Wednesday, December 06, 2006

Big Picture Recheck

Equity markets, as expected, continued to bloom..., any scary movies in the near future?? Let's just examine a few notable developments in recent weeks affecting the big picture.

US Dollar - Sharp weakness, may be due to anticipation of lowering of rates by Fed. Fed may be tempted to do that soon due to the weakening housing starts and higher inventory. Particularly if the Christmas sales figures come in flat. How does that affect Asia? It used to be bad, now not so much. Most Asian currencies are willing to be a bit stronger to wave off imported inflation, and many considers it still OK to be a bit stronger without hurting competiveness or exports. The weaker dollar would ease pressure on Chinese yuan to appreciate at a faster pace. Bernanke would be welcoming on the easier US dollar. Paulson's hand is possibly evident here as he knows the US policy makers may be banging their heads against the wall asking the Chinese government to appreciate their currency faster, and at the same time, he knows the Chinese side have their hands tied in moving the yuan higher owing to possible consequences such as bad-debts implosion, unemployment and a hard landing if yuan rises too fast. So, good development for most everybody.

Democrats - Markets is not too bothered with Democrats holding a stronger hand as mainly the healthcare, oil giants and CEO paypackets/hedge funds regulations would be adversely affected. With the exception of healthcare, the other 3 things may actually benefit the markets. Non event.

Asia Rising - There is a strong perception growing that Asian bourses will have an excellent year in 2007, and may actually perform better than developed equity markets. Currency gains is the kicker also. All in, the underlying support will be from the continuing double digit corporate profit growth in most Asian bourses. The shackles of being tied to US economy is not so strong this time around. Weakness in US economy may not affect exports that much as there is better diversification and globalisation of global trade with the emergence of China/India and a stronger EU, plus better trading ties with South American nations.

Japan - The sumo loving nation may be under the radar for most of 2006 but I expect the Nikkei and Topix to lead the charge of Asian bourses over the next few weeks and months. Capex increased 11.9% in the quarter ended Sept. 30. Meanwhile, profit growth remained strong at 15.5%, for the 17th-straight quarter of gains. That is very significant because oil prices only started to fall in August, so we should be looking at fantastic profit growth figures for 4Q2006 and 1Q2007 just on the lower fuel price alone. The flow on domino effect being reversed by the sharp correction in oil prices makes Japan stocks pretty interesting.


sopskysalat said...


although nikkei has underperformed the market as a whole against the asia equity, going forward, there is much interest rate risk. you are still confident of the nikkei 225 going to hit new high?

Jomaropol said...

Once again Salvatore, great call on Konsort. It moved the very day after you made the call. Too bad I did not have time to buy it, I did not expect it to move that fast.

Jomaropol said...

Private equity is on the boom in the US. Flushed with cash, competiiton for good IT investments has never been greater.

If the Dow can sustain these 1-2 years, a Nasdaq rally may be in the making.