Dear Clients,

As the new year begins, we would like to wish all of you a very Happy New Year! As we consider our outlook and portfolio positioning for 2022, we would like to share some perspectives with you.

The Global Economy

There are a few unifying themes that characterize today's global economy. As the pandemic stretches on to its third year, global activity continues to be hampered by supply chain and logistical challenges. Coronavirus containment strategies by different countries have resulted in untimely factory closures in global manufacturing hubs, followed by backlogged orders, and shipping services have similarly been impacted by staffing shortages and delays caused by illness and quarantine requirements. Travel restrictions continue to impact spending on services, resulting in a shift in spending towards products, especially those of high desirability. All of this has contributed to near-term inflation and talk about central banks raising short-term interest rates in response. Another significant result of the pandemic has been an accelerated adoption of technology products and services all around the world. Technology adoption has facilitated remote learning and work, online shopping and ordering, and many modern forms of communications and entertainment. Across various industries, technological advancements have contributed to increased price transparency (it is so much easier to compare prices now, thanks to the internet!) and heightened productivity, and we see these drivers having a dampening impact on inflation over the long term. A final significant pandemic-related consideration is its impact on demographics, particularly in the developed world. Even before the pandemic, population growth in many parts of the developed world was slowing with low birth rates offset by immigration in some countries such as Canada and the US. Birth rates plunged further during the pandemic and we have yet to see a rebound. Such mature demographic patterns have a suppressing impact on economic growth and structural inflation, with the best example of this being Japan.

All these dynamics lead us to view the global economy with healthy caution and opportunism. On the one hand, given mature demographics in the developed world, we do not expect robust economic growth to buoy all industries. Competition will be tough and technological disruption will cause complacent companies, even seeming giants, to suffer market share losses or financial distress. On the other hand, as supply chain constraints eventually ease and disinflationary pressures from technology-driven productivity enhancements and mature demographics take hold again, inflation should subside. This explains sub-2% interest rates for government bonds in the US and many other developed countries today. Such low long-term interest rates provide support for equity valuations in general terms.

Your Portfolio

In regards to your portfolios, our positive bias towards equities remains. That said, it is imperative that we be careful to identify and invest in those companies that are positioned to grow profitably and sustainably in the coming years and whose stock prices remain well below their intrinsic worth. In recent years, we have done very well owning leading semiconductor stocks such as Applied Materials, Advanced Micro Devices and Nvidia. All of these companies continue to benefit from their powerful performance-based competitive strengths and also from structural industry growth drivers such as automation, artificial intelligence, big data and gaming. We have also done well with our investments in luxury and premium consumer brands and continue to see opportunities for outsized returns in our selections. The key to success in this space is to identify companies with proven success and recognition for technical excellence and quality craftsmanship, combined with leadership and talent that is innovative, modern in mindset, and operationally and technologically strong. For such companies, the opportunities to grow profitably are seemingly boundless. Apart from these sectors, we have investment positions in a variety of industries, all of which present growth opportunities in our modern world. These companies have all carved out leadership positions that are nearly impossible to replicate, and yet remain relentless in their pursuit of vectors for profitable expansion.

2022 has just begun and we are excited yet vigilant. Volatility is inevitable and the unexpected can occur. As we have in the past, we will continue to assess our positions and update our views as market dynamics shift and evolve. We remain confident that we can and will continue to do well for you over the long run.

Team Update

On a separate note, we would like to introduce the newest member of our team, Helen Sun. Helen joined us in May, 2021, upon graduation from the University of Toronto's Rotman School of Management. She assists Bonnie and our team in client communications and various administrative functions. We are delighted to have Helen join us and as a team, we continue to embrace high standards, camaraderie and a growth mindset.

In Closing

We would like to close by wishing you and your loved ones the very best for 2022. Should you have any questions or requests for us, please do not hesitate to reach out.

Warm regards,

Woon Ai on behalf of Woon Ai Tsang Wealth Management Group