Posts filed under 'Stocks'
The recent carnage in the global stock markets has investors all over the world asking this question: “Are stock markets turning bear already?” To answer this question we again need to separate US markets and rest of the world. From macro point of view, we know that US economy is slowing down, plagued by housing and financial problems, weak dollar, inflationary pressure and so on. This contrasts starkly with rest of the world economies, especially those emerging countries which are still enjoying healthy growth. Hence, being the leading indicator of the economy, their respective stock markets should reflect that macro picture. Of course, the key problem is that the stock markets at times over-reflect that positive big picture.
My personal view is that the recent correction in the stock markets is almost done and we are likely to see the last leg of bull soon. As explained before, this last leg of bull could last any where between two months to eight months. My gut feel is that we could have a severe market crash in October if not for the preemptive move by US Fed to cut its Fed funds rate aggressively. I cannot imagine the impact on the stock markets if the combination of bad news such as the subprime loan crisis, record high crude oil price (near US$100 per barrel), weak dollar and so on had occurred in Oct instead of Nov. My bet is that if all these events were to happen in Oct, we might have a big crash similar to the magnitude of the Black Monday crash in 1987. Bear in mind that investors are extremely “fragile” and hence could become panicky on any slight negative news in the month of October. I am not superstitious but this is merely human psychology. I am sure when US Fed cut the interest rates aggressively in September and again in October, avoidance of a crash in stock markets in October is surely one of the key considerations. A severe crash in the stock markets would have a dire impact on the real economy. However, that doesn’t mean Fed’s job is done. In fact, it has more challenging job looking forward.
While short term rebound is not too far away, one key question we have to ponder over is this: “Can the emerging markets continue to surge when US markets are declining? My take is that, a gradual slowdown in US economy is fine for other economies as the emergence of China, India would be able to offset the slow down, however, a drastic slowdown or a prolonged period of slow down in US would have a negative impact on other economies. While the emergence of China, India and other emerging countries have offset some of the influence of US, US is simply still the largest economy in the world today. At this juncture, we are likely to be in scenario one, i.e. US economy is slowing down gradually and hence emerging markets should be alright so long as the giants such as China and India continue to grow at a healthy pace.
With the above in mind, I shall plan my investments / trades accordingly to take advantage of a rebound soon. Cheers!
Master “The Essence of Stock Investment” and ride towards the journey of your financial freedom to be the “Master of Your Own Destiny”!
Disclaimer: Investors are investing at your own risk. Please read full disclaimer at the end of the blog or from the main page of the website.
November 13th, 2007
NW Teong
The big contrast between US and rest of the world is that while US economy is slowing down, rest of the world is still growing at a healthy rate, at least for now. The common thing facing every country in the world at this moment is the inflationary pressure which is the consequence of strong demand of every kind of raw commodity from every country especially big emerging giants such as China and India. Developed countries such as US, European countries and others are just as guilty as emerging countries in consuming these precious limited resources at an alarming rate. While US have to bear the full brunt of this inflationary pressure, rest of the world are somewhat shielded from this due to their stronger currencies vis-à-vis the US dollar.
US cannot “live” long under current scenario, i.e. housing problem is worsening, economy is slowing down, US dollar is weakening, trade deficits are ballooning, consumer-spending is slowing down too! For countries that still enjoy good growth, the choice of their interest rates policy is easier to make as compared to US Fed. These countries either hike the interest rates (such as Australia did recently) or at least hold the rates steady (such as EU did recently) in view of the threat of higher inflation rate. However, it will be a tough job for US Fed in this regards. The housing crisis and the inflationary pressure in US provide the twin drags on its economy at this moment. The cut in interest rates by US Fed would not be very effective under such scenario as it may help to relieve some pressure in its housing problem, it stokes further inflationary pressure. This is in addition to a weakening US dollar which will further stoke the inflationary pressure. Damn it, if the Fed cut, and damn it too if they don’t!
It is thus in my opinion that Americans look beyond the interest rate policy to solve the twin nightmares of having high inflation rate while the economy is slowing down. The classic way is of course to change the consumption pattern, for instance save as much energy as possible, cut down on wastage and excesses, leave your cars at home if possible and other measures. In short, do all possible things to preserve the vital resources as well as the earth that we live in. In addition to this, Americans would need to boost their productivity and competitiveness vis-à-vis other countries. I reckon pressure is building up on the policy makers in US by the weeks if not by the days. They are under pressure to solve the housing problem, under pressure to solve the currency as well as trade deficit issues (this boils down to its competitiveness as compared to other countries). In this regards, US will put more pressure on China to devalue its yuan at a faster rate. US policy makers are also under pressure to tame the inflationary pressure and at the same time think of how to reverse the slow down in its economy. When time is running out, I suppose so does their patience and perhaps options too. If the push come to shore, I suspect US Fed will still need to cut its interest rates despite the threat of inflation and a weakening dollar. The simple logic is that if the US does go into recession or its economy slow down substantially, the inflation is no longer an issue.
In short, what we have witnessed so far is a big adjustment (or rather big re-balancing) underway between US and rest of the world. The re-balancing of currencies (will US dollar lose its status as the reserve currency?), the re-alignment of world trades and the ultimate state of economy growth of these countries. I reckon this huge re-balancing will reach a climate in 2008. The markets of all kind of assets will be volatile while this re-balancing process is going on as funds are flowing to and fro in all directions in pursuing higher returnsm or simply avoiding losses. While there are many articles talking about the de-coupling of US economy with rest of the world, especially Asia countries, we have to be mindful that US is still the number one economy in the world today, a severe housing problem or slow down in its economy will have dire impact on the economy of the rest of the world, and hence their stock markets.
This is the main reason why I am not too optimistic about 2008. My best hope is that this re-balancing phase as well as the consolidation and slow down in global growth is a short –term one. While I think the liquidity run in the emerging markets, especially Asia is likely to go on till end of the year, we have to watch out the rate of this re-balancing process (as I said in my earlier blogs, watch out for triggers that would derail this liquidity bull run in regional markets). Any increase in this rate of re-balancing is likely to stir policy risks (from US to EU to China etc) which in turn will create havoc in global stock markets. Otherwise, sit back and enjoy a thrill-packed liquidity run (caution: those who have faint heart or heart problem, better avoid the markets altogether). Oh yes, by the way the Baltic Dry Index has started to go up again since 6 Nov 2007. Cheers!
Master “The Essence of Stock Investment” and ride towards the journey of your financial freedom to be the “Master of Your Own Destiny”!
Disclaimer: Investors are investing at your own risk. Please read full disclaimer at the end of the blog or from the main page of the website.
November 9th, 2007
NW Teong
Yes, US Fed cut its fed-funds rate by another 25 basis points yesterday. This is largely as expected and it shows that at the end of the day, the Fed can ill afford to take the risk of a potential economy implosion caused partly by the severe slow down in housing sector. In order to address the housing problem as well as to prevent the economy from slipping into recession, the Fed has to bite the bullet. The side effect of course is creating a bull run in other sectors that already enjoying superd growth. As already described in my earlier blogs, we are likely to see new records for emerging stock markets, new level for commodities prices.
Regional currencies will continue to strengthen vis-à-vis the US$. However, this process of strengthening of regional currencies will be more gradual from now onwards as the central bankers would not hesitate to intervene in the currency market to prod up the US$ so as to maintain the competitiveness of their own currencies. One has to note that if your currency is too strong, the products that you produced will be less competitive as compared to products produced by another country with “cheaper” currency with all other factors being constant. In short, every country would want its currency to be very competitive as compared to others. This is also a reason why US, EU and some other countries would want China to let the Chinese RMB or Yuen to appreciate faster and at higher quantum than what it is doing now. This is also a reason why EU has started to make noise of a weak US$ vis-à-vis Euro which is already at historical record now.
Thanks to US Fed, the momentum in the regional stock markets should continue and will enjoy the classical liquidity bull run till end of the years barring unforeseen circumstances. Those markets and sectors that are doing well will continue to do well and some of these will continue to see new records. Yes, this includes the gravity-defying markets such as China and India. After recent consolidation, China market is likely to continue its super bull run. I reckon this bull run may stop months before the Olympic start in August 2008.
A quick look at the macro indicators that I monitor (please note that these indicators can be found in The Master Rider System which is linked to various websites to give you live or near live data, you can find this spreadsheet in the website: www.master-rider.com) confirmed what I have described above. In fact, it has confirmed my forecast days if not weeks ago. Holly cow, look at the price of crude oil, it is again at historical high of around US$95.85 per barrel at the moment! It is just a ‘whisker’ away from the US$100 that I talked about days ago. While the Baltic Dry Index has started to correct in the last few days, it is likely to set new record in the days to come, thanks in part to the US interest rates cut.
Besides the usual booming sectors such as oil and gas, shipping and marine and so on, I continue to be bullish in tech sector which is well represented by US Nasdaq index. Please look at the Nasdaq chart below:-
At yesterday closing of 2859, it is the highest level since Jan 2001, i.e. post-internet bubble days. While it still has a long way to go before reaching the historical peak of about 5132 achieved on Mar 2000, it is surely on a uptrend. As for regional tech stocks ex-Japan, the tech stocks in Taiwan and Korea will be the preferred choice followed by Singapore and Malaysia and others. Please note that the tech sector in the region are highly related to the tech sector, especially the tech leaders in the US. Hence, one simple strategy to play regional tech stocks is to follow those stocks that have derived huge sales from the tech leaders in US that are doing exceptionally well at the moment. Those tech leaders in US that are doing exceptionally well currently include Intel, Apple, Google, Microsoft, and so on. The semicon related stocks are still not performing well at the moment (please see the SOXX chart), it seems that these stocks are still searching for a base.
For domestic investors in the region, we will continue to ride on finance sector, marine and shipping sector, oil and gas sector, commodity or agriculture sector, real estate sector (watch out for policy changes), and tech sector (selective stocks). It is always prudent to have a basket of stocks to achieve what I called a natural diversification. However, one should bear in mind that we should not diversify for the sake of diversification, we should still need to follow our investment process closely to derive our investment decisions (reference: The Essence of Stock Investment on www.master-rider.com). The key risks out there are policy risk as well as event risk. Both risks are something investors cannot control and they are hard to predict, However, this should not deter a smart investor from monitoring the situation closely and take appropriate action immediately should they happen.
Sit tight and enjoy your liquidity ride and make sure you build in some safety features in your investment stragegies. Cheers!
Master “The Essence of Stock Investment” and ride towards the journey of your financial freedom to be the “Master of Your Own Destiny”!
Disclaimer: Investors are investing at your own risk. Please read full disclaimer at the end of the blog or from the main page of the website.
November 1st, 2007
NW Teong
Will US Fed cut its Fed funds rate in its coming FOMC meeting this week? This is the question investors from all over the world are asking. However, it seems that most investors are betting that the Fed will cut by another 25 basis points. Is this a done deal or the US Fed has other idea? In fact, the US Fed is at the catch 22 situation at the moment. On one hand, the weak economy and the housing loan problem call for a cut in interest rates. On the other hand, a record high in commodity price, especially the historical high crude oil price as well as a weak dollar necessitate a hike or at least no change in interest rates. As we know that high commodity price will flame inflationary pressure. In short, US Fed is in a bind right now where the US economy is slowing and yet there is a potential threat of inflationary pressure.
Under normal circumstances, one will not face inflationary pressure if the economy is slowing down. However, the case for US is unique in the sense that, while its economy is slowing down, the commodity price is sky rocketed due to strong demand from rest of the world, especially China and India. A weak dollar, indeed adds fire to fuel on the phenomenal rise in commodity price.
It seems that there are only two scenarios, that is cut or no cut. If Fed cuts the Fed fund rates by another 25 basis points, the trend for all asset classes will continue (until they reach some breaking points). In other words, we will continue to see record breaking for regional stock markets in Asia Pacific region in the remaining months of this year, also record prices for most commodities and crude oil is likely to test US$100 per barrel soon. Please note that I am not saying the current crude oil price represents the natural equilibrium price between the real supply and demand. Current crude price level not just reflects the real supply and demand, it also reflects the tense situation in the Middle East as well as the huge positions by speculators.
If there is no interest rates cut, then the stock markets may consolidate for a few days as investors who bought the markets in anticipation of a cut will be disappointed. However, regional stock markets in Asia should still resume their uptrend after the initial “disappointment” over US markets. In short, if there is no interest cut, regional markets may take some time to consolidate and are likely to resume their uptrend in the next two months.
My concluding remark is I am still bullish for stocks, especially regional markets in Asia in the next two months barring unforeseen circumstances. Of course, markets are getting more volatile due to events such as FOMC meeting, earnings reporting period and so on. More importantly, we could be on the last leg of the bull which started since early 2003. The duration of this last leg could be shortened or extended due to a host of factors. One obvious factor is the US Fed fund rates. As mentioned before in my earlier blogs, continue to monitor those factors that are likely to short-circuit the markets!
By the way, I have promised to share with you some of the photographs taken during my recent seminar organized by the Singapore Stock Exchange on 27 Oct 2007. I must apologise that the photos are not very well taken.
However, the important thing is that I am able to share my investment knowledge and experience with many enthusiastic and keen investors. Many of these participants have visited my investment education website:www.master-rider.com in the last few days and have also purchased the e-publications such as the e-book, e-seminars, investment spreadsheets from the website. To be very frank, all these e-publications are really very good value for money. FYI, I have never advertised them in any way except to introduce them during the seminars. Just like my website which enjoys more than 1,000 hits per day, these e-publications are simply selling by themselves through words of mouth.
For instance, I introduce the e-seminar on “Wealth Creation via US Options” to some of them. This e-seminar is content rich but cost peanut as compared to those live seminars which normally cost S$3000 to S$8000 per pax. As I said in my website, my sincere objective is to share all my investment knowledge and experience with as many people as possible. I did not offer free down load of these e-publications as freebies are always subject to abuse. From my point of view, the economic value of the e-publications is at least ten times higher than the prices. Whether to have these e-publications or not, whether to attend very expensive seminars or not, and whether to master the investment knowledge yourself (hence benefit for the rest of your life) or rely on others, the choice is entirely yours. The key message is that if you can grasp the investment knowledge that I am trying to share with you via those e-publications, the benefits are tremendous. The very least is that you would avoid losing money big time! Cheers!
Master “The Essence of Stock Investment” and ride towards the journey of your financial freedom to be the “Master of Your Own Destiny”!
Disclaimer: Investors are investing at your own risk. Please read full disclaimer at the end of the blog or from the main page of the website.
October 30th, 2007
NW Teong
Regional stock markets are being played out as expected. Barring unforeseen events, we will continue to see bull run in regional markets, especially in Asia pacific region ex-Japan. We will continue to see bull run in commodities, crude oil is likely to break new record and US$100 is not too far away. I reckon we may even see it (crude oil at US$100 per barrel) happens this year! Of course, US$ will continue to weaken and we will continue see record high in Euro versus US$. In short, this bullish tone aided by huge liquidity inflow should continue till at least end of the year.
Hong Kong market is already catching fire and the Hang Seng Index has easily cruised pass 30,000 points. As mentioned before, Hong Kong market is unique. Besides a key beneficiary of this huge liquidity inflow, it is also the potential beneficiary of domestic funds in China seeking investments in overseas markets. As for Singapore market, the surge will not be as spectacular as Hong Kong market but it should be on the up trend too. However, the recent policy regarding deferred payment in the real estate sector will act as a dampener in the stock market, especially in the real estate sector. We shall closely monitor the reaction in the market whether this latest measure has tilted the balance in the supply-demand situation in Singapore. My view is that there will be a short term damp in the property sector but still bullish on a longer term. Having said that, we need to watch out for more measures (if any) from the government.
The very important date to watch, of course is the FOMC meeting on 31 Oct. This should set the tone for the rest of the year! My take is that Fed would cut another 25 basis points in this coming FOMC meeting (well I may be wrong on this). If this happens, the party due to liquidity driven bull run should continue all the way till end of the year barring unforeseen circumstances (please also read my blog titled “Big Scare” on 23 Oct).
By the way, I have a fantastic response (about 138 participants) for my investment seminar on “A Beginner’s Guide on Effective Portfolio Management” on 27 Oct organized by Stock Exchange of Singapore. We have so many enthusiastic participants that are so eager to learn more about investment and I have shared my investment knowledge and experience unreservedly with them. I shall share some photos (taken by SGX staff) of this seminar in my blog the next time. I am also pleased to announce that for those who have purchased more than S$10 of my e-publication, you are automatically in my MRiders Club and you will be the first to receive important news and messages (e.g. My important market call on 17 Aug 2007) from me.
Cheers!
Master “The Essence of Stock Investment” and ride towards the journey of your financial freedom to be the “Master of Your Own Destiny”!
Disclaimer: Investors are investing at your own risk. Please read full disclaimer at the end of the blog or from the main page of the website.
October 29th, 2007
NW Teong
This morning, I read an article titled “Jim Rogers Shifts Assets Out of Dollar to Buy Yuan” from Bloomberg website with great interest. For those who wish to read this article, you may wish to click the link here:
http://www.bloomberg.com/apps/news?id=20601087&sid=aqNT0qlW_zQE&refer=home.
The gist of this article is that Rogers is very bearish on US dollar and very bullish on China RMB or yuan as well as commodities. He feels that yuan could appreciate as much as quadruple in the next decade. On currency front, he is also bullish on Swiss Franc and Japanese Yen.
Rogers remains very bullish on commodities, he feels that the bull in commodities could last as long as next 5-15 years. While I am not able to predict how long the bull would last in the commodities, what I noted with great interest is that Rogers’ view on currency as well as commodities is basically in line with my own (for those who read my blogs for the first time,
please refer to my earlier blogs).
Rogers also feel that the bull markets for stocks and bonds are over. While I share his view on bonds, I bet to differ on the stock markets.
I feel that we still have one last leg for bull on stock markets (please read my earlier blog on this, also my comment on yesterday’s blog “Big Scare”).
Base on the above view, we should then devise our investment strategies accordingly. Please note that if investors such as Rogers are switching their US assets into Asia based assets, many more will follow. What will happen then? Logically speaking, if the initial trickle leads to a stampede, US$ will collapse vis-à-vis other currencies. We have to watch out on this space. While a gradual depreciation is acceptable, a sudden collapse of US$ would be very disruptive to global trades and hence would be bad for world economy. I am sure Rogers is not the first one to shift its US assets into Asia assets (especially China and India) and obviously he will not be the last one as well. On the contrary, there will be more investors to follow this path. If you can recall, we have already witnessed some divestments of US assets by Asian sovereign funds. It is definitely worth while to monitor the funds outflow from the US and its impact on the weak US$. Cheers!
Master “The Essence of Stock Investment” and ride towards the journey of your financial freedom to be the “Master of Your Own Destiny”!
Disclaimer: Investors are investing at your own risk. Please read full disclaimer at the end of the blog or from the main page of the website.
October 24th, 2007
NW Teong
As far as I am concerned, the big scare of a market meltdown on 19 Oct 2007 due to a host of factors such as sub-prime loan problem, US economy slow down, high oil crude price and so on is over. In the first place, I never believe that there will be a meltdown. As I mentioned in my earlier blogs, while I have ruled out a market meltdown, I did expect some corrections. I further stressed that these corrections are “small” as compared to the huge sell down on 19 Oct 1987. I have also warned readers at the beginning of this month that October being the jinx month will be a volatile month for stocks.
While there will still be volatility in the markets for the next few days, my take is that the liquidity driven rally should creep back into the markets by the end of the month barring unforeseen circumstances. That leads us to another important date, yes that is the FOMC meeting on 30/31 Oct. Will US Fed cut its Fed funds rate again? At the moment, market has priced in more than 50% chance that Fed will cut another 25 basis points. If this is the case, the cut in interest rates is akin to add fuel to the fire for the regional stock markets. In short, the rally will really fly in the next two months. Of course, we still need to watch out for the usual culprits that could shock-circuit the markets such as sub-prime loan worsen, high crude price and so on. Please note that even if Fed keeps the rate unchanged on 30/31 Oct, I am still positive about the stock markets in the next two months. Historically, this is about the best time to buy stocks as historically Nov, Dec and Jan is the best quarter for the stock markets!
Congratulations to all of us, we have survived the anniversary of this dreadful Black Monday. All we need to do now is to sit back and relax and enjoy the rally being played out in the markets in the next two months. This could well be the last leg of the bull run started since early 2003! Cheers!
Master “The Essence of Stock Investment” and ride towards the journey of your financial freedom to be the “Master of Your Own Destiny”!
Disclaimer: Investors are investing at your own risk. Please read full disclaimer at the end of the blog or from the main page of the website.
October 23rd, 2007
NW Teong
While SUVs help to push up the crude oil to its record price recently, SIVs help to spread the pain due to the sub-prime loans crisis in US. Indeed, SIVs are the core concern of the sub-prime loans crisis. What are SIVs and what are SUVs? SIVs are Structured Investment Vehicles and SUVs are none other than Sport Utility Vehicles. While we are all familiar with how much SUVs help to consume the petrol, most of us are not so familiar with these SIVs.
SIVs are basically entities that raise funds by issuing short-term, low-yielding notes called commercial papers and invest in longer-term, higher-yielding instruments such as credit card debt and mortgage-backed securities. SIVs can be hurt in two ways, one is that the funding dry up and two the assets that SIVs hold suffer huge losses. The funding dry up actually happened at the peak of sub-prime loan crisis in the middle of August 2007 where there were no takers of the commercial papers that these SIVs issued. In short, investors were spooked by the sub-prime loans problem that they refuse to look at other debt papers except the Treasurys which are considered risk-free. As most SIVs are affiliated to banks, banks were forced to provide the funding or liquidate the vehicles altogether. This creates severe liquidity problem as banks scramble to raise funds for these vehicles. At the same time, the assets that these SIVs hold suffered huge losses as investors are dumping the debt papers, be it asset backed or not. In short, banks face liquidity problem as well as suffered huge losses. The worst thing to happen will be that these banks are forced to sell the assets in order to repay debts. If all the banks with exposure to SIVs started to this, it will cause a negative chain effect. So much so that the whole debt market will collapse, this means the breakdown in the whole financial system which will have dire impact on the real economy. In order to cushion this, Citibank has initiated to create a Super fund which in essence is to provide funding as well as to prevent panic selling among the players.
Both SIVs and SUVs are smart creations of human beings but they are still not perfect. It is challenging to come up with a financial vehicle so as to give you a decent return and yet shield you from any market turmoil all the time. Of course, it is equally challenging to create a SUV (with the same power and performance) that consumes little petrol or gasoline. While we cannot overcome this issue (powerful and consume little fuel) overnight, I am very sure we will have better products over time with the advancement of technology and financial innovation.
Someone asked me right after lunch today, “Hey Mr. Teong, why don’t you talk about markets today as the regional markets are under great pressure?” I replied this gentleman that I have said what I wanted to say about markets days ago. Didn’t I talk about The Big Trend on 9 Oct, Liquidity Play Intact on 10 Oct, Heightened Volatility on 12 Oct (mind you, I talked about this last week), A Tale of Two Markets on 16 Oct and Eve of Black Monday Anniversary on 18 Oct 2007? In short, my view is that the markets would be very volatile in Oct but I feel that any correction would be short term as the liquidity play will resume after each correction barring unforeseen circumstances. My take is that there might be “small” (small if you compared to the fall on 19 Oct 1987) correction in global markets today (all eyes would be glue to US markets tonight), i.e. there will not be any huge correction that will cause panic among investors. By the way, US Fed still have plenty of ammunitions to be deployed should the need arises. Cheers!
Master “The Essence of Stock Investment” and ride towards the journey of your financial freedom to be the “Master of Your Own Destiny”!
Disclaimer: Investors are investing at your own risk. Please read full disclaimer at the end of the blog or from the main page of the website.
October 19th, 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”!
Disclaimer: Investors are investing at your own risk. Please read full disclaimer at the end of the blog or from the main page of the website.
October 18th, 2007
NW Teong
If we take a quick glance at the two charts below, we will see that they are very similar in shape. They both enjoyed a good run since the 3Q of 2005. However, the similarity stops there. Yes, one is the Dow Jones Industrial Index and the other one is the sizzling hot Shanghai Stock Exchange (“SSE”) Composite Index. While Dow has surged about 37% since the 3Q of 2005 to reach about 14,000 now, SSE has surged a whopping 500% to breach 6000 during the same period of time! This is achieved in a space of two years!
While US market is grappling with the sub-prime loans problem and its inevitable slow down in its economy, China economy continues to enjoy its double-digit growth and the super-charged stock market is a reflection of this strong growth. Obviously, a prolonged investors’ optimism in the market is a pre-requisite for any long and sustainable super bull market like SSE now is experiencing. However, any correction (don’t know when but could be near for SSE, especially in 2008) to a prolonged super bull would be painful. Let’s make this clear, there is no such thing as “painless” correction. Any correction is painful and it is a matter of degree for different investors. While I hope the market would consolidate in a more gradual manner, however I am very sure the suicidal rate would surely go up If there is a market melt down in China, This applies to any prolonged bull markets such as the Sensex index in India.
For momentum or trend investors, I suppose they would know how to react when the markets started to turn. This group of investors/traders would normally be among the first to leave the market before it falls off the cliff. What I would like to caution are those so-called value investors. That is those investors invest based on fundamental analysis. From fundamental analysis, we can still buy stocks with high valuation (e.g. high PER) if the potential for both top and bottom line growth is huge. However, how does one consider the PER as high? Is 20 times high or 50 times high? For those who have read my e-publications, you know that we can use another ratio to gauge this, yes this is the PEG ratio. In short, this ratio measures the valuation versus the potential growth in bottom line.
However, we have to be cautious whenever we have high PER reading despite a low PEG ratio. High PER can be read as high growth potential or high disaster potential. The reason is simple, since it is a potential and not a sure thing and anything could still happen along the way. In short, the risk associated to this should logically be higher. From this argument, I would advise those investors in China and India markets to lock in their profits and this should preferably be done in the 4Q of 2007. Put it simply, we may not be able to predict the top but we can surely sleep soundly with money safely in our pockets. So what if we sold the market 10-20% too early? It is alright to let other investors to make that additional return for taking much higher risk! Bear in mind that a correction of a super bull can be anything from 20% to as much as 70%.
Yes, after close to five years of un-interrupted bull run, we have to be prepared for a slower global growth looking forward. In short, the easy money to be made in stock markets worldwide is almost over for now and we need to be more selective come 2008. While I am not optimistic for 2008, I am still bullish for the remaining months for 2007. Regional indices have continued to scale greater heights as I have expected (refer to my earlier blogs in Aug and Sept 2007). By the way, the Baltic Exchange Dry Index continues to breach historical record on a daily basis. Enjoy the party while you can and be sure to watch out for some triggering events (e.g. record crude oil price, US bad loan problem, China anti-inflation measures etc) and not to forget the countdown of the Black Monday anniversary! Cheers!
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October 16th, 2007
NW Teong
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