How to play these volatile times

COVID-19, rate cuts, and talk of recessionary risks - what are investors to do? Scotia's Judith Chan weighs in.

Ruth Saldanha 9 March, 2020 | 1:32AM
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This article is part of our Women and Investing special report.

Ruth Saldanha: With increased rate cuts COVID-19 and a halt in the TSX thrown in the mix, it wouldn't be wrong to say we've had a volatile couple of weeks. But is this the beginning of a prolonged downturn? And how should you play these volatile times?

Judith Chan, Portfolio Manager at Scotia Global Asset Management is here today to tell us how she is playing these markets.

Judith, thank you so much for being here today.

Judith Chan: Thank you, Ruth. Thank you for having me.

Saldanha: The coronavirus has had a short-term impact on the market, but longer-term the supply chain is impacted from China. How do you think all of this will play out in the economic scheme of things?

Chan: So, this – it's still very much an evolving situation. The actual magnitude of the disruption is still very much unknown. Let's hope that we're near the end – we're near the end than in the middle of that. So, I guess, we're still at the very early stage in terms of measuring the actual magnitude of the disruption. But what we know for sure is that it's going to be a downward adjustment to the global GDP growth because of the size of China as a manufacturing hub as the starting point of the global supply chain. So that disruption is going to be significant. How the duration of the outbreak, how globally, how widespread this is would determine the magnitude. So, you know, as multiple parties are trying to measure and model the impact, I guess, what we need to do is to be very prudent and to stay disciplined.

Saldanha: The coronavirus could have been a trigger for a market correction. But the fact is that we've been talking about how stocks have been overvalued for a while now. Do you think this was just a short-term correction and where do you think we'll go from here?

Chan: The market is in a very richly valued situation, but that is very much supported by the strengthened fundamentals. We're still seeing that, you know, as the companies are impacted at various magnitudes depending on the sector that they're in, the business model that they're in the geographical location, the impact would be different. So, it actually makes for a very good opportunity for active management. But what that means is that the range of performance, a range of disruption, the range of – the magnitude of that disruption would be very different. But for long-term investors, I don't think that should be a worry.

Saldanha: You mentioned that this is a good time to be an active manager to take some bets. Can you tell us how you have changed your asset allocation mix as a response to this volatility and where you're going from here?

Chan: Yeah, we take a longer-term strategic approach, understanding that this is a short-term temporary disruption. We're not making drastic changes. But as you said, we're going into it in very richly valued markets. We have been very prudent before going into this outbreak. So, what we've been doing is that we are high-grading the models – high-grading the portfolios, we're reducing our allocations in riskier parts of the market, we're reducing allocations in smaller cap companies, high yield credits. The credits markets are fairly rich in value and very tight on spreads. So, we have been reducing that before going in.

Saldanha: Finally, what should a retail investor do right now?

Chan: To stay disciplined. Stick to the long game. Stay very disciplined in your risk management approach. Again, we don't want to be overly concentrated in any areas, you want to be very disciplined. And one thing is, if you haven't been rebalancing your portfolio, this is definitely a good time to check into your portfolio to make sure that they have been well-diversified, well-balanced and it's basically a reality check for your risk tolerance.

Saldanha: Thank you so much for being here today.

Chan: Thank you.

Saldanha: For Morningstar, I'm Ruth Saldanha.


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Ruth Saldanha

Ruth Saldanha  is Editorial Manager at Follow her on Twitter @KarishmaRuth.


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