Dear Clients,

 

We are writing to share with you our annual Portfolio Update.  2024 was another year of strong investment performance, contributing to our industry-leading track record that now spans over 20 years.  We are gratified by our achievements and remain steadfast and nimble as we continue to manage for future success.

 

Addressing Common Concerns

In this Portfolio Update, we would like to address some concerns that are periodically raised by investors and clients and would like to show how we carefully consider these issues in managing your portfolios for long-term growth.

The following are some common sources of investor anxiety:

• Geopolitical risks
• Economic uncertainty
• Government indebtedness

 

Geopolitics and the Global Economy

We are students of history and have studied key drivers of success and weakness in important economic centres of the world over two millennia.  Within this context, we have more closely analysed the policies and economic trajectories of the United States, Japan and China over the past hundred years. 

Indeed, there have been periods of serious and protracted economic stress notably the Great Depression of the 1930’s, the Mao era in China, the stagflation of the 1970’s and the post-1989 Japanese malaise.  In all these cases, there were rigid government policies that were structurally harmful to the economy, and there lacked an independent central bank with capacity to protect the purchasing power of individuals and businesses.

The largest and most impactful economy in the world today is the United States and though it has many imperfections and inefficiencies, it now has laws, policies and a functioning independent central bank that provide sufficient underpinning for competent individuals and companies to thrive. 

We have taken a more cautious approach in considering investment in China, the world’s second largest economy, as it has taken longer to establish laws to protect property ownership and shareholder interests.  Even so, we have observed many important areas of progress in China and appreciate the positive effects of government support in critical areas of technological, economic and societal development. 

As these two major superpowers vie for global supremacy, rivalry is understandable and inevitable.  However, both countries, while different in leadership constructs, prioritize the protection of domestic interests and have more compelling reasons to cooperate than to mutually sabotage. 

Other than the US, there are many countries, including Canada, that have adequate laws and policies to uphold the rights of businesses and individuals.  As their domestic markets are comparatively smaller in size, their strongest companies tend to compete for success on the global stage.

Sadly, there remain many parts of the world where widespread conflict, corruption and oppression are severely damaging to the well-being of local society.  However, their impact on global economic growth and progress tends to be limited.

 

Government Indebtedness

As with personal or corporate indebtedness, it is important to consider the magnitude of government indebtedness relative to income generation, assets and the cost of borrowing.  Fiscal prudence is always preferred, and we acknowledge many deficiencies in the way most countries, including the US and Canada, are run.  That said, so long as borrowing occurs in local currency and interest rates are moderate, as is the case in most of the developed world now, government debt burdens are generally manageable and not insurmountable.  Consumer and corporate earnings can still rise, especially with the benefit of productivity advancement, thus sustaining tax collection for interest payments and other government expenditures. 

 

Focus on Quality

In an uncertain world, it is crucial that we identify and invest in the highest quality assets and businesses as these are best positioned to weather external and unexpected stresses.  Strong and capable leaders are not daunted by challenges; instead, through ingenuity, innovation, hard work, and sheer determination, they harness their resources to produce positive outcomes that are otherwise unimaginable.  Some of the greatest inventions of all time, such as semiconductors and technologies underpinning the internet, were developed in times of war and severe duress. 

As we invest in the best companies and teams, we are inspired to combine critical and resourceful thinking with healthy caution as we navigate a dynamic landscape of risks and opportunities.  It is with this mindset that we face another new year with confidence and optimism.

 

In Closing

We would like to send along our very best wishes to you and your families.  If there is anything you would like to discuss with us, please do not hesitate to reach out.

Warm regards,

Woon Ai Tsang Wealth Management Group