Thursday, May 3, 2012

Half-Filled or Half-Emptied ?

In my report Recap 2011 & Looking Ahead 2012,  I mentioned year 2012 will be a scenario whereby whether investors see the situation as half-filled or half-emptied scenario.  At this moment, we are indeed in that situation.

1. EU debt crisis since last year October hitting a boiling point, situation has improved since then but now new issues starting to pop up.  With all the austerity measures being enforced by the EU leaders, this has impact the growth prospect with countries like UK (not part of the Euro nation), Spain, Greece, Croatia, Belgium, Cyprus, The Czech Republic, Denmark, Italy, The Netherlands, Ireland, Portugal and Slovenia all entering double-dip recession.  As a whole Euro-zone itself is in recession too.  Investors are now questioning whether France and Germany will follow suit into double-dip recession.  On the surface, investors will fear more will be coming for all the EU nations but flipping over to the other side of the view, EU leaders might be shifting policies to focus on growth before the recession get worsen.  With a series of elections in EU and after the outcome of the elections, that could be the better time for EU leaders to refocus back to growth policies.  It is nevertheless one of those whether the glass is half-filled with water or half-emptied.  While not ruling out for further recession damage to EU nations in the months ahead, investors should also start to keep the option opens that EU leaders will once again getting together to tackle the growth issue and once they getting their acts together, it is about time for EU economy to rebound, which will no doubt benefiting to the rest of the world.

2. China with its current status of economy growth is another case of whether the glass is half-filled or half-emptied.  For past months by looking at the PMI data one might discover while the official PMI data still showing China manufacturing activities are expanding (reading above 50), the HSBC flash data however were pointed at the opposite direction (with reading all came in below 50).  This has getting investors to get confuse is China going for a hard landing or worse has yet to come for China.  One need to note that the HSBC flash data mostly consists of SME while the official data surveyed from big to small companies in China.  Also despite the 2 opposite views of the data, it is also worth noting that both set of data are showing improvement from the previous month.  If by looking at both set of data, it can conclude that China economy is going nowhere but if you flip over the view, it could be different outcome.  Normally, for the traditional economy recovery or bottoming, the typical sign is for the bigger companies (with healthier financial sheet) to lead the way to recover by start producing series of good data while the laggard and small companies (SMEs) still trying to find a footing and some of the weaker SMEs might not even survive during this stage.  By relating this typical scenario to the 2 set of PMI data, it somehow quite fit in nicely indicating China economy could be in bottoming phase or early recovery stage.  A recovery in China economy might be a good news to rest of the world but be not overly optimistic about it.  Firstly, the EU debt issue which resulting in couple of EU nations and Euro-zone in recession will have impact on China export activities which forms part of the cuntry growth.  Secondly, Premier Wen Jiabao in February 2012 has lowered the forecast for China GDP to +7.5% and China is in the process of shifting their growth model to consumption based.  Even a recovery of China economy will not get China back to the double-digit growth days.  A China economy recovery will benefit rest of the world but only on a selective sectors basis.  Another plus side to China is the Chinese Government in the past has been tightening sharply to curb rising inflation and hence on their hands, they have lot of room to do monetary policies should the economy fails to recovery.  Therefore, investors should keep the option opens that China economy is in the bottoming or early recovery phase rather than still debating whether China will go into hard landing or not.

3. US economy has been on a recovery path since last October with unemployment rate also coming down.  This has prompted analysts in having a view that US stocks are still cheap (especially with corporate earnings has been positive for past months) and that is perhaps the glass is half-filled scenario.  Looking at the macro picture, the situation could be a glass with half-emptied instead.  US has a high debt level in which it required to raise the debt ceiling last August and despite unemployment rate coming down, the figure is still consider high in which they still have not fully recovered all the jobs lost in 2008.  Many has citing need another round of QE but do think carefully, the effect of QE1 and QE2 in creating jobs basically is a failure and what's so special that should there be a QE3 it will get the job done ?  US employment situation need to be solved politically ( Government spend on infrastructure to create jobs ) and so far nothing has been done in the political area to tackle that.  While many analysts might be looking the positive development in US economy lately, do keep the option opens that US economy could falter if nothing is done by the political leaders.  Cheap in US stocks now ? Do think carefully.

Investors are advised to keep all options open at the moment for the global economy.  Not just pure thinking that the glass is half-filled instead has the option that the glass might be half-emptied actually.  Careful selection of stocks, invest in companies that you most familiar of ( in term of the companies' business ability and financial status ).

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