2016 Outlook, part 4

By Randell Tiongson on January 27th, 2016

For this installment of the 2016 Outlook, it is both an honor and a privilege to present the views of one of the most respected fund managers of the country. 

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The 2016 Outlook of Marvin Fausto

2015 was quite a challenging year for the investing public given the volatilities of the markets both for the bonds and equities. In fact, the best asset class that performed last year was deposit or money market funds since the market values of bond funds and equity funds were down as of year-end compared to the start of the year. Returns of these investments were negative on average. Many economists and analysts point to figures that trended below expectations. GDP growth for one is turning out to end 2015 near the 6% level, a full notch below Government’s forecasts of above 7%. Interest rates increased much faster that affected bond returns while earnings of stock exchange listed companies went through a series of downgrades throughout the year giving disappointing growth rates that caused much stock market selling towards the latter part of the year.

I mentioned in my report to Randell’s column last year that investments will be data dependent and that should numbers disappoint, such as the country’s GDP growth, investors will move accordingly.

“…the premium that investors give to the Philippines may be given a second look and will be adjusted accordingly”.

For the stock market, my view on investment strategy was more of a trading opportunity.

“With valuations remaining above historical levels and as trading volumes decline, stock market traders should remain selective and increase positions during market downturns and reduce holdings during market rallies”.

2016 will be a continuation, in my view. As the great unwind unfolds – that is, when the largest economy as the USA reverse the 7-year-long liquidity push stemming from near zero interest rates to spur economic activity – markets will react accordingly. The asset price excesses brought about by investors’ search for higher yields outside of the US is now reversing back home as the US dollar strengthens and the rest of the world, including China, currencies weaken. As we go through this period of reversal, higher than historical volatility is to be expected. Human behavior, particularly of those that have only experienced a bull market (or investors only since 2009), may undergo a long drawn phase of anger and denial until the point of indifference. For the Philippines, the added uncertainties brought about by election results and the potential weakening of OFW remittances will not help stabilize confidence. Even as the economy is expected to remain resilient at above the 6% GDP growth rate, confidence on the bond market as well as the stock market will remain cautious.

At this point, investors are well advised to take a step back and not lose sight of why they are investing in the first place. Investing should first and foremost be for a purpose, for a reason, and for a need. Markets go up and down. That is how it works. Match goals with risk appetite and horizon, implement your strategy, and let the markets run its course.

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Marvin FaustoMarvin V. Fausto is President of the IFE Financial Advisers, Inc.. He was the former Senior Vice President and Chief Investment Officer of the country’s largest bank, BDO Universal Bank and in charge of the Investments unit managing over P700 Billion under the BDO Trust Banking Group. He recently took his early retirement having worked for over 30 years in the fund management industry and is now embarking on a new venture as a consultant to COL Financial to launch the first fund supermarket in the country making funds available online and easily accessible to everyone.

He held the position as head of the Trust Banking Group of Equitable PCI Bank from 2002 to 2007 primarily responsible for its overall business and operations. He also held the position of Vice President and Investments Head at Citytrust Banking Corporation. He started his career as an analyst at the former Far East Bank & Trust Co.

After having served as President and director, Mr. Fausto is currently a Board Adviser to the Trust Officers Association of the Philippines, the umbrella organization of the Trust Industry. He was also the Founding President and current Board adviser of the Fund Managers Association of the Philippines. He is also a member of the Board of Advisers of the CFA Society of the Phils.

 

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2016 Outlook, part 4