Saturday, January 14, 2012

Market Analysis -- 14th Jan 12

Global markets have taken a turn since the start of 2012 and on an uptrend all due to optimism about US economy, EU debt crisis issue and China potentially of monetary easing policies.  While the optimism is very much justifiable but investors should not be over optimistic and rather on a cautiously optimistic mode as the underlying of those issues is still far from over.

US economic data have been showing improvement lately in particular the ever worrying employment situation appeared to be recovering.  Despite all those, US still far from fully recovered from the 2008 crisis.  The Operation Twist stimulus program by US Fed launched in September 2011 could be the one that currently supporting the recovery.  While should not rule out the failure of Operation Twist after expired like the previous 2 Quantitative Easings in 2009 and 2010 ( when nothing has been actually improved after printing so much money ), it is also too early to conclude it is a success.  At current rate of jobs creation, it will take another at least 2 years for US to fully recover those jobs lost during the 2008/2009 periods.  US desperately needed to create massive jobs and from current situation the probably only way is through President Obama job plan.  When people have no job, they will not have the money to pay off their loan/debt and have the extra to spend to eventually spur the country economy.  That is the most fundamental and basic of economy and US must work towards this direction in order to get US back to the good old days.

Since June 2011 till now, the EU debt crisis still appear on and off from investors concerns and despite the progress from October 2011 the crisis still miles away from being totally resolved.  Greece getting second tranche of bailout with the condition of private investors taking 50% haircut, countries ( Greece, Italy, Spain, Portugal ) with changing of leadership and implementation of austerity measures to reduce the debts are currently ongoing, Germany-France proposed of fiscal union of treaty changes to implement strict rules for EU ( in particular the Euro 17-nations ) to adhere to in order to save the Euro from being break off, and ECB's effort in lowered interest rate, extending bank lending to 3 years and conservatively bond buying to save the EU debt crisis.  The reform/restructuring method so far being adopted is never a quick solution but rather a long time frame effective way.  Hence, investors should be mentally prepared and not be over optimistic should any other progress has been made along the way.  One way or another and eventually the crisis will get resolved, it is just a matter of time.

China who has been fighting high inflation last year felt the impact of slower growth due to problem in US and EU that impact on its export activities and at times investors were worried that China might hit the hard landing.  Inflation has been cooling down lately but still far from the target set out by Chinese Government.  Nevertheless, the cooling down of inflation has brought some room for Chinese Government to start easing monetary policy to prevent the economy from hard landing.  Bank Reserve Required Ratio has been cut lately and expect more to come in the rest of the years.  China still have the ability to cut interest rate should RRR cut fail to boost economy growth and not to mention the 4 trillion yuan stimulus package or other similar package that was launched in 2009 to spur its economy growth.  China market has been under-performed for past months as compared to rest of the world mainly due to weak growth, high inflation and high landing scenario and perhaps it is about time China stock market should bottom and be ready for the rebound like in 2009 that out-perform rest of the world. 

Singapore being a small country with open economy model is very much affected by events in EU, US and China as the weak export hurts into the growth.  Advance estimate, 2011 Singapore GDP came in +4.8% slight below the 5% market as compared with +14.7% in 2010.  Singapore Government projected growth for 2012 is between +1% to +3%.  Unless there is a sudden change to the upside to the global events if not 2012 GDP will remain weak as what was predicted and worst case might hit recession should global events turn to the worse.  Singapore will be holding 2012 Budget on 17th February 2012 and investors should pay extra attention to that as Singapore Government could be rolling out measures to help business to tide over the slow growth period.  A 4-billion budget plan like in 2009 is not possible for the time being as Singapore has not gone into recession but Singapore Government will not be just sitting there without providing aids to businesses to tide over the difficult times.

All these events might not be pointing to a more worse periods to come by in the rest of the years but investors should also not be over optimistic about everything will get totally resolve either.  Cautiously optimistic is the correct mentality now.  Cautiously optimistic might not bring a wild bull rally to stock markets but it could slowly edged up to a 10% to 15% level.  Investors should keep all options possible now ( all the worst case and best case ) as 1H2012 shall be a critical periods.  By 1Q2012, investors should know of final FY GDP for global economy ( has EU gone into recession and if so how server will it be, has US economy still on track, has China hit the hard landing scenario and how badly corporate earnings were been affected by the global events last quarter ).  Come 1H2012, more clearer picture should surface on global economy and corporate earnings due to all those events with has 1Q2012 been worse off 4Q2011 or gone into recovery mode.  Not even investors but policy makers then should have a clearer picture of whether should stimulus package being launched then too.

Like mentioned earlier, current situation is like a glass of water whereby one can have view of it is either half-filled or half-empty and with all possible scenarios taken into account, appropriate strategies being applied and that will reduce risk in stock markets and might even find great bargain in the appropriate time.  What are all the possible scenarios then ? Well will be impossible to list all but those mandatory one that investors should factor in are :-

1.  Global stock markets have hit the bottom in October 2011 ( this case I have mentioned in October analysis and till now none of the analysts have yet to step forwards to claim so but that doesn't mean it is not ).   By having this option, investors will have the risk to be able to buy on dips.

2. Global economies ( stock markets ) will be in an rally in 2H2012 should data shown in 1H2012 that the worst is over.

3. Global economies ( stock markets ) still sluggish till end of 2012 if data shown in 1H2012 still relatively flat.

4. EU debt crisis hit a point whereby one of a few of the nations have to leave the Euro ( with Greece as possible ), if so, global stock markets should have short-term knee jerk reaction but effectively as a long term view it is good for the Euro.

Have left out possible scenario for US as 2012 is Presidential Election year and lot of politics will be in play and made in complicated but investors just have to strongly reminded that US need massive jobs creation without have to go into any stimulus program like QE3 ( printing more money ).

As a whole for the rest of the year, it is not a time to be overly optimistic or pessimistic but cautiously optimistic bias until a clearer picture of the global economies is being confirmed.  By so, long term investors could be undergoing a period of buy on weakness or dollar-cost-averaging methodology and have the stomach to ride through the calculated risk.  Short-term investors/traders if unable to have the ability to hold should be nimble and not be over greedy with profit if not will turn into loss in no time.  Investors should have a clear mind of whether when you buy into the market it is for long-term or short-term and stick to the strategy/plan strictly.  Fickle minding between long-term and short-term could see profit become loss or selling off too cheaply a great bargain.

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