Thursday, December 13, 2012

Equities' New Bull Run Started

The equity markets had a double boost last week thanks to Federal Reserve's QE3 (quantitative easing part 3). The Fed will start by buying $45bn worth of long term Treasury bonds and up to $40bn worth or mortgage backed securities each month till labour markets improve. The smarter move by the Fed this time is that its a continuous monthly action, and will continue basically till labour markets improve, i.e. drop in unemployment. These actions will go a long way to restarting a new uptrend for global equities. The combined $85bn buying will keep interest rates low for sometime still thus forcing more funds to seek out higher returns, e.g. moving into equities.

An equally important development was the weakening of the yen, which looked like the start of a sustained weakness in the yen. This has started a rush for Japanese exporters by investors. Following the QE3, it appears investors see no more need to hold the yen as a safety haven. That being the case, the Japanese economy badly needs the yen to weaken even more. Hence its a timely boost for Japanese equities as well.

The ringgit opened firmer against the greenback in early trade today following improved sentiment for risk appetite across the region, dealers said. At 9.23 am, the ringgit was quoted at 3.0500/0520 compared with yesterday's close of 3.0520/0540. The increased risk appetite was boosted by the US Federal Reserve, which in turn will benefit globally as the move will see more money being pumped into the world's largest economy. After a two-day meeting which ended yesterday, the central bank announced new stimulus, which, among others, will see interest rate decisions tied to unemployment rate and inflation. It would also keep short-term interest rates close to zero until the unemployment rate, currently at 7.7 per cent, dips to 6.5 per cent. 

Previously, the US Federal Reserve had said that interest rates would hover near zero until at least mid-2015. Besides, the central bank decided to introduce a replacement for Operation Twist, the expiring programme introduced last year of swapping short-term Treasuries for longer-dated ones. Previously, the goal of Operation Twist was to lower long-term interest rates to stimulate the US economy. This new asset purchase programme has been dubbed as quantitative easing four (QE4). With QE3 and QE4 together, the central bank will likely purchase US$85 billion a month of Treasury securities, stacking the Fed's portfolio with government-backed investments for an extended period. 
On the local front, the ringgit was mostly higher against other major currencies. The local currency rose against the Singapore dollar to 2.4980/5012 compared to 2.4984/5010 yesterday and appreciated against the Japanese yen to 3.6571/6612 compared to 3.6810/6856 Wednesday. It gained against the British pound to 4.9190/9229 compared to 4.9214/9256 on Wednesday but declined against the euro to 3.9839/9874 from 3.9713/9749 previously.

 The Starbiz had the headline as "higher risk appetite for ringgit", well, not really, its the start of a huge inflow of foreign funds. Thanks to the above factors, a lot of fresh funds have jumped into mainly indexed local stocks over the last few days. Many indexed stocks have just surged past their 52 weeks high or close to it: UMW, SK Petro, and most of the banks. The buying has been ferocious in local telco stocks. Generally the second liners and speculative stocks will take a backseat when the index stocks are surging. Once the indexed stocks have stabilised, you should see strong rotational plays in second and third liners.


lai said...

so, next CNY, shall we celebrate in East Ocean Ipoh Gdn South :)

Unknown said...

yr above article had assumed that the impact would be minimal as theres hardly any material amounts of foreign funds in the country.

I guess in just one month the risk levels for stocks have gone up a notch or 2 then.


bruno said...

Although I would like to agree that the markets are in for another bullrun,I would have to digress and stick to my ealier observations that the markets are in a distribution phrase,until proven otherwise.

First although I am out for the rest of the year,I am still watching on the sidelines,getting ready to come out running from the gates,Jan 2nd.And one thing I observed is the greenback going south.I think that we were lucky again to exit timely as most of the time.It needs strict disclipine to survived and be profitable.

One in a while I will tuned into the business channels for around five minutes,a couple of times a day.And every time I heard about the commentators so overly bullish,with many of them so overly confident of s&p index hitting 1,500 by years end.Santa claus and fiscal cliff rally whatnot.

Nowadays bulls overwhelmed bears by 6-1.Wait till it gets to 7-1 or 8-1.Then watch out.During the last days of Bush till today,the feds have been pumping QE1 -QE3 (unlimited),with operation twist squeezed in between.About a month before the US presidential elections the dow was above 13,800.It has struggled to be up these last few days and still under 13,300.I think that the bulls are running out of steam.

lai said...

we have a new market "leader" in PT Tin and FacB

bruno said...

Although I have been out for the last week till beginning of next year,I cannot understand have been trying to figure out this crazy markets.

First of all,the last dozen trades or so we have been profitable in all.We were totally wrong in our medium or longer term analysis,but never the less,we were banged on target short term.To me point of entry is most important than exits.And it is most satisfying to be profitable even when one is wrong.Just imagined what will be the profits if one is right.

First of all lets talk about Apple.Three or four months before the US presidential elections,the markets looks like it was in hot soup.Then Apple came to the rescue,making all time highs after another.Who,even the geniuses, would have imagined that the most heavily capitalised and sought after stock on this planet,after making historically highs after another above 700,would a couple of months later be trading just slightly above 500.

Technically speaking Apple is in very deep shit,and in bear market territory.Since it was the leader to the upside,how come it is not the leader to the downside.

Then the crazy euro.Since we exited the trade it has rallied almost over 300 pics.We would have been tamed not to trade counter trend if we were still in the trade.

Since been flat and unbias,I have been able to read much better in the market.Last Friday,the euro breached an daily inverted heads and shoulders neckline above 1.31.Whether this breakout is real,we have to wait for a consolidation.If so the next target is above 1.36.

Assuming that this breakout is for real,with the holidays coming up and the big boys in Europe getting ready for the holidays,we do not anticipate this target to be hit,until January or latest February.

Then the big bear,Apple.Expect an 75-80 dollars,slow and grinding correction rally into January or latest February to co-incide with the euro top.Not the 15-25 dollars whipsawing we have seen in the last couple of months.

The mild santa claus rally which will happen soon,followed by the fiscal cliff rally will reined in the bulls for a final hurrah.Most probably,I would be surprised if the markets will breach the 13,800 resistance.At the same time the dollar bear trap will be sprung.

This is the best scenario that I can figure happening now.I still think that the greenback is in a multi year bottoming phrase,and will be on a longer term bullmarket.Like wise the stockmarket will be in a multi year Chinese torture bear market,slow,grinding and painful.

PureBULL said...


All brokers n remisiers hope to see super bull run again.

My guru told me that there will never be any super bull run happening soon again.
But there will be some 5-10 stocks/cycle every year that will ran like super bull run !

Do u have any high level strategy, the likes of Zhuge Liang game plan to position for
those stocks? Yes or Yes ?

Great winners r born out of a weak mkt. After every sell down, the strongest stocks
that spring up to life will go on to be the next great winning stock = Ms Universe stock.
n they r few !

"Ms Universe" stocks must come from among 2 YEARS HIGH.
Just learned, it also must have an Ahkong fund buying at all times, i.e. our great EPF.

Yes, mkt is tough because there are so many stocks to choose from.
But if u have the RIGHT stocks, making money is easy or always.
Otherwise it is Wrong stocks with weak or wrong selection strategy.

scyap said...

Yes, the stockmarket is like everything else. When you least expect it, it will come crashing down. There is too much manipulations in the market and insider trading as well. Just look at the price increase of a stock before the privatisation announcement.