What Investment Trends Should You Look Out For In The Second Half Of The Year?
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It’s been a bumpy ride for markets. Despite the COVID-19 pandemic and economic recession, the global stock market has continued to soar in the first half of 2021.
But we’re not out of the woods yet. In Malaysia, as well as other parts of the world, COVID-19 cases have risen again.
The silver lining is that vaccination roll-outs are picking up, both locally and overseas. What does this mean for your portfolio? Here are some investing insights from Principal Asset Management Berhad (Principal) on trends you should look out for during the second half of the year and beyond.
Positive global outlook in the third quarter
It has been a good first half for global equity markets. The FTSE All-World index, which represents the performance of global equities, rose almost 12% year-to-date as of July 8, 2021. In the US, the S&P 500 (a stock market index that represents the 500 largest companies listed on the stock exchange in the US) also rose almost 15% year-to-date and reached a record high.
Some investors are worried that this upward trend will not continue. However, Principal believes that the market outlook continues to look positive, as it is supported by strong earnings growth. During the first quarter of the year, the S&P 500 had exceeded its earnings expectations. Analysts expect that it will continue to deliver strong earnings in the second quarter.
In addition, the rise in bond yields earlier in the year reflects better growth prospects and economic recovery. This is further bolstered by President Joe Biden’s approval of the US$ 1.9 trillion stimulus package, which will help the US recover economically.
As an investor, you can take advantage of potential global growth through the Principal Global Titans Fund, which invests in the US, Europe and Japan.
| Fund | Region | Fund objective |
|---|---|---|
| Principal Global Titans Fund | US, Europe and Japan | To grow your investments over the medium to long-term by investing in the US, Europe and Japan. |
Asia and ASEAN markets expected to continue its recovery
The recent wave of COVID-19 infections has been challenging for many Asian countries but there has been progress in recent months to get the population vaccinated. The vaccine roll-out has accelerated in many Asian countries.
Therefore, Principal maintains their view that the investment environment for Asian equities remains favourable. Economic recovery will continue, thanks to the rollout of vaccines, coupled with continued monetary and fiscal support.
Most ASEAN markets were undervalued in 2020, and therefore have deep-value opportunities this year. Principal believes that there are opportunities for those looking for long-term value in the tourism, e-commerce, and commodities sectors. But markets in the Northern regions of Asia might perform better. Southeast Asia is expected to recover more slowly as its vaccination rate is still low – as of July 14, it was only 9%. However, vaccination rates are picking up.
| Fund | Region | Fund objective |
|---|---|---|
| Principal Asia Pacific Dynamic Income Fund | Asia Pacific ex-Japan | Aims to provide regular income by investing primary in the Asia Pacific ex Japan region. At the same time, aims to achieve capital appreciation over the medium to long-term. |
| Principal Islamic Asia Pacific Dynamic Equity Fund | Asia Pacific ex-Japan | A Shariah-compliant fund that invests in emerging and developed markets. |
| Principal Greater China Equity Fund | China, Hong Kong, and Taiwan | Strategically invests in the Greater China region, where you’ll have the chance to be part of China’s economic growth. |
| Principal DALI Asia Pacific Equity Growth Fund | Malaysia | Potentially aims to achieve consistent capital growth over the medium- to long-term. |
| Principal Asia Titans Fund | Asia ex-Japan | To seek capital growth by investing primarily in equities and equity-related investments. |
Malaysian equities remain cheap
While the number of cases in Malaysia has increased again recently, Malaysia is also accelerating the pace of its vaccine roll-out. As of 2 July, around eight million doses have been administered – that’s 18.7% of the Malaysian population who have received at least one dose, and 7.5% who have been fully dosed. The government expects another 12 million vaccine doses to arrive in July. As the pace picks up, this will lead to economic recovery and a rebound in corporate earnings.
Besides that, Malaysian equities remain cheap. Foreign sellers have sold RM4.3 billion from the local stock market year-to-date, a huge increase from RM16.5 million during the same period last year. This has partly driven the recent volatility in the Malaysian market.
According to Principal, this foreign selling has been overdone. Opportunities still abound in small cap and balanced income funds, companies that are trading below their fair values and cyclical beneficiaries that are tied to economic reopening, which will provide growth and income opportunities.
What should you pay attention to in the next five years?
Having a pulse on short-term investment trends is useful for navigating volatile periods. But what about beyond that? Principal shared several sectors and markets that investors should pay attention to in the next few years.
- Sectors that benefit from reflation. Some companies, such those in the finance and energy sectors, will benefit from reflation – this refers to the phase of the economic cycle where growth and inflation picks up after a period of recession.
- Economic sectors reopening. For the rest of 2021 and going into 2022, global growth projections are certainly stronger than the same time last year. This environment of strong global economic growth, continued liquidity (i.e. how easily assets can be bought and sold) and a weakening dollar will benefit emerging markets and those in Asia.
- Key growth sectors. Based on findings by Swiss investment bank UBS, Principal has also highlighted healthtech, fintech and greentech sectors, as well as the roll-out of 5G worldwide for long-term wealth creation.
Take advantage of these market trends with Principal and EPF i-Invest
Some investors take advantage of investment trends by investing in individual stocks, bonds, commodities or other assets. But this requires a lot of time and research.
For most investors, investing in unit trusts is more convenient, as it allows you to instantly diversify your investments. For example, Principal has a range of unit trust funds that invest globally and in Malaysia, allowing you to take advantage of investment trends while leveraging the expertise of professional fund managers.
With Principal and the Employees Provident Fund (EPF) i-Invest platform, you could even invest your EPF savings in 30 EPF-approved Principal unit trust funds and enjoy a 0% sales charge.
While the EPF has historically performed well, delivering returns between 5.2% and 6.9% in the past five years, investing your EPF savings could help you earn potentially higher returns (though returns are not guaranteed). This increases your chances of a comfortable retirement in the future.
Besides that, from now until 31 July 2021, you’ll have the chance to join Principal’s Advancing Net Worth campaign. Invest a minimum of RM20,000 with Principal and EPF i-Invest to get rewarded with your choice of a Hugo Boss item, a Cerruti 1881 travel bag, a W Hotel Kuala Lumpur lifestyle voucher or more.
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