Skip to main content
History & Stock Markets
We Are At Crossroads

Now that most equity markets are near or just surpassed their all time highs, most investors are loathed to put forward their opinions on the near future direction of equity markets. Most had been wrong for the past 6 months as they expected markets to be weakened by the high oil prices and the mess in Iraq.

As mentioned before, I am still bullish on equities globally, in particular on markets where their currencies are still deemed undervalued. That's because growth in earnings will be there, but equally as important is the inflationary aspect. The more undervalued your currency is, the better it is to withstand imported inflation by rising in value and yet not hurt your export competitiveness much.

While we are standing by and watching equity markets at highs, there has been a general wave of increase in almost all asset classes. Commodities did their thing over the past 24 months, and even with the correction, the prices are still relatively high. The other notable class of asset which rose enormously is real estate. Especially at centers of financial money making. Has anyone try to buy an apartment in London or New York, and just look at the up-upper class property launches in Singapore over the last 6 months - you'd think that the top 10% popoulation in Singapore earns S$500,000 minimum a year!! The St Regis Residences developed by City Developments sold at S$3,030psf or RM7,086psf (or US$1,970psf or HK$14,770psf). Surprisingly, real estate prices did not rise by that much in HK or Japan... yet.

They point to a lot more liquidity swishing around. Despite in rate increases over the last 2 years in the US, there is still ample liquidity in the system. China has plenty of cash and so too does the oil producers. When painting by Klimt can go for US$137 million, when money chases after ugly art, something is not quite right. However, this time around, most equity markets are still not at excessive valuations. As far as I can see, I can only be wary of one possible time bomb in all asset classes, and that is the over-exuberant valuations of Chinese banks. There is still a lot of shitty stuff in the provisions and those items not classified as NPLs yet, and the new loans growth should be viewed suspiciously as the risk inherent in most of the loans are tied to the excessive property prices in Chinese markets. One can just imagine the dominoes thingee... and no one seems to want to write anything bad about Chinese banks or the over-glorifying-performances by all parties involved in IPOs.

For the last 2 years, most central bankers would promote easy money on fears that higher oil and comoodity prices might choke off growth or even result in depressed economies in their own sphere - that fear is largely gone now. So, the way forward is to see if central bankers will be tightening soon. However, most of the world looks to the Federal Reserve for direction. And, surprise, surprise, we just went past the mid-term elections, which means we are in the final two years of a presidential term. Believe it or not, since 1923 there were 23 mid-term elections and for the next 15 months, 21 out of 23 times the equity markets were up. They were up by an average of 23%.

I don't know about you but 21 out of 23 times is a pretty good strike rate. That's an incredible 91% strike rate. One can even explain it as the final two years of a presidential term tend to see markets performing better because deliberate policies and things tend to converege and happen more often. In fact the only two times out of the 23 when the markets were negative were in 1938 and 1948-49, no need to elaborate further I guess.

What the historical data confirms is that while we have strong surges in asset prices, and liquidity is ample, chances are the Fed would still maintain a relatively easy money period owing to fact that we are moving into the last 2 years of the presidential term. Plus the sharply lower housing starts in the most recent US figures would at least delay any raising of rates till at least March-June 2007, if there should be one. One final comment, the fact that Paulson is there at the White House would ensure a very positive global trade/biz relations with China, Japan and the rest of the world - in fact, I expect him to revamp the Sarbanes-Oxley thingee to the betterment of the US markets very soon as well.... and that can't be a bad thing.

Hard to believe, but most equity markets should have a clear road ahead, till March 2007 at least. Over and out.

Comments

simon_alibaba said…
so what are you expecting bursa klci doing next year?
what is your best pick?
Salvatore_Dali said…
well, hard to look too far ahead but 1,120 is likely for KLCI by March 2007, after that will have to see what happens over the next few months ...

you can get an idea of what i like on a medium term basis (1-6 months) based on what i blog on: e.g. nextnation, mah sing, pelikan, ijm, pos malaysia
scicom, commerce
...

best bet... nextnation and mah sing
swifz said…
technology, commondity, back to stock, next will be currencies!
swifz said…
technology, commondity, back to stock, next will be currencies!

Popular posts from this blog

My Master, A National Treasure

REPOST:  Its been more than two years since I posted on my sifu. This is probably the most significant posting I had done thus far that does not involve business or politics. My circle of close friends and business colleagues have benefited significantly from his treatment.


My Master, Dr. Law Chin Han (from my iPhone)

Where shall I start? OK, just based on real life experiences of those who are close to me. The entire Tong family (Bukit Kiara Properties) absolutely swear that he is the master of masters when it comes to acupuncture (and dentistry as well). To me, you can probably find many great dentists, but to find a real Master in acupuncture, thats a whole different ballgame.


I am not big aficionado of Chinese medicine or acupuncture initially. I guess you have to go through the whole shebang to appreciate the real life changing effects from a master.


My business partner and very close friend went to him after 15 years of persistent gout problem, he will get his heavy attacks at least…

PUC - An Assessment

PUC has tried to reinvent itself following the untimely passing of its founder last year. His younger brother, who was highly successful in his own right, was running Pictureworks in a number of countries in Asia.

The Shares Price Rise & Possible Catalysts

Share price has broken its all time high comfortably. The rise has been steady and not at all volatile, accompanied by steady volume, which would indicate longer term investors and some funds already accumulating nd not selling back to the market.


Potential Catalyst #1

The just launched Presto app. Tried it and went to the briefing. Its a game changer for PUC for sure. They have already indicated that the e-wallet will be launched only in 1Q2018. Now what is Presto, why Presto. Its very much like Lazada or eBay or Alibaba. Lazada is a platform for retailers to sell, full stop. eBay is more for the personal one man operations. Alibaba is more for wholesalers and distributors.

Presto links retailers/f&b/services originators with en…

How Long Will The Bull Lasts For Malaysia

Are we in a bull run? Of course we are. Not to labour the point but I highlighted the start of the bull run back in January this year... and got a lot of naysayers but never mind:






























p/s: needless to say, this is Jing Tian ... beautiful face and a certain kind of freshness in her looks and acting career thus far



http://malaysiafinance.blogspot.my/2016/12/bank-negara-may-have-switched-on-bull.html


I would like to extend my prediction that the bull run for Bursa stocks should continue to run well till the end of the year. What we are seeing for the past 3 weeks was a general lull where volume suddenly shrunk but the general trend is still intact. My reasons for saying so:

a) the overall equity markets globally will be supported by a benign recovery complemented by a timid approach to raising rates by most central banks

b) thanks to a drastic bear run for most commodities, and to a lesser extent some oil & gas players, the undertone for "cost of materials" have been weak and has pr…