Monday, December 03, 2007

OK! Now Is Safe To Get Back Into Certain Markets!!!

Recent postings have avoided highlighting stocks of any kind as the markets were averse to equities in general. The only bright spot, HK/China, even had a difficult few weeks. However, there are sufficient signs that its OK to re-enter certain equity markets.

Global liquidity is still there. A good indicator is to examine the flow of funds in/out of certain fund types. The data on fund flows from the Investment Company Institute for October showed that global equity funds showed inflows of US$14.97 billion, compared to an outflow of US$3.71 billion from US equity funds. For all of 2007, global funds have recorded inflows of US$123.7 billion, compared with US$20.9 billion in outflows for U.S. funds. This further strengthen the funds away from US assets.

Much of the outflow from US equity funds was probably due to a hedge against a persistently weakening USD. As for China, the fears over inflation and out of control CPI seem to be properly discounted. We know for a fact that liquidity is still ample globally - they have to go somewhere. However, not all markets present the 10%-20% upside necessary for foreign funds to park their assets. If we were to reassess the global equity picture, we need places where: currency outlook is still positive; stock markets can see a 10%-20% upside over the next 6 months; and a reflating economy. With that in mind the best markets would be:

1) HK
2) Brazil & Colombia
3) Japan
4) China
5) South Korea
6) Vietnam
7) Thailand
At present levels, it is very difficult to see markets such as Australia, Canada, the US and Malaysia to register a 10%-20% gain from current levels.

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