By Chee Jo-Ey
THE Covid-19 pandemic that has led to the shutdown of economies has sent stock markets tumbling as the epicentre of the disease shifted from China to Europe and now the US.
The FBM KLCI had declined from 1,650 points at the beginning of the year to 1,356.73 at 12.30pm on April 7.
Many are in a panic and fleeing the markets due to its high volatility but discerning investors know that the markets are an unpredictable place to begin with and attempting to time it in the short term is risky, to say the least.
When asked if market volatility is a friend or foe, Sunway University Business School economics professor Dr Yeah Kim Leng said there are two sides to the same coin. He said: “Investors who know the markets well and have a huge risk appetite will look at market volatility as an opportunity for sure. People who have the capital will take advantage of the volatile market because when stocks are down, they are able to acquire valuable assets at low costs and earn more when it recovers.”
The market is however dominated by risk-averse investors. It is typical during a volatile market to witness herd behaviour with everyone trying to get out of the market. Investors need to assess their individual risk appetite and knowledge of the markets. Volatility presents both increased challenges and opportunities.
iFAST Capital Sdn Bhd assistant portfolio manager Jerry Lee Chee Yeong sees volatility as a friend.
“In iFAST, we offer investors a hands-off approach (discretionary managed portfolio with fund of funds structure) when it comes to constructing and managing their investment portfolio.
“As we are adopting a systematic investment strategy with appropriate rebalancing mechanism, should the portfolio allocation deviate from our target allocation by a certain percentage, a volatile market condition would help us to deliver more active returns on an investment for our clients,” said Lee.
He also believes that investors should acknowledge that volatility is just part of the equation when it comes to the investment space. Investment fortunes are made in the long run after all and not overnight.
Focus should be placed on long-term investment objectives as well as the fundamentals and valuation of certain markets or securities. Volatility presents investors with an opportunity to enter into securities or sectors with strong growth.
“For example, due to the market uncertainty as well as the virus outbreak, we saw significant selloffs in the global technology sector. However, our opinion is that the long-term growth of the sector remains intact.
On top of it, the recent virus outbreak that has caused lockdowns in many major cities around the world would have created even more growth opportunities for the global technology players,” explains Lee.
In terms of strategies, iFast Capital advises investors to stay in the market in this volatile environment as the fluctuation would be rather significant during this period and rebound could come anytime and in a significant magnitude.
Investors should focus on fundamentals and valuation before making any investment decision. One of the most important things to do is to have a diversified portfolio in line with your risk profile. — April 7, 2020
