GLOBAL VACCINATION CHALLENGE & GROWING INTEREST IN CRYPTO ASSETS
Jun 5, 2021 | Victor Lye BBM CFA CFP®
Short-Term Market Moves…
As we closed the first week of June, the leading USA exchanges were boosted by better-than-expected jobs data. The flagship Dow Jones Industrial Average (DJIA) and S&P 500 hovered around recent record highs while the Nasdaq Composite which had experienced a tech selloff recovered.
Asian markets were mixed but may well latch onto the improving outlook on the back of the US economic recovery.
Benchmark USA 10-year Treasuries remained range bound with yields slipping to 1.554% while the US Dollar continued to weaken against all major currencies.
Commodities may well see upward price pressure as economic recovery, inflation concerns and the weaker US Dollar remains on the radar.
- Oil remained buoyant with July 2021 contracts for WTI Crude Oil (Nymex) rising +1.18%.
- Gold rose with Comex August 2021 contracts up +1% to US$1,892.
In the digital crypto assets space, Bitcoin remained relatively stable (by past standards) at around US$37,000 with signs that investors are expecting Bitcoin to recover after its recent plunge from all-time highs.
At SquirrelSave, we monitor these short-term patterns, but our AI investment system looks at a full range of time periods and patterns. SquirrelSave looks at the medium to long term with a preferred investment time horizon of at least one year.
Beyond the Short-Term…
Many potential investors I had spoken to were holding back (mainly because they had missed the massive gains over the last year) and wanted to start investing when markets pulled back. As I have mentioned in my past blogs and as many veteran investors will attest, market timing is very difficult with data suggesting that such purely active approaches will eventually revert to the mean. In layman terms, your gains will be balanced out by your losses such that on average, you would have been better off just staying invested with less stress over short-term market fluctuations. This of course, assumes you know your risk appetite to begin with! Hence, at SquirrelSave, we look at medium to longer term investment performance.
Looking forward, SquirrelSave may see emerging markets catching up after watching global optimism for the USA to recover with strong momentum (albeit from a low base) in vaccination. A Bloomberg analysts’ survey forecast the MSCI Emerging Markets Index to rally by 20% over the next 12 months. Interestingly, the MSCI Emerging Markets Index outperformed the MSCI World Index in May.
Resurgent global demand, particularly from the USA and the EU alongside simmering US-China tension, has shifted focus on to emerging manufacturing hubs. Unsurprisingly, Vietnam’s VN Index is up +23%, Taiwan stocks +15% and South Korea +10.07%, in 2021 so far - despite the global chip shortage.
Vaccination Hesitancy & Short Supply…
However, I see the momentum slowing down as the USA crosses the midway point in its vaccinated population. With the recent roll back of masking and safe distancing measures in the USA, we will be prudent to see if there will be another wave of infections. The rest of the world has much to do in terms of acquiring enough vaccines and persuading enough people to get vaccinated. There will be continuing vaccination controversies that may threaten vaccination rates across countries. Nonetheless, we are optimistic to see vaccination rates improving in the coming months.
Balancing Risk and Return with Data…
As always, SquirrelSave needs to balance potential gains with the possible risks. Rising inflation, high public debt from Covid support measures and any fall in commodity prices could very rapidly impact bond markets to precipitate the next debt crisis.
Crypto as Nascent Asset Class…
Covid has energised a new generation of digitally savvy investors. Even with the recent plunge in crypto asset prices led by popular Bitcoin, we have observed even more queries from high-net-worth investors to invest in such crypto assets.
Indeed, our view is that crypto assets are highly speculative assets with volatility swings (risk) off the charts that SquirrelSave is designed to assess. My view is that retail investors should not participate in crypto assets. Even any high-net-worth investors who intends to do so must take my warning that you can easily lose all if not most of your capital. Therefore, any investor in crypto assets must be able to stomach the off-the-charts volatility.
Notwithstanding, I believe there is room for crypto assets in one’s portfolio provided you are a sophisticated investor who understands not only the risks of such highly speculative instruments but also the economic rationale and potential of such underlying crypto-based technologies, which most mistake for equity or bond type investments. It is useful to note that despite May’s crypto rout, Bitcoin is still up +280% over the past year and Ether is up over 1,000%.
Applying Data Analytics to Crypto Investing…
Because crypto assets have no fundamental valuation parameters, and are subject to almost blind demand and supply, the speculative nature of such instruments are not suitable for retail investors. For discerning investors who can stomach total losses, risk can be managed using data-driven techniques and network effects. Afterall, you must know that crypto assets are not traded on recognised or regulated exchanges. These digital assets are traded on decentralised exchanges where the operator can potentially be hacked or disappear with your money. There is therefore a need for a proper curated approach to counterparties that you deal alongside a data-driven approach to make sense of the wild swings in the crypto space.
As SquirrelSave is an AI-driven investment engine, we are exploring how AI and data techniques can be used to offer a somewhat more risk-managed opportunity to invest in crypto assets such as Bitcoin and Ethereum. Any such opportunity will only be available for Accredited Investors who meet the qualifying criteria.
Crypto Assets are Highly Speculative…
On the horizon, I see further development of crypto assets and even derivatives thereof for sophisticated investors as mainstream institutions join the bandwagon.
What is clear to me – is that crypto is going mainstream and is more about technology use cases than pure speculation. Pivot Fintech which I founded to take out human emotion in investing is well suited to help manage the risk of investing in such speculative assets. We will work on quantitative digital asset trading strategies with machine learning tools to participate in the nascent digital asset investment space – for qualified and sophisticated investors who understand the very highly speculative nature of crypto asset investing.
Victor Lye BBM CFA CFP®
Founder & CEO
* SquirrelSave uses AI to design and manage diversified investment portfolios for each investor. Because SquirrelSave is not an investment fund, there is no single return measure. Instead, every SquirrelSave investor has his/her own investment performance as each investor is managed separately by our SquirrelSave AI. As investors can withdraw and top-up any time, investment returns will be affected by individual investor decisions. Hence, SquirrelSave uses reference portfolios which are actual portfolios managed on an ongoing basis, without any interference with withdrawals or top-ups, to measure investment performance.
The contents herein are intended for informational purposes only and do not constitute an offer to sell or the solicitation of any offer to buy or sell any securities to any person in any jurisdiction. No reliance should be placed on the information or opinions herein or accuracy or completeness, for any purpose whatsoever. No representation, warranty or undertaking, express or implied, is given as to the information or opinions herein or accuracy or completeness, and no liability is accepted as to the foregoing. Past performance is not necessarily indicative of future results. All investments carry risk and all investment decisions of an individual remain the responsibility of that individual. All investors are advised to fully understand all risks associated with any kind of investing they choose to do. Hypothetical or simulated performance is not indicative of future results. Unless specifically noted otherwise, all return examples provided in our websites and publications are based on hypothetical or simulated investing. We make no representations or warranties that any investor will, or is likely to, achieve profits similar to those shown, because hypothetical or simulated performance is not necessarily indicative of future results.
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