Master Rider Blog

Eve of Black Monday Anniversary

October 18th, 2007 NW Teong

Let me summarise the following key points which I have shared in my blogs in the past few weeks as they remain relevant:

US Markets continue to be plagued by the sub-prime loan crisis and it is likely to take longer to settle down. The impact on the economy is likely to be deeper and wider than expected. In short, a slow down in US economy is inevitable and this together with the fear of inflationary pressure has prevented US Fed from raising its interest rates. In fact, to prevent a severe slow down in economy as well as a full blown impact from the sub-prime loan crisis, Fed had just cut its interest rates by 50 basis points on 18 Sept 2007. This indeed is a right move as the cost for not doing so could be potentially higher.

However, as argued before in my earlier blogs, due to this inability of raising interest rates or rather the inevitable of lowering of interest rates, the key beneficiaries would be those US exporting companies and companies that have massive operation overseas. These companies are likely to report good results in the days and months ahead. These benefits come partly at the expense of a weaker US$. Of course, the other phenomenon is that foreign investors are divesting their US assets due to the concern of further weakening of US$. Naturally, when these investors divest their US holdings, the proceeds raised would find their way into regional markets such as Hong Kong, India, Singapore and so on. In addition, we have witnessed the creation of huge sovereign fund as well as a couple of domestic funds in China. These funds are slated to invest in regional markets. In short, there are plenty of liquidity at the moment. The cut in US Fed interest rates not only calm the investors’ nerve w.r.t. sub-prime saga, it has also caused a huge influx of liquidity into regional markets (e.g. Hong Kong, India, Singapore and so on). The cut in US Fed fund rates has caused the US$ to weaken further, this in turn has caused most commodities to surge to new level.

In fact, with the preemptive move of US Fed, we can safely rule out the big melt down we have witnessed on 19 Oct twenty years ago! Yes, my bet is that tomorrow will pass by without major meltdowns in the global stock markets. On the contrary, while volatility remains high, I feel that the liquidity play is intact and will continue throughout the remaining months of the year. In addition, the fund flow pattern (from US, even Europe markets to Asia markets) should continue. Investors would continue to bid commodities prices higher (see Baltic Exchange Dry Index, refer to my earlier blogs). It would be interesting to see what investors would react should crude oil hits US$90 (or even US$100) per barrel. Investors should continue to do well on holding onto the key beneficiaries sector which I have described above.

I have mentioned about locking in profits for both India and China markets two days ago purely from risk and reward profile. Interestingly, both markets started to trade wildly yesterday, i.e. one day after my blog. However, from liquidity’s perspective, both markets as well the entire Asia Pacific region are still intact. In short, the up trend due to this huge surge of liquidity is still intact and probably has some more legs to go.

Enjoy the liquidity party for the year and perhaps with bountiful returns by end of the year. Remember not to be greedy, especially come 2008. One announcement: My seminar on “Beginners’ Guide on Portfolio Management” on behalf of Singapore Stock Exchange (“SGX”) on 27 Oct 2007 is confirmed. For those who are interested to attend, you are advised to register with SGX asap as the class is almost full now. Please note that this is the first SGX seminar I am conducting since I have stopped all seminars more than one year ago. I will not be conducting many SGX seminars every year due to my investment career. However, I will still try to conduct1-2 seminars per year so as to connect with people like you. Cheers!

Master “The Essence of Stock Investment” and ride towards the journey of your financial freedom to be the “Master of Your Own Destiny”!

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Entry Filed under: Macro, Stocks, Singapore