Sunday, April 1, 2012

Market Analysis -- 1st April 2012

FTSE STI closed 1Q2012 at 3,010.46, up 13.76% for the year and up 19.37% from the low of 2,521.95 in 5th October 2011.  The rebound was pretty much due to EU debt stabilizing, US economy showing strength of recovering and Asian countries starting to loosen monetary policies to spur the slowdown in economy growth.  While seeing the brighter side of the global economies now as compared with 6 months ago, do remind that the worst might be over but still have distances away from every single problem being totally resolved and global economies back to the good old rosy days.  Hence, the stand of to remain cautiously optimistic and not being overly optimistic or pessimistic still remain status quo.

The past 6 months events were already history and not something that could change that now, investors should look forwards of events and news that could either continue to improve the global economies situation or we are back to trouble again.

1.  EU Finance Ministers have just approved increased the EU firewall to 800 billion euro over the weekend in a meeting in Copenhagen.  Whether that news is good or bad still debatable as question will remain whether that amount is it still too small when catering of the debt of Spain and Italy.  Nevertheless, looking at the bright side, that is another step towards the right direction in resolving the EU debt crisis.  Note, as mentioned before, the EU debt crisis will take time to resolve and is not something that will get resolve overnight.  Some are probably talking about "printing money" well to put it bluntly and frankly, that is only a short-term solution and not a reliable to solve the crisis.  What the EU leaders did now buy pushing debt nation to reform and restructuring is the correct way despite it takes time.

2. Spain could be the next EU country to focus on when dealing with EU debt nations.  This could be true when market lack of news and investors start switching attention back to Spain's debt.  That is then whereby whether Spanish Government could successfully carries out the reform as per target and also how investors' confidence is with the current size of the EU bailout funds.  That would have some impact on the global stock markets and investors do put that option in mind and monitor the situation.

3.  Greece has successfully approved of the 2nd bailout funds and avoid a default last month despite private investors have to take a at least 50% haircut of it.  While investors might have put Greece's debt issue away but do still have the option that Greece could ask for the 3rd bailout later, Greece could default and exit Euro in an orderly manner.  As mentioned, the default of Greece and exit of Euro should be a better strategy for Greece to regrow its economy in the long run.  Good for the nation and good for Euro.  Do keep that option open and should it happens and occurs in an orderly manner, any panic reaction to global stock markets is overly done and that is the best opportunity for value hunters.

4. In February, China's Premier Wen Jiabao already lowered China economic growth forecast of the year to +7.5% indicating as China faces with slow growth due to impact from EU and US.  At the same time, China also trying to shift its economic model from relying on export to consumption based.  With a consumption based economy model, am afraid one can't achieve that sparkling more than 10% GDP growth as the Government has to do a balance between inflation and citizen income level.  Do also note that market should not over react to news or data that pointing to China economy slowing down as that is being considered by the Chinese leaders already.

5. US economy is improving without any doubt but still long way to go to get back to the good old days.  Unemployment showing improving but they still yet to recover all the jobs lost in 2008.  US Fed pledged to keep low interest rate environment for another 2 more years to sustain the recovery and some even speculating a QE3 could be launched.  Put it frankly, it is better not to have a QE3 for US than having one.  QE1 and QE2 didn't work and what makes QE3 so special ?  US economy recovery problem is very much a political issue or that what US Fed could do on.  The Democrates and Republicans need to put country's interest first, putting aside political interest and work towards some plans to create more jobs and reduce the debt level of the nation. 

6. For 2Q2012, focus should be on Corporate earning for 1Q2012 which will be starting in 2 weeks time and economic data.  Investors should look at earning of companies for 1Q2012 as to how they fared against 4Q2012 rather than trying to compare with 1Q2011 or focusing on analysts' expectation.  What to look out for is corporate earning should either stay resilient or improving in 1Q2012 over 4Q2011 and that is the sign of global economy situation is on the recovery so that companies' businesses.  Nothing else is more important than that.  For economic data, similarly, investors should keep look out of sign of improving and not data getting worse on a quarterly basis ( 1Q2012 vs 4Q2011).  As economic data usually release every month and due to the fact that some month might have due to seasonal effect the data get distorted hence keeping track of month to month data might not be wise.

7. Of course there is always the unexpected news or events that could sudden change the global economic situation.  If it does happen then we could analyze on the impact so always keep the option of any unexpected events open at all times.

Global stock markets should still be in consolidating phase till June 2012 baring any unexpected events happening.  Should corporate earnings and economic data continue to show improvement on a quarterly basis, market will be biased towards the upside.  Should those fail to show sign of improvement, do not get panic first and over react to it, need to assess the underlying of the data before any conclusion can be made.  By June 2012, we should have a clearer and firmer picture of the global economies as a whole.

On Singapore, would like to bring your attention to 3 stocks, SPH, SingPost and ComfortDelGro.  Not a recommendation for you to buy into or whatsoever but take a look at the stock prices of the 3.  They have been slowing inching up despite the recent uncertainity of the market.  These 3 to most people are considered "boring" stock as their share prices hardly move from day to day.  What so special about these 3 stocks are their businesses are very much closely related to Singapore economy.  Newspaper publication, postal services and transportation are part of the daily necessity.  As a normal retail investor, you can see with your own eyes how the business of the companies fare like is there increasing postal mails daily, how thick is the newspaper and has the advertisements increase, how crowded is the public transport on daily basis.  These are the things which through observation that one can deduce how the businesses of these companies fare and indirectly affecting Singapore economy.  It is something in which you do not need to rely on analysts to give their view.  The strength of share prices of the 3 provide a good indication of the Singapore economy and that is not something to ignore of.  Remember should Singapore economy suffers, these 3 will follow too look at 2008 when Singapore economy was in recession, SPH fell to $2.50, Singapore $0.60 and ComfortDelGro around $1.20.

Lastly, something to advise investors is not to focus so much of what STI value will be.  There has been lot of focus of the 3,000 for STI.  Rather suggest investors focus on the individual stocks.

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