Posts filed under 'Stocks'
If we look at the global stock indices now, they all look with great similarity, i.e. up and up and up! For instance, look at the Dow Jones Industrial index chart below.
Many of the indices are making historical highs and the trend is nothing but bullish. In short, the huge surge in global indices due to the re-emergence of liquidity is being played out nicely as I have predicted in my earlier blogs weeks ago. This is also being helped by the fact that while US economy is probably slowing down, the global economy is humming along pretty well. If we look at the Baltic Exchange Dry Index (“BADI”), it has also closed at historical high of 9860 yesterday.
The BADI index has surged at an incredible speed, it was just about 2000 in early Jan of 2006 and in a space of less than 2 years has surged more than 390%! If we use this index as a proxy to world economy, then we can say that the global economy is doing fine but if we use it as an indicator to measure how fast human beings consumed our limited resources, then we should be worried. We should start to worry for the earth that we live in. Can our earth satisfy our insatiable demand of raw materials from food to energy? Can our earth withstand the pollution that comes along with further developments and perhaps exploitations? In short, can our earth withstand the abuse that we human beings exert on it for a long period of time?
In a materialistic world today, human beings are perpetually in search of greater profits at the expense of perhaps our only living place, i.e. the planet earth. We dig and dig for what ever treasures that we can find from the earth and we dump any kind of garbage back to the earth. At times like this, it is good to pause for a while to think of how we can contribute to the society and to protect the environment that we are living in. The very least that you and me can do is to do things without causing harm to our environment and to others. To me, an act that will harm our environment such as littering is a blatant act of selfishness. Those who caused harm to our earth really have no consideration at all for other human beings and for our future generations.
As for the stock markets, enjoy your uptrend ride but remember to build in some profit locking mechanism. For instance place a trailing stop order at all time, this stop order will be triggered only if the condition that you set is breached such as a fall of 5% in stock price. In this way, you can enjoy the surge but able to lock in profit should the market started to change direction. 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 10th, 2007
NW Teong
We all know that US economy is slowing down this year, and probably more next year. However, the selected sectors such as energy related sector, and export-oriented sector which include most big tech companies would still be doing well. This is partly helped by a weakening US$ in two ways, one is the made in US products or services are getting more competitive vis-à-vis those from other countries as these are seen to be cheaper when converting to local currencies and second is when these foreign revenues are being repatriated back to US. The added translation gain will further swell the bottom lines of these US companies.
Hence, we have to be extremely careful when investing in stock markets at this juncture. Under the scenario of a slowing economy, we should not get overjoyed simply because US Fed has cut its interest rates. The key thing to monitor is that whether this cut will reverse its course of a slowing economy. In short, we need to go back to the basic. We need to ask ourselves what drives a stock price up? It is not the interest rate and it is also not the cheap currency. Yes, it is the bottom line as well as the potential of making even more money in the future that really attract investors to load up the shares. Of course, the cut in interest rates would help all companies as the cost of borrowing is lower but that does not really affect your decisions to pick the winners. To put it bluntly, a company would still lose money even if the interest rate is zero for a host of reasons (e.g. mismanagement, obsolete technology, wrong cycle, expansion aggressively at the wrong time etc).
Similarly, when an economy is slowing down (or worst still go into recession) which means that many companies are going to slow down too. You see, the aggregate of all outputs of companies forms the economy (You may wish to refer to my book, “The Essence of Stock Investment” to understand the supply and demand side of GDP). So, if we have concluded that the economy is slowing down, we will deduce that companies’ growth would slow down too, we will then deduce that the valuation of the stocks should come down too. What happens to a stock price in a slowing economy? First is the profit contraction and from valuation point of view, the stock price of a stock will need to come down so as to maintain the same valuation (e.g. same price to earning ratio) and the second thing to happen is the valuation or PER contraction. In other words, investors now accord the valuation of the stock at a lower PER as the potential of making more money is simply reverse now.
What happened in the markets in the past few weeks is what I called a “relief rally” which is of course triggered by the aggressive cut of interest rates by the US Fed. Investors feel a great relief that the worst of the credit crisis is over. Of course, the rally also built on the hope that the interest rate cut could reverse the slowing down in the US economy which remains to be seen. As I argued in the past few weeks that this liquidity driven markets are likely to create asset bubbles here and there and would have to be deflated one day. While we continue to enjoy the wild run of these asset bubbles, we have to be mindful that this might be the last leg of a bull run since early 2003. In short, we need to monitor the markets closely and be the first one to run if there are signs of a market meltdown.
My personal take is that there is still a good chance for the regional stock markets to reach record level in the remaining months of the year barring unforeseen circumstances (especially this month). My view is that the 3Q earnings for most US companies should still be respectable albeit those companies directly affected by the sub-prime loan problems. As long as there is no huge disruption in US stock markets, regional markets should continue to do well. If the stock markets are doing well in the final quarter of the year as expected, we should be more careful come 2008. The reason is as explained above, i.e. we are facing with a slowing down US and global economy. I am not saying we should not look at stock markets in 2008, however we have to be more selective in choosing the markets that we wish to invest. Look for markets that are mostly spurred by domestic demand, or sectors that still enjoy strong potential growth looking forward. 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 9th, 2007
NW Teong
US dollar is weak against almost all major currencies in the world. Please see the charts for Singapore $ per US$ and Euro per US$, the US$ is at historical low vis-à-vis these currencies.
Courtesy of Yahoo Finance
This weakness of US$ is exacerbated by the aggressive cut in interest rates by the US Fed on the 18 of Sept 2007. The repercussion of a weak US$ could prompt more capital flights out of USA. All things being equal, investors do not wish to invest in a market where the currency is weakening against its home or base currency, let alone US economy is slowing down. This is in sharp contrast as compared to markets in the Asia Pacific region such as China, India, Hong Kong, Korea, Singapore, Vietnam, Malaysia and so on. These economies in Asia are enjoying respectable growth with robust domestic demand as well as higher intra-regional trades. This has already translated into higher returns in the stock markets in these countries. In fact, many of these stock markets as represented by their respective indices have already reached historical records. The added bonus is the strengthening of local currencies vis-à-vis the US$. Hence for investors with US$ as base currency, it will register added return due to the forex gain.
However, the caveat here is that so long as the weakening process is gradual then it is fine. A sudden collapse of US$ would be disastrous to world financial system and hence world economy. A report showed that foreigners now hold slightly more than US$2 trillion of US assets with the bulk of it in Treasurys held by central bankers in Asia. These powerful Asian central bankers are keen to diversify its portfolio away from US assets and they have more incentive to do so now that US$ is weakening and is slated to weaken more. In short, a capital flight away from US markets is already happening, it is a matter of degree. Thus, it pays to monitor how this is being played out in the next few months or even years.
We have to take note that a gradual weakening of US$ would be positive for emerging stock markets as the funds continue to flow into these region. However, a sharp fall in US$ will create panic among global investors that they will sell out their equity portfolios in favour of government bonds, i.e. a classical of fight to safety. With this as a backdrop, US Fed is really at a cross junction at the moment. A potential credit squeeze and a slow down in economy necessitate a cut in interest rates, however a weak US$ calls for a steady or a hike of interest rates. Personally, I feel that the US Fed does not need to cut its Fed funds rate at its next FOMC meeting which is scheduled on 30/31 Oct 2007. Investors who buy shares with the hope of further rates cut are likely to disappoint. Just like in a healthy diet, what one is looking for is a well balanced diet and I am sure the US Fed will try to seek the best possible balance in its interest rates policy.
Whatever the interest rates policy, the stock markets in the Asia Pacific region are likely to enjoy their bullish run, at least till the end of the year albeit unforeseen circumstances. (Caution: We are exactly two weeks away from the anniversary of Black Monday.) 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 5th, 2007
NW Teong
I have mentioned about this index as one of the leading indicators for world economy on my blog “Baltic Index” dated 14 Sept 2007. It has since surged from about 8300 on 14 Sept to 9561 yesterday, i.e. a surge of about another 15% in a space of less than three weeks! Please see the chart below:-
Courtesy of Yahoo Finance
Of course, this huge surge is partly due to the aggressive cut in the interest rates by the US Fed. All things being equal, a cut in US interest rates would translate to a weaker US$, which would translate to a higher prices in all commodities and freight prices where they are mostly quoted in US$. As a powerful leading indicator of world economy, a continued surge in this index tells me that the world economy remains buoyant. This is a strong indicator and good news to all shipping companies as well as commodities related industries.
After rising strongly since 17 Aug, as mentioned in my yesterday’s blog, regional markets are likely to take a pause to digest the gains so far. I reckon markets will gyrate in their usual manners in the next few days if there are no price-moving news. In short, markets could be pretty “boring” in the next few days. Perhaps, it is time to take a break and relax a little and watch how the markets play out in the next few days before we fine tune our portfolio for the final harvest in the last quarter of the year! 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 4th, 2007
NW Teong
Most stock markets such as Hong Kong (Hang Seng Index), Singapore (Straits Times Index), Korea (KOSPI), and of course the hottest markets such as China (Shanghai Stock Exchange Composite Index) and India (SENSEX index) in Asia have continued to sizzle. It seems that every day is a new record!
Having risen substantially since its recent low on 17 Aug, I would think that regional markets are likely to pause for a while to digest the gains made so far. Mind you, it is really a hefty gain since 17 Aug 07. This is the time for the more prudent investors to sit down to think of how to re-balance their portfolio and ride on the wave toward the end of the year. For those who are still keen to rush into the markets, I would urge them to be cautious at this juncture as markets are likely to take a pause. This is so especially if the markets continue to go up in the next couple of days. For those who are fully invested, perhaps it is time to take some money off the table. My personal view is simply based on following few points:- 1) valuation is getting rich with the surge in price since 17 Aug 2007, 2) while sentiment is positive due to lower interest rates, fundamental (such as business conditions and economy forecast) remains almost the same since 17 Aug, 3) technically markets are near its critical level soon (e.g. STI will face tough resistance nearer to 3950 to 4000, it is currently at 3835, i.e. about 3% from there!), 4) last but not least, better be careful as we are in the “jinx” month of October (hahaha! You might call this superstitious but being human beings sometimes we are more fearful of the shadow than the actual devil itself).
Having said that, I am still optimistic that final quarter would still be a quarter for a sweet harvest, this of course subject to how markets being played out in October. You see, we can have certain expectation for the final quarter but we still need to monitor the markets movements, valuation of stocks, events etc to fine tune our expectation along the way. This is the essence of a dynamic investment system. In short, manage your portfolio actively to maximize your returns in every twist and turn of the market whenever possible. 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 3rd, 2007
NW Teong
Global stock markets have continued to rise as expected and Dow and Nasdaq have just broken their recent peak registered in the middle of July to close at 14,087.55 and 2740.99 respectively yesterday. Please see the charts below:-
Courtesy of Yahoo Finance
Regional markets such as Singapore, Hong Kong and other Asia markets are expected to surge in tandem and in fact have more reasons to surge as the domestic economies are still very strong as compared to that of US. This together with the formation of various funds in China which tapped the domestic money to invest in overseas markets such as Hong Kong, Singapore and so on would add fuel to the fire. No wonder the markets in the entire Asia, especially Hong Kong and Singapore are red hot at the moment.
If you look back on what had happened on 17 Aug where regional markets suffered a huge fall, it was merely a blip in a bull market (For those who have just read my blogs recently, you may wish to read my blog on 17 Aug, titled “Ignore This @ Your Own Risk”). However, we should not just ignore the cause for the panic as the sub-prime loan saga at that time can really go either way. While I did not say that this problem is over, it is at least being contained at the moment. The aggressive cut of interest rates by US Fed obviously has done a good job to address the sub-prime problem to certain extend. As to how much it has really helped is arguable but it has at least help to boost the investors and consumers confidence. The best news for businessmen in other sectors is that with a lower interest rate, it means that their cost of doing business is now lower than before and this is very positive to those sectors that already enjoyed good growth.
A lower interest rates regime would be extremely stimulating for emerging markets as the domestic economy already busting with activities. Take Singapore market for instance, the property sector is growing at double digits and the GDP is expected to grow at the high end of 6% to 9% for 2007. This bullish view has already reflected in the record high of the Singapore Straits Times Index. To top it all, liquidity is every where. Yes, we have abundant of liquidity and the scenario that I have just described merely gives investors a good reason (or excuse?) to buy up the markets! If markets continue to surge for the next 1-2 weeks, watch out when we are nearer 19 Oct. Other than a speed bump on 19 Oct, we should have a relatively smooth ride toward the end of the year, of course albeit unforeseen circumstances. Oh yes, also watch out for the next FOMC meeting on 30-31 of Oct.
Continue to ride on this liquidity play and perhaps have a good harvest at the end of the year. 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 2nd, 2007
NW Teong
As mentioned in my blogs last week, regional stock markets are expected to fly in view of renew confidence in the stock markets as well as a surge of liquidity. Please see the charts for STI and HSI as follows:
The official formation of a giant fund by the China government, the China Investment Corporation with deep pocket to the tune of US$200b which is slated to invest in regional markets has further spurred this optimism in the markets. This coupled with the gradual (but surely) opening of the door for local Chinese to invest in overseas markets has provided the icing of the cake for investors to rush in to ride on this huge liquidity surge (a tsunami in different sense). If you recall my Master Rider Investment Philosophy, “Stock investing is just like surfing. You need to choose the right location (i.e. the right stock) and the right time to go in. More importantly, you need to be disciplined and skillful in wielding your knowledge and experience to ride the waves in order to have maximum fun (i.e. profits)!” This is precisely what investors think they are doing, positioned themselves well for a big splash throughout this final quarter of year 2007.
While enjoying the fun, we have to be mindful of event risk. October would still be a volatile month as far as equity is concerned. However, other than October, final quarter has historically produced the best returns as compared to other quarters of a year. Wishing all of you a bumper crops in this final quarter of 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.
October 1st, 2007
NW Teong
Yes, today is the last trading day for 3Q2007. What will fund managers do on the last day of a quarter? Normally, fund managers will need to monitor their portfolios very closely especially when a quarter is coming to an end. This is obvious as their performance is most likely reviewed on a quarterly basis (some on monthly basis). Common sense will tell you that for those fund managers that already enjoyed good out-performance in their portfolios, they will try their best to enhance that performance. In short, they can choose to sell some of their portfolios so as to lock in the performance if they feel that the valuation is rich and have little upside from now. Alternatively, they can do what is known as window dressing (i.e. push up prices of their key holding stocks) if they intend to hold their portfolio for quite some times. Of course, which action fund managers take will have to tie-in with their investment strategy for 4Q2007, i.e. the coming final quarter of year 2007.
With the regional stock markets at record high, we are more likely to see some profit taking than window dressing. However, with the bullish view in stock markets in the 4Q2007, fund managers are likely to re-allocate funds into the stock markets again. This is also a time for them to re-balance their portfolios. Hence, any proceeds from the profit-taking activities today (if any) are likely to flow back into the markets when 4Q07 starts next week. In fact, some funds have started to re-balance their portfolios few days before the quarter ends. Please note that funds may take one day or up to one week to execute their 4Q investment strategy. In short, we might see some increase in market volatility in the next few trading days. Of course, like you and me, fund managers are also mindful of the jinx month next month (Black Monday 19 Oct 1987, its 20th anniversary this year!).
Continue to ride on this liquidity play which of course was mainly triggered by the aggressive interest rates cut by US Fed. Short-term (three month’s view) positive, long term still need to stay cautious. 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.
September 28th, 2007
NW Teong
The global stock markets have played up well since my blog of “Surge of Liquidity” published on 20th Sept 2007. Regional indices such as Hang Seng Index, STI have reached historical record and even Dow and Nasdaq have risen so much so that they are just a whisker away from their recent peaks achieved in the middle of July 2007. In my blog of “Surge of Liquidity”, I have argued that the key beneficiaries of this liquidity driven bull run should be the merging markets, especially those in Asia. Please re-visit this blog to refresh your memory! As mentioned before, stock markets should be in good shape all the way till end of the year albeit unforeseen circumstances. Of course, as a cautious investor, we have to be mindful of the markets when the anniversary of Black Monday is coming near. We don’t call October as a jinx month for no reason!
As in any liquidity bull run, all big blue chips would have a good run first, follow by mid-caps, then the last stage will always be dominating by the penny stocks. Let me repeat my call on 20th Sept 2007 as follows:- Ride on this liquidity play and perhaps have a good harvest at the end of the year. Cheers!
Master “The Essence of Stock Investment” and ride towards the journey of your financial freedom! 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.
September 27th, 2007
NW Teong
Yes, some tech investors get a little upset on the latest North America Semiconductor Book-to-bill ratio of 0.83 times for Aug 07. This reading is the same as July’s reading. Yes, this ratio is still less than one which means that the amount of orders received is still lag behind the amount of shipment. In short, there is no concrete evidence of a recovery, not yet. At most, we can say that it is trying to find a bottom.
I am cautiously optimistic at this moment as I feel that this ratio is at least not worst off as compared to July’s reading. There is a good chance for this ratio to improve in the next couple of months in view of a cyclically a stronger quarter in the final quarter. This is in addition to the positive impact due to a recent higher cut in interest rates. Instead of a spike up, I think the recovery would be more gradual looking forward. Hence, we should not be too disappointed with the latest data. In short, there is no change in my bullish short term view on tech stocks. Cheers!
Master “The Essence of Stock Investment” and ride towards the journey of your financial freedom! 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.
September 21st, 2007
NW Teong
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