Saturday, March 3, 2012

Market Analysis -- 3rd Mar 12

FTSE STI ended the month of February at 2,994.06, that was a rise of 13.14% since the start of the year.  STI at the moment seem losing momentum and unable to cross the 3,000 level convincingly.  While it is still too early to conclude the recent rally has no more room to move up, it is still too early to conclude market will drop back to where it begins.  Market presently is doing consolidating, range bound, trending sideline merely.

In the past months, what fuel the market to rally was positive news from global economic data and issue from EU debt crisis but that does not mean investors can get overly optimistic as the underlying problems are still far from being totally resolved.  On the other hand, doing overly pessimistic is also not the way as underlying problems already identified and how serious those problems can cause to global economies is well known off that and global leaders are trying to resolve those problems working hand-in-hand.  As mentioned since start of the year, remains cautiously optimistic and that remains status quo.

Just want to point out a few of the events that recently happened in this analysis.

1.  Greece debt issue.  Greece has secured the second bailout funds on the condition it must meet the target of debt to GDP ratio of 120.5% in 2020 and private investors taking haircut of more than 50% as what initially agreed on of 50% in October last year.  The Greece debt issue might be taken off investors' mind for a while but the underlying problem still there.  Greece already in recession with GDP of -6% and unemployment rate hitting more than 20% is currently undergoing strict austerity measures to cut debt and with that question will be how Greece will generate economy growth and perhaps meeting the target of debt to GDP ratio of 120.5% in 2020.  As mentioned early this year, the option of Greece default and leave Euro is still there and should remain open for that option.  Greece should have been defaulted this time or even last year and it did not because the timing of default will cause disorder and chaos to the financial sector globally.  It will not be surprised that Greece could default somewhere down the road in an orderly manner.  The Greece saga is like 诸葛孔明退兵计之三十六计。For those who read the Chinese Romance of the Three Kingdom will know of the above.

Shu kingdom Zhuge Liang on his last venture to conquer Wei kingdom on knowing that he will be dying soon passed a retreat strategy to his successor Jiang Wei so that they could retreat without major damage.  Knowing that if news of his death will cause Wei kingdom Sima Yi to charge at them while retreating and resulting in heavy damage, he planned a fake statue of himself to appear to the charging Wei army to have an illusion to the Wei army that they have fallen into his trap so that his main army can retreat without heavy damage.  Indeed after news of his death leaked to the Wei army, the Wei army charging towards the Shu army and when Jiang Wei displayed the fake statue of Zhuge Liang, the Wei army was stunned and cautious that it will be a trap for them should they continued to charge forward, stop the charging and hence Shu army managed to retreat successfully without major damage.

Relating that to the Greece saga.  The retreat is like Greece defaulting and exiting of Euro.  EU leaders could be doing what Zhuge Liang is doing, planning for a way for a possible Greece default in an orderly manner somewhere down the road, buying time at the moment so that they could enhance the firewall ( increasing the EFSF and convince G20 nations to invest in IMF global bailout funds ).  Should a Greece default immediately, this will lead to panic and speculation that other EU debt nations like Portugal, Italy and Spain could be next and that is something the current firewall is not equipped to protect and what EU leaders cannot contain.  The option that Greece will default and leave Euro should still remain open and should the time comes for that, it will be an orderly default which has a lesser damage and impact to the global financial sector as compared to now.

2.  US economic data.  Problem originated from US in 2008 and till now still not totally resolved.  Despite the sign of labour market is improving lately, US still yet to regain all the jobs lost during 2008.  Economic data still mixed but biased towards the improving side so that is nothing to be overly optimistic about.  Many are hoping for US Fed for a QE3.  What can said is it is better not to have a QE3 than having one.  Should the economy is able to do self recovery let it be even though it is at a slower pace.  Giving a life support ( QE3 ) when it actually doesn't need one will not do the job and might have undesirable effects down the road ( when the extra money channel to the wrong channels ).

3.  Increase in crude oil price.  This perhaps is the latest event just like last year this period when crude oil price shot up due to Middle East unrest.  This time round, same old story again due to Middle East.  While last year, this event has led to stock markets panic selling but this time round the effect seems muted.  Same events but different situation.  Last year, inflation especially Asia countries were at record high and rising in crude oil price will push inflation further higher and render any chance of monetary easing.  This time round, inflation has eased considerably while some Asia countries also started some monetary easing.  As such, the spike in crude oil price though could lead to inflation rising but should be still shy from the record peak.  Transportation sector was the hurting party last year with the spike in oil price and this time round, they will still be affected but the impact might be lesser as company management after gone through last year that experience could be in a better position to cope with that.  So advice is not to jump the gun too early in reaction to the spike in oil price like last year this period.  Also note that only prolong period of high crude oil price can dent the global economy and not just a momentary spike.

4.  Myanmar.  This probably is the newest event and an event for the further.  As know of, Myanmar will be having election this year and with Aung San Suu Kyi going for the election and recent Myanmar's pledge to open up, this could lead to a new channel for companies to boast their growth in particular property sector.  A win for Aung San Suu Kyi will definitely open up Myanmar economy to outside world and should she fail to win again and as according to what the current leader's pledge of opening up, it will still be an opportunity for outside world to venture in.  Singapore companies will be in a very much better position than other countries to venture in and get a piece of the pie.  Property developers like Capitaland, Kepland and Citydev ( already have experiences in Vietnam ) should be the prime candidate to benefit from that should they decide to venture in.  These companies have the financial muscle to venture in and they need that to growth the company too.  Singapore as we all know, property market probably coming to a saturation point and China has no indication that it will be easing the housing curb soon ( their main culprit for the high inflation ) and Myanmar could present to these companies the best way to growth their business.  They might not be like Yoma that provide investors that stunning return within a short time frame but they will be less risk to invest in as compared to Yoma.  CapMallsAsia might be another one benefit from Myanmar situation ( but not as much as compared to direct property developer ).  Investors do monitor this event carefully.

In general as per what mentioned earlier, March to June stock market will enter consolidation phase and could be an opportunity for investors to re-enter and one strategy is to do the dollar-cost-averaging method and targeting the blue chips.  For what is the best price or time to buy ? That is a million dollar question.  One can only know if it has happened.  In doing dollar-cost-averaging probably is the best way to get it at the lower range of the pull back.  For those with TA knowledge, can look at various support levels and aim those levels to slowly dollar-cost-average.  For those with FA knowledge, looking at recent balance sheet and profit/loss statement should be able to derive a value where it is deemed cheap to invest in.  For those without much TA knowledge, the "kopi theory" probably is you best bet.  Find out the various cost of "kopi" you are comfortable and willing to pay for and aim at those.

Remember, one need patience to wait to buy, one need patience to wait to sell and in between ignore the noise.

1 comment:

  1. The biggest immediate risk is in oil prices. Due to the tensions in the Middle East with Iran. If Israel attack, oil will be at 220 dollars according to Nomura. In this case, there is a bad worldwide recession.