Wednesday, September 2, 2015

Market Analysis -- 2nd Sep 15

Global economy and stock markets have turned from bad to worse since June.  Economy wise, apart from US still showing a little sign of improvement, rest of the world led by China is showing slowdown and the worst of it both Brazil and Canada are officially in recession.  Stock markets wise did not fare better either as global stock markets are either in correction terrority or bear market.  With that the optimism from some 8 months ago evaporated and some wondering is this the start of another global crisis ?

Firstly, the forever ongoing question when will US Fed start to hike rate.  As we move into the month of September in which most and probably US Fed also inclined to start the first rate hike suddenly take a pause due to the current market volatility and the status of global economy.  Most miss the bigger picture of regarding rate hike.  The US rate hike is afraid another behind the curve move now.  The rate should have increased some 6 months ago or totally delayed until global economy is back on sync (global monetary policy is totally out of sync which US Fed considering tightening while rest of the world is considering more easing).  At this junction any action just deemed neither here nor there.  Should US Fed decide to go ahead this month, the chance of another QE4 somewhere down the road is very much possible and thus making this action looks totally stupid.

China economy continued to weaken and the latest move of Chinese yuan devaluation just tipped the iceberg for a global meltdown in the stock markets.  Concern now is whether there will be a hard landing in China economy.  Note if there is one, being world number 2 economy, will have impact on US economy so the current positive data (of US economy) eventually will mean nothing.  The impact of China slowing down and yuan devaluation still remain unclear but most anticipating for the worse and that is why global stock markets are in a slump now.

Crude oil price after months of stabilizing starting to get volatile again and the downside biased is getting stronger and stronger.  On the other hand, the low crude oil price which supposes to benefit and boost the economy of oil importing nations fail to be materialized and that further added the bearish sentiment.

Looking at the status of global economy and stock markets, it is not surprise the start of next global financial crisis and bear markets is in the mind of some.  It is after all one of the scenario, Big Bear Strikes Back, which I have mentioned.  However, don't just to conclusion too early as there is no clear data to show we are there and this could be The Lost Decade scenario too.  Without justified data to show another crisis is happening, let just put the current situation as The Lost Decade scenario and not get overly reacted.  Bearish it might be but not to the extreme of overly pessimistic.  Under The Lost Decade scenario, a bottom need to be found and that should when global Central Banker again starting to provide more monetary easing.

Singapore economy unfortunately was caught in the present turmoil with one leg already in technical recession.  It will not be surprising that it will the first in this region to enter a technical recession given that its current economic model is outdated and full of flaws and cracks.  As a net oil import nation there seem to be no benefit at all from the current low oil price but instead the O&G sectors are badly hurt which drags down the economy.  Already facing low inflation and with the property price still yet to achieve the targeted cooling effect, property cooling measures could not be eased and that further lead to slowing down of economy activity.  The current monetary tool (using exchange rate to juggle between import and export) from MAS also appears to be losing its effectiveness and question should be asked is it still the right tool going forwards ?

From investment perspective, it might be too late to sell now and not wise to defy to odds and started to buy as we are still unsure of how much more downside will there be.  The appropriate way now is to adopt a strategy to salvage something from the current market turmoil.  That strategy has the ability to reduce the initial capital or increase holding without additional capital, a better solution to either sell holdings now suffering loss or put in additional capital to buy more but to see the price drops further next.

What urgently and rightfully needed now is global Central Bankers to come out a more synchronize monetary policy to tackle the global economy.

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