to accumulate high-quality, undervalued stocks in other sectors, such as Estee Lauder, Nike, or McDonalds in the consumer defensive and consumer cyclical sectors. This approach requires frequent transactions but can yield significant returns.
In line with both DCA and active management approaches, CMC Invest can support such global investment strategies by facilitating global trading for such investing strategies at competitive rates.
The current promotion offers the Invest Tier free for 12 months for both new and existing clients, along with a lower FX settlement rate of 0.20% compared to 0.60% for the free ‘Gold’ tier and even 0.40% for ‘Diamond’ tier, which typically costs S$128/month.
Additionally, investors receive 45 free trades given per month for SG, US, UK, HK & CA markets as compared to 22 free trades for ‘Gold’, significantly reducing brokerage fees.
1. Dollar-Cost Averaging: Investors can automate monthly investments in ETFs like SPY, ASHR, and CLR without worrying about excessive transaction costs. With 45 free trades per month, the cost savings are substantial, allowing investors to build a diversified portfolio cost-effectively.
2. Active Management: For those adopting the Moneyball investing approach, the ability to frequently trade without incurring high costs is crucial. With CMC Invest’s lower FX settlement rate and abundant free trades, investors can actively and effectively manage their portfolios, scaling in and out of positions based on market conditions.
3. Global Diversification: The competitive rates and free trades extend to multiple markets, including the U.S., UK, Hong Kong, and Canada. This enables investors to diversify globally, taking advantage of opportunities across different regions without incurring prohibitive costs.
Refer to the table below for more details.
To get more details, head over to https://www.cmcinvest.com/en-sg/our-fees
In an era of high-performing markets and evolving investment landscapes, diversification and strategic investing are paramount. While the AI narrative in the U.S. market may present enticing opportunities, investors might want to stay flexible to explore diverse investment avenues. By diversifying across markets and adopting strategic investment approaches, investors can navigate volatility, mitigate risks, and position themselves for long-term success in an ever-changing financial landscape. By smoothening the patterns of returns and enjoying the cost savings from CMC Invest’s ongoing promotions now, investors may continue their portfolio growth more sustainably in a reassuring manner.
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CMC Invest welcome offer up to 1x Nike share and 1x Tesla share if you fund and trade today. Sign up now via: https://bit.ly/3yXvv7T
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About Kathy
Co-Founder of The Joyful Investors and Manager of The Moneyball Portfolio. I graduated with a degree in Economics in National University of Singapore (NUS). My previous experience with traders at the Merrill Lynch enable me to realize many counter-intuitive truths about how the financial markets work and to uncover the challenges faced by many new investors. We believe that investing can be astoundingly simple and want to make financial education understandable for everyone.
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