This will be the last Market Analysis for 2012. Since the last Market Analysis (29th Oct 12) till now, couple of important global events apart from local stories have taken place.
1. Obama get re-elected as President of USA beating Mitt Romney.
2. Greece finally get approved of the next bailout funds to avoid default and it also given extension of 2 years till 2022 to meet the debt-to-GDP ratio.
3. China economy finally showing momentum of recovering.
4. China changing of leadership with Xi Jinping taking over Hu Jintao as President and Le Keqiang replacing Wen Jiabao as Premier in 2013 in the once a decade leadership handover.
5. Japan will be holding an election on 16th Dec 2012 in which the LDP Abe is tipped to win after Japan economy sank into recession again.
6. US Fed expanded its stimulus program with the latest of bond buying worth US$45b/month and decided to keep low interest rate until unemployment rate comes down to below 6.5% or inflation not exceeding 2.5%; a no time-frame and open-ended policy on top of the QE3.
7. EU leaders finally agreed on the EU Banking Union supervised by ECB from March 2013 onwards.
8. US fiscal cliff is on the card of all investors now at the moment as US Congress has till 31st Dec 2012 to come out a deal to avoid the cliff else US risk going into recession.
On the local front, no lacking of news either.
1. OUE joined in the bidding war for F&N offering $9.08/share as compared to ThaiBev of $8.88 after F&N selling of APB to Heineken. The deadline of offer at the moment for both OUE and ThaiBev are 3rd Jan 2013 and 2nd Jan 2013 respectively.
2. Muddy Waters attacked on Olam causing its share price to crash citing Olam behaving like the failed Enron and time is running out for Olam before it goes belly up. Olam with no surprise put in defense by filing a law suit against Muddy Waters and proposed a bond-cum-warrant right issue to raise money to resolve its high debt level and negative cash flow status. The saga will continue to stretch into 2013 nevertheless. Refer to my analysis on Olam on 4th Dec 2012
3. Selective companies news also hitting headlines like SIA selling its 49% stake of Virgin Atlantic to US carrier Delta, SC Global owner offers S$1.80/share to privatize the firm and de-list it and its 2nd largest shareholders Wheelock Properties coming in to snatch up another almost 1% of the share at S$1.81/share citing the offering price is too cheap.
As it is another 16 days to end of 2012, global markets especially some Asian markets have been hitting new 52-week high (HSI, STI to name a few) recently in due to China economy gaining momentum in recovering (based on recent economic data) and optimism of US Congress will come out a deal to avoid the fiscal cliff by year end. US markets also seeing see-saw with markets tank after the 6th November Presidential Election (when attention soon turned to fiscal cliff) and lately rebounded to the pre Presidential Election. The fact of China economy recovering is a fact after few rounds of policies easing due to tightening to fight inflation in the past. However, the fiscal cliff is a different story. From now till end of the day, the one and only one event that is in investors' mind is none other than the fiscal cliff.
The fiscal cliff if not avoided will see tax increases for all and across the board spending cut in 2013 which could send US economy into recession. US Fed Chairman Ben Bernanke already said US Fed could do nothing to avoid the cliff and it is all down to the politicians (Republicans compromise with Democrates) to come out a deal to avoid it. US President Obama and his Democrates want a hike of tax on the top 2% rich while maintain the tax rate cut for the remaining but Republicans are not in favor of taxing more for the rich and instead wants to close the loopholes in taxes to generate revenue. Early sign of compromise was seen in end of November and early December but till now no progress on it. Global markets rallied recently in optimism for the fiscal cliff but that could change as time is running out and still a no black and white solution can been seen.
Starting from next week, investors can be seen getting impatience should still no progress and global markets after the recent rally could see pulling down. There are several possible scenarios for global markets from now till end of the year.
1. The fiscal cliff deal (be it short-term or long-term fix) could go down to the last second of the deadline and as such, global stock markets will be seen pulling back soon and might even enter panic mode of selling as the time ticks towards 31st December hitting a bottom and rebound from there.
2. Though no progress so far, global markets still feel with optimism and confidence of the deal can be done and continue to move up and after the deal is done, a sell on news will see stock markets pulling back.
3. The worst case, no solution by 31st December as the negotiation moves into 2013 to get it finally done and market will start to pull back until the deal is finally done. That will create a panic selling near year end in the stock markets.
4. The best case, a deal will be done before Christmas hopefully by end of the coming week and market can gather even more strength to further rally till year end.
How the Congress negotiation of the fiscal cliff works out still a question mark now and no one can absolutely sure of what is the eventual outcome. Therefore, it is wiser for investors to think of all possible scenarios and outcomes and plan their strategies accordingly.
Continue to chase the stock prices when market rally always pose more risk than patiently waiting for pull back and opportunities. A panic selling or capitulation in the stock markets is always the greatest opportunity. Do not rule out such scenario could be happening from now till end of the year.
At the start of the year I stated a cautiously optimistic approach for the year and still stand by that claim. Another note is while most are focusing on the fiscal cliff issue now, it is also time to think of strategies in term of investment or trading for 2013. As a preview of my usual beginning of the year analysis for 2013 :-
Maintain cautiously optimistic, stock markets entering last leg of bull, long-term investment should scale down to selective stocks only, investment must be capped at 50% of total investment capital available and lastly, it is a trading market with strict risk management. Beyond 2014, another global crisis which leads to global recession is very possible.
