Skip to main content

Equity Strategy 2H 2010 & Asset Class Returns As At end-June 2010

Just passed the halfway mark. REITs finally took a hit, is this the beginning of the double dip. Do I believe in the double dip, yes of course. Only that the dip will be more restrained, not a significant or prolonged dip. Things move in cycles and like pendulums. Share prices are the same, they will sing to one side, over swing a bit and the correct. This is because the data are but collection of human behaviour, and masses will never react perfectly. They will chase a share price that is running until it overshoots, and attract sellers to come in. When the balance shifts to the other side, you will see it overshooting on the downside again.


June was another rough month for risky assets, although the losses were considerably deeper with U.S. stocks from a dollar-based return perspective. REITs also took a hit: for the first time since the opening months of 2009, real estate securities dropped by more than 5% for the second month running.

Bonds held up well in June. This is probably due to the threat of deflation taking a toll on investor sentiment, the safety of fixed-income (even at unusually low yields) attracted capital flows last month like moths to a flame.

US equity took the hardest hit in June. Was this an adjustment to the European crisis and the Euro crisis? Probably. Was it trying to discount a flattening of recovery, probably. Was it due to funds closing their books and squaring off positions and waiting for the right levels to reloan in 2H, absolutely.

070110a.GIF

But what we all should be focusing at is the YTD figures. Commodities are down by nearly 10% and foreign developed stocks have retreated by more than 13% in dollar terms—the steepest decline for the major asset classes on a year-to-date basis through June’s close. There has been some flight to reserve currency assets, but US equity did follow suit, much of its YTD losses came in the month of June alone.

So we are giving back all gains this year and more. Is this a risk aversion period? I think the sell in May rang true and it coincided with the Greek, Hungarian and Portuguese malaise, followed by the weakening Euro, which threatened demand for exports from the rest of the world.



China had to do a lot of braking in its domestic economy and the Shanghai index reflected that for the past 3 months. Now they have to contend with pressures to have a stronger yuan as well.

Some may cite the fact that many governments have piled on too much debt and that will come back to haunt us. Well yes, but not so soon. No one is going to put a gun to the US and ask them to lower their debts within the next couple of years. While the same seems to be happening in Europe, it is mainly a sovereign issue not a corporate issue.

We are actually still in the midst of a newly created liquidity bubble. Thanks to Bernanke and many of the other governments, we have printed and poured too much liquidity into the global financial system. We are also locked in with globally benign interest rates. Tell me what do the above ingredients make?

But why the recent pullback. Well, even when you are driving a Porsche, you are limited to how far and fast you can go if there is a traffic jam. Be sure, we have a highly powered underlying liquidity revving its engines. We just need the traffic to clear up a bit: Euro steadying a bit; unemployment growth flattening out but not down trending aggressively; corporates continuing to put out good quarterlies; etc.

I have changed my views on the Euro, I think it will stablise here 1.25-1.30 and not go any closer to 1.00 to the USD. Herein lies the key. The Euro crisis may have blighted our views too much. Look closer, most of Europe's top companies are benefiting strongly overall. We missed the picture that this is more a sovereign thing. Many of the companies are already getting an 18%-20% boost in receipts (added competitiveness) thanks to the weaker Euro - we all know that that is more than double the net margins of most companies.



European industrial production actually rose 0.8% in April much better than the average forecast of 0.5%. One of the better leading indicators of economic activity is cargo carriers, Fedex's recently reported that Europe is seeing solid activity, very much different from the picture the media would have us believe.

China may be the weak link in 2H. In addition to the yuan, the high interest rates, the yet to subside property bubble, we now have a snowballing labour issue. The Honda-Foxconn developments should ensure a cascading and rippling effect on all labour wage demands across China, watch it balloon in the coming weeks.

I think US equity and emerging markets equity will be quite positive for most of 2H2010. I see the Dow testing 11,500 and the FBMKLCI testing 1,450 before the year is over.

Comments

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…