Invest 101: Are safe haven assets really safe?

feedback too while you're there. Ok? It will help us actually know what you want to learn about personal finance and then we can get the right guests to teach you. All right. So let's get started with some quick headlines that may help you make better financial decisions today. I have my editor with me, Tiffany Ang in the studio. Hey, Andrea. Hi. Ok. First up, did you see the news last week? That a five room H DB flat in to payoh broke record

and sold for more than 1.5 million Singapore dollars. This is as big as my eyes can go. It is quite it is quite big. I was shocked when I saw the headline, I mean, we're not, we're not strangers to million dollar H DB flats. But this is really taking the cake 1.5 million. Yeah, it's the price of a condominium. Really? Exactly. But of course, these are the rare cases. The strongest

demand is still for four room flats. Housing experts are saying that young families are pushing up the prices of four room HDB flats by up to 35% over the last five years. You know what if that kind of makes sense? I think the appeal of three room flats for young couples. I think it just doesn't make sense

anymore in terms of paying lease. And also, yeah, the size, you know, so the four room flats, I mean, these are probably part of a popular category for growing families because you know, to buy a five room flat, it may actually bust their budget, it may actually even be too big and they don't want to have to wait for a BT O flat and that, you know, we can take up to 4 to 5 years to build, correct, let alone waiting for the keys. The Renault add to that. It's

I know before you know, it's 67 years. Right? And three kids later. Exactly. So one can only hope that these prices don't soar to record levels with this growing fingers crossed, fingers crossed. Well, speaking of property big news this week for China real estate watchers. Yeah, Hong Kong court has ordered the liquidation of China Evergrande Group. So Evergrande, if you didn't know has more than $300 billion of

total liabilities, that's a lot of money. Well, it sent the struggling property sector in China into a tail spin when it defaulted on its debt in 2021. This ever Grand saga is a never story. I mean, China's property market really hasn't been looking very good and its stock market. Well, it has been wallowing near five year low. So all eyes are now on what the government is going to do next to rejuvenate growth in the ailing Chinese economy. And this ever

grow saga. I think it's just making it worse. This is also a good time to remind everyone of the risks of investing in some sectors and for some investors to perhaps even re look at your portfolio. So perhaps in this climate, adjust your exposure to China according to your risk profile. Yeah, that's some good advice. But you know what, it's not all doom and gloom. Have a listen to an episode that we did last year when China was reopening after COVID-19, we did talk

about some possible growth sectors in the country. Just search for as China reopens for business. Is it time to invest in China's stocks? Remember always do your homework, find the right professional advice and you'll be on your way. So every other year my mom asks to go shopping for gold. I don't know about you. But when I was younger, I didn't understand the significance of this. Like, why was it so important to hoard gold after all? I'm a really simple G OK. When it comes to jewelry,

just one pair of earrings, one bracelet. That's it. I don't need more. But then I got older and then I started to understand, I admit this is a very simplistic way of looking at investing in gold as a rainy day asset. But putting your money in safe havens have long been a go to for many people. Gold are the precious metals, some currencies, some defensive stocks. These are traditional safe havens. But do they really come with zero risks? That's what this

episode is. Hopefully going to answer with assistance from Vasu Menon, managing director for investment strategy at OCBC. Welcome to the money talks about K. Thank you very much. Thanks for having me. Good to have you on the show. Let's start with gold. What I started with just now, right? So tell me, Vasu has my mom and pretty much all moms been doing the right thing, buying stacks of gold jewelry over the years when prices were favorable. Well, you know, I think it makes sense

for people to buy gold. Absolutely makes sense. Just to put things in perspective, the supply of gold in the world is limited to 3.5 Olympic size swimming pools. And that's not a, that's not a lot. Exactly. So there's a very limited supply of gold worldwide. On the other hand, demand for gold has increased quite a lot

in the last few years. Ok. Put aside individuals, just look at central banks, central banks have been trying to diversify their holdings of assets away from the US dollar, which something will depreciate over time towards other assets as well. And one of the assets they've been buying in quite a significant amount has been gold. In fact, the purchase of gold in 2022 hit a record high. And in the first nine months of last year, you had 800 tons of gold being bought and that's a 14%

increase over the same period in 2023. So probably we had another record deal of purchases of gold from institutions in 2023. So that's the institutional side of things, not just central banks pension funds and but from the individual perspective, there's a greater way towards the benefits of gold. Why is gold appealing? Right. Number one, I think gold offers you what they call zero carry or zero yield. You don't get dividend yield from gold like you do when you buy stocks or bonds, right?

So when interest rates come down, which are likely to happen in the next 2 to 3 years, that will enhance the appeal of gold because it's all relative, right? And I think the other factor that also August. Well, for goal is the fact that if central banks cut interest rates, which look likely in the next 2 to 3 years, the US dollar is likely to weaken, goal is priced in US dollars. And that makes goal more attractive, affordable.

And again, that spurs demand for gold. So cheaper dollar equals cheaper, go cheaper dollar equals cheaper goal and therefore a greater demand for gold. And of course, the third factor is the world we're living in is a highly uncertain place, both from a political standpoint, as well as economic standpoint. And I've been in the industry, you know, looking at investment markets for the last more than 34 years. And I can tell you that I've never seen so

many moving parts at one time. So you've got crazy. Yeah, so it's crazy. We've got so much happening around the world, so many moving parts. And so again, investors are looking for something where the value they believe will hold in the long term gold is limited in supply. So you know, individuals as well buying gold because there's a greater awareness about the fact that gold is a safe haven, as you said, offers you some protection in the event of uncertainty, think

of gold as an insurance policy right? Within your portfolio, you want to have some insurance, some exposure to something that gives you some degree of protect, right? And not everything is thrown into highly risky assets, right? So treat gold as an insurance policy. Have some of it, but don't over investigate. Right. Ok. That's a good point. Actually. Think of it as just a cover. That's really rightfully right. You said we keep hearing about gold and how resilient

it is as a commodity. And as you said, the US dollar is weakening. So gold is something that thrives in financial instability. Those rate cuts weaker economic performances expected in 2024 geopolitics, as you said, also all a combination for a year of uncertainty. What's the reason for the resilience of goal compared to say silver, for example? Well, again, goal is something that has a higher profile. Silver is also linked to how economies do. It's sometimes deemed as an industrial

metal. And so if the global economy slow down, then the demand for silver can also slow down for industrial use, right? So the outlook for silver is less clear compared to go, go on. The other hand, usually does not have any industrial application less tight to the economic cycle. Understood. So, but if you look at 2023 although stock markets and bond markets ended the year on a higher note, if you had a chart of the stock and bond markets in 2023 what is

a roller coaster ride? It's like being in universal studio taking the roller coaster ride, right? It wasn't a smooth ride and that's the kind of environment that gold typically tends to do well in. Right. And that's exactly what happened last year. So it really just boils down to the profile of gold. That's just how gold behaves. Exactly. That's the way go behaves. It tends to do well

when you have lots of volatility and uncertainty. But the other factor that benefited goal, especially towards the end of last year is the very sharp decline in us bond yields, right? So the market started taking a view that central banks are going to turn Dovish. They're going to pivot in 2024 they're going to cut rates. And what we saw was as a consequence of that us 10 year bond yields came off from like

5% to below 4%. That's a very sharp decline of more than 1% in a matter of like two months or so. And that gave gold a big boost. No wonder we saw those spikes in gold prices towards the end of the year precisely. But on the other hand, if you look at 2022 when the fed started hiking rates sharply, guess what happened, go, coal prices fell 20%.

So while we say it's a safe haven in reality, its price is also determined by factors that are not just linked to crisis and turmoil, but also sometimes economic fundamentals, especially interest rates because bear in mind goal offers you zero carry or zero yield. And therefore, when interest rates are going up, then there's less reason for investors to invest in gold when they can actually put their money into other asset classes like stocks and bonds that give them pretty good yield. Right?

So it's not the tough cookie. We all thought it was. There is a vulnerability definitely, which is why you should not over invests in it. Treat it as a insurance policy, right? Treat it as a portfolio diversified, have some of it in a portfolio. Yeah, but not all of it don't go all in on it, of course. Ok. So let's come back to that concept of safe haven assets, right?

How would you describe them, the value of safe assets typically tend to hold or appreciate during an economic downturn during an economic crisis, during a financial crisis, during periods of political upheaval and turmoil. So again, they offer you a backstop, they offer you some degree of protection in a portfolio in the event of severe uncertainty and crisis. So that's what safe havens are. They typically tend to hold up well, in terms of value and even appreciate during times of crisis.

So when it comes to gold, it's a very low or no, almost no yield. So when it comes to the other safe havens, are we looking at some kind of yield? Would you say that these are must haves in your portfolio? You've got quite a number of safe haven assets out there? If you pick the currency market, for example, the Japanese Yen is typically seen as a safe haven asset. The Swiss franc is seen as

a safe haven an asset. I think the Japanese Yen, for example, looks interesting right now because the Japanese government has adopted ultra loose monetary policy. While other central banks were hiking rates, they were, you know, adopting ultra, that's where I'm going for my holiday in March. Precisely. I think more than half of Singapore is probably in Japan last November, December, right? Because the yen is so weak but nothing stays down forever.

So come 2425 inflation picks up in Japan and the Japanese economy is gaining traction, find stability that inspires confidence in the central bank to start hiking rates a bit gradually that we thing is going to drive the Japanese Yen higher. And of course, with so much happening this year, we got 40 national elections happening this year. It must be a record. It's a record, 40 national elections covering 40% of the

world population. Of course, the big one, the big one, Andrea is the one at the end of this year with the US elections. And the big question is whether Trump is going to make a comeback in 2.0? People don't often I think that these things don't affect the markets. They actually do, they do impact the market quite significantly, you know, but for example, if Trump comes back it could mean a period of uncertainty volatility which is going to be

good news for gold. So I think looking ahead this year goal and of course the Japanese Yen as well, not just go but other safe haven assets as well. So talking about the Japanese Yen, you know, if the central bank changes policy increases interest rates, that's going to be good for the yen. So we see the yen appreciating more than the Swiss Franc this year. Why is the Japanese Yen a safe haven currency? That was going to be my question. Yeah, that's right.

You know, I mean, I saw that coming and I thought I better answer before you ask it. And you know, I think if you look at Japan, it is the largest creditor nation in the world. What does that mean? What that means is that they own more external assets then they owe. So if you take the amount of assets that the Japanese economy owns compared to what it owes, they own a lot more compared to what they owe.

So lower debt and higher assets. That's right. So you think of it as when they invest in overseas markets, as assets, when they owe overseas markets, overseas investors money, that's liability, the assets minus liability, that amount comes up to more than $410 trillion right? That's a amount, right? So that to have in the pocket, nice to have in the pocket and that's the largest in the world. You know, so that provides the currency with

some degree of backstop. Now, the other thing that works in favor of the currency is the fact that the Japanese economy enjoys what they call a current account surplus, right? And that gives you an idea of the balance in terms of trade and services between Japan and the rest

of the world. And they've got a current account surplus. Again, typically that underpins the currency and Japan is now seeing a period of political stability generally, as I said, icing on the cake is that interest rates probably going to go up in Japan after being ultra loose, ultra low for many years, that's going to be the tail wind for the Japanese currency. So put all that together. Again, the Japanese currency is

something to bear in mind. Of course, here in Singapore, investors have been gravitating towards safe havens like t bills, treasury bills, treasury bills, six months, 12 month treasury bills and putting money into Singapore savings bonds, those are probably less risky, less volatile, but you also don't enjoy a

lot of capital upside from those things. With the Japanese Yen, you can actually enjoy capital upside if the Japanese currency appreciates or if gold appreciates but with T bills and with Singapore savings bonds, you don't enjoy the capital upside and what you're in it for is really just the yield. Right. Right. So, so different safe havens have different characteristics. If I may throw one more safe haven, you can even think of investment grade highly

rated corporate bonds, right? As to some extent offering you safe passage as well. Ok. So for example, if you buy a bond and the bond says a 10 out of five years and it's a good bond, it's a good company with a very strong balance sheet, right? The possibility of default is quite low, right? So if you hold that bond till maturity, right, what happens is that you continue to clip the coupon or the yield on the bond and then on maturity, the the company doesn't go bust

you get your money back. Ok. Right. So the key thing here is the company has to be of sound fundamentals, it doesn't go bust, you get your money back. So if you put your money into strong companies, very strong companies with strong balance sheets, what we call investment grade bonds, right, then you know, the good chance of you getting your money back at the end of the tenner. But of course, along the way, the price of these bonds may go up and down.

But if you're holding it till the end, then you get your money back. Do they tend to be from specific sectors? Not necessarily, it is very company specific, you can go down to looking at the company and seeing whether you know it's got a very strong balance sheet, whether it's got a lot of cash in his books, whether it's got a low debt level or debt to equity ratio in his book, whether it's in a business that is relatively stable, able to send economic downturns. And

there are companies like that out there. Now, the difference between buying a bond like this, say with a five year tender and buying a stock with over a five year horizon is that you can buy a stock at the dollar. But at the end of five years, it's possible the stock will be 60 cents and there's no light at the end of the tunnel because you don't know when the 60 cents is going to go back to up to the bond. At the end of that five year 10,

you get your money back. So at least at least your money back and that contingent on the company staying afloat. So again, you can, in some ways, if you're prepared to whole tail maturity of a bond, then I think you can also see it to some degree as a safe, fascinating. I didn't think of corporate bonds as a safe haven asset, but I think it's something to watch for sure. Yeah, investment grade bonds. So, back to current CEO, so you talked pretty extensively about the Japanese Yen and we all

know that it's a very attractive investment right now. What about the Swiss Franc? And I think in general, what I want to know is why do these currencies? The US D also is considered a safe haven investment. The Swiss franc, as you say, why are these safest currencies in the world to invest in in the first place for quite a number of reasons? Number one, in the case of the Swiss government, it's relatively stable. You have political stability in Switzerland, right. Number two, I think

you have a Switzerland that is politically independent generally. So it is not plugged in to some extent in the global political turmoil. It stands on its own. It takes a stand that is neutral, independent. What about the Switzerland of Asia? Singapore? Well, you know, I mean, exactly, I was going to come to that, you know, eventually that's something that we sometimes see as a safe haven as well.

So Singapore government bonds are pretty good safe haven in my view because, you know, the government has got solid balance sheet. We've got good political stability over here. So that's something to think about. And of course, you know, some people even see the Singapore stock market as a safe haven among other stock markets because you don't see the extreme volatility in the Singapore stock market that you see in other stock market. It's almost as if a boring day here.

It's a boring market. But, you know, if you're happy with the yield that the market offers, you then, you know, I think, hey, it's a market that you want to have in your portfolio because it doesn't see the same kind of wild swings that you see out of Chinese equities. Hong Kong stock market, South Korean Taiwanese equities because it's a boring market, no doubt. But it offers you yield decent yield and relative stability again, relative.

But of course, the Singapore stock market is not as safe as say a government bond, it does go up and down and as long as investors keep that in mind, then I think you can see that way. But in the case of Switzerland, you know, it's got a current account surplus like Japan, its banking system is sound and solid. And the thing about the US dollar Japanese Yen and Swiss Franc is they are all very liquid currencies. What does that mean? That means it's easy to buy and sell. They are

widely traded in global markets. And that's important, Swiss Franc, even a Swiss Franc, it's a very popular currency, it's widely traded. And that's important because when you have pension funds and big fund managers buying these currencies, they don't buy in small amounts, they buy in billions. And when they sell, they also need to sell in billions and they need to have really buyers who are prepared to take it off their books. And I think because of that

these currencies are more liquid, more tradable. And so therefore investors do see them as safe havens. The euro as well is quite tradable. I was about to ask. But the difference is in Europe, I think it's going through a difficult period right now. Politically, it is going through a difficult period. You don't have the political stability that you see in Europe compared to Japan Switzerland. And even to some extent in relative terms, the US.

Yeah. Right. Because in the US, even if a president comes to power, he's checked by Congress, there's a check and balance in place. He doesn't have a plan check, a free hand. So he doesn't have a free play in Europe is different. You have the Ukraine war happening right now. You have populism on the rise. So you know, the investors don't see the Euro as a safe haven. Got it, got it. Ok. So how do I invest

in currencies? And should I be hoarding the Japanese Yen, the Swiss franc in a multi currency account, for example. Well, there are various ways, I mean, what you just highlighted is one way to invest some of these currencies. Some would actually just go to the money changer and change money. That's another way to do it. I actually, you know, people do this. That's right. There are platforms that allow you to buy and sell currencies.

So there are different ways. I think it's a matter of talking to advisor and finding out what you're comfortable with and what the costs involved are for each of these options. If I were to do it on my own without a financial advisor. What do I need to look out for? I think with currencies, you've got to be a bit more careful. Don't over invests in it because currency markets are volatile. Although the Japanese Yen is a safe haven. It doesn't mean that you won't see volatility in the

Japanese currency. It is not boring. It is. Well, it's been on a downward trend which is why many of us in Japan exploring it is a travel destination. So it is not immune from volatility and downward drifts. So I think you want to keep your exposure to some of these currencies. Not significant minimal. Don't over invest in it. I think currency markets can be volatile although we're quite positive in the Japanese. All right. Fantastic. Ok.

So I wanted to talk now about defensive stocks. So you spoke briefly about stocks bonds, certain investment grade bonds as well. I wanted to specifically talk about defensive stocks, right? And they're known to be among the safer investments to make. What exactly is a defensive stock, the characteristics of it, which sectors they tend to be in. And more importantly, why are they? I won't say safe but

safer than other stocks. I think it's difficult to generalize in terms of sectors, but I think defensive stocks will be companies with strong balance sheets. Ok. When I mean, strong balance sheets, I mean, they've got to have a sizable amount of cash on their balance sheet they got very low levels of debt that makes them less vulnerable to economic downturns. Ideally, they have a strong market share in whatever industry they are in big market share in whatever industry they are in.

And perhaps to some extent, they have some degree of following from global fund managers. In other words, they are, they are blue chips, they are big companies to some extent because they have a following and that provides you with some degree of support, buying support to the tight turn. So you put all that together. I think it makes

for defensive stock. They can come from different sectors, come from the real estate sector, even they can come from the telecommunication sector, health care as well, health care as well. That's a fairly defensive industry. But again, you have to go down to the devil is in the details. You got to go and examine the balance sheets of this company. So it takes a bit of research, right?

Don't just get drawn into healthcare because it's healthcare. You got to look at the company, it's involving as well. For example, if you're buying into a biotech company, that's in the healthcare space, that can be quite risky. Yeah, because there is some degree of innovation and risk, whatever they are venturing into may not bear fruit. And we've seen that during the pandemic or rather just coming out of the pandemic, there were pandemic darlings because they had to manufacture those vaccines.

But when those vaccines were out, the share prices just started to fall. That's right. So you got to be careful as well. You want to buy companies where the business is steady state staple businesses, hopefully that will be needed in good times and bad times. So consumer staples some degree of health care again, depending on the individual. So a lot of factors go into. But I think the key thing is this, do your research,

you got to learn how to read balance sheets. If not get the help from somebody, look at these companies carefully, talk to people. Don't be in a hurry to jump in head long. Do your research before you actually get into these companies. And I think a good practice is actually write down why you invested in the company based on some of these parameters. Interesting practice is that something you do as well? That's something I do. I write myself a proposal. I mean, not a five page proposal job

hazard is, you know, you tend to write long. No, no, no, I give myself maybe half a page. I tell myself why. So that I know why I've gone in. It's a discipline. It forces you to put your thoughts down on paper and it forces you to do the research. It forces you to do research and think through what you're doing because sometimes we have blind spots. But when you start writing it down, it becomes a bit more difficult to miss a blind spot. It forces you to

commit to it. Right. Also, like, why you have to ask yourself why you're doing this, put pen to paper and then you realize, ok, something's missing here. I need to address that. Exactly. So, it's a good habit, practice a dog and something that the listeners can think about. Absolutely something I'm going to think about. I did. I mean, it's old school, right? You don't think about it because it's old school, but it works. There's a reason for it.

Exactly. So, you know, when you do that, then you get a clearer picture of why literally a picture precisely. So I think that's important and that's something that a lot of people don't do because what they do is they see the investments in a modular fashion. Yes. So yeah. So when we talk about safe havens is really about protecting your downside. Yeah. So part of protecting your downside goes beyond just buying safe havens, but also making sure

that you add an element of safety to your investment approach. OK. That's a fantastic tip. That's going to be my key takeaway from this conversation, not the fact that it's safe havens, but I joke. So aside from going through my drawer, counting my gold bracelets, checking on my Japanese saying, flipping through my bank accounts, where can I invest in safe haven assets? What platforms are available to me? Do? I need necessarily to treat them via a bank through a Robo advisor. I mean,

there are gold etfs now as well. I'm sure there are currency etfs also to think about like, how do I go about doing this? Ok. I think you can do it through various platforms. Some of the things that you mentioned are the platforms that the listeners can think about. We had O CBC allow you to actually invest in gold through our digital app. And we've also got a precious metal account at CBC on our Robo

Invest platform. And we're not the only ones. I mean, there are other banks that also offer solutions that allow you to invest in gold for those who want something that's more tradable. For example, the Spider F that's listed on the SGX, right? It's available both in sing dollars and US dollars. That's something that has become quite popular. So there are

various options out there. Similarly, for currencies, you talked about a multi currency account or even putting your money into a savings account, foreign currency savings account, buying currencies on platforms, right? Non-bank platforms going through money changer, changing money, which is what I've done partly with my Japanese Yen because my plans are, you know, the next couple of years, my holiday destinations are going to be Japan.

I've actually changed quite a bit of Japanese Yen in preparation because if I don't use it at least I hopefully get to benefit from price appreciation of the yen as well. Yeah, that's a good tip for me as well. I only have so many months to save up for Basu. Thanks so much for unpacking all of this, the world of safe haven investments with me here on the money talks podcast. You've been a great help. I'm gonna, I'm gonna write down my investment proposals now.

Thanks for that tip and a big thank you to you too. Listener. If you like this episode, you got to show it, leave us a comment or a rating on wherever you get your podcasts. If you want to find us, we're streaming on Apple podcasts and Spotify as well as youtube. The team of Money Talks is made up of Joanne Chan, Tiffany, Christina Roberts. You win and I'm Andrea P.