Master Rider Blog

Quarterly Strategy 4Q07

September 18th, 2007 NW Teong

Quick overview: US economy is slowing while world big economies such as China and India are humming along well. More ugly stories linked to sub-prime saga are going to unfold in the next few months with England probably one of the potential countries that is at least as badly hit if not more badly hit than US. This will probably cause some degree of damage in term of investors’ psychology. Oh yes, US Fed most probably will cut its Fed funds rate by 25 basis points. This probably disappoints some investors who have expected a higher cut.  More importantly, we have to read and analyse the forward looking statement issue by the Fed. My take is that while they express concern on the sub-prime saga, they feel that it is prudent to have a more manageable cut in view of inflationary pressure. Bear in mind that we just witnessed a record high crude oil price.  On the positive note, tech sector might be on its cyclical up swing soon and final quarter is a typical strong quarter for tech sector. For this, we have to continue to monitor the soxx index and the semicon book-to-bill ratio (please refer to my earlier blogs or e-book, “The Essence of Stock Investment”) so as to confirm the upswing (if any).

With the above as a backdrop, markets would still be volatile in the short-term. This volatility could probably continue till end of Oct. Please note that October is the typical jinx month of the year where there were huge market corrections happened in this month. The famous one is the Black Monday that happened on 19 Oct 1987. If there is any market crash, it is more likely to be in this month. The investment strategy for 4Q07 would be to accumulate good stocks with great fundamentals, earnings visibility and potential, as well as attractive valuation. For Asian markets, it is prudent to buy stocks that ride on the booming local economy. As a tech lover, I am also feel that this is one of the best time to accumulate tech stocks to prepare for the up swing in the last quarter. As mentioned before, it is also prudent to buy some insurance (hedge by buying put warrants/options for indices) for your portfolio. This hedge is needed in case there is a market crash in the month of October, or a market melt down due to any other events.

In conclusion, I think world economy is still growing at a respectable pace despite the sub-prime problems in US. Thus, I am still positive about equities, especially in the next few months (except October, hahahahaha!). However, we need to be very careful come 2008. I shall share my view on this when the time is right. Cheers!

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Entry Filed under: tech sector, Macro, Stocks, Singapore