Sunday, January 22, 2017

Recap 2016 & Looking Ahead 2017

Global markets were on a roller coaster ride in 2016 starting in really bad shape with market crash shouting all over the places but ending 2016 with a bang (for most markets in particular US).  FTSE STI however was flat for the year despite all the roller coaster ride and great volatility, ending with a dip of 0.068%.

Global markets suffered major sell off in January 2016 due to fear that China currency, the renminbi could be devalued further and FTSE STI fell below 2,600 before bottoming in February.  On the road to recovery, ECB provided further support in March when it maintained its low interest rate policy and expanded its QE.  Then came the shocker event in June when British voted for an exit from EU, triggering another global markets sell off thereafter.  However, the sell off was short-lived as markets rebounded strongly until September after investors digested the impact of Brexit and realized it might not be as bad as it was initially thought.  Following that was another uncertainty that hit global stock markets, the US Presidential Election in November.  As the election date getting closer and with news that both Democratic candidate Hilary Clinton and Republican candidate Donald Trump were in a neck to neck race, global markets suffered another sell off from September till November.  The outcome of Donald Trump defeating Hilary Clinton to win the Presidential Election created another short-lived selling off before the grand rebound to finish 2016 on a high note especially US stock market.  Crude oil price finally move above US$55/barrel after OPEC and non-OPEC nations agreed to a output cut in December 2016.  The move is nevertheless a relief to the oil crisis the lasted for the past 2 years.  The move was a welcome one but could be too late for some (in the case of Singapore O&G companies already taken the hit with some have to default on their bonds).  The last event for 2016 was US Fed finally hike rate in December which was pretty much expected.

To many, Brexit was a surprise and shocking event perhaps due the influence of most global leaders that spoke of the economic impact should Brexit happen.  That was not the case for me as personally I have witnessed in UK the general discomfort and unpleasant feeling for average British citizens almost 20 years ago due to the sudden influx of EU citizens to UK (to study and work).  The Brexit was just a big bubble that has built up almost 2 decades awaiting to be burst.  UK out of EU might not be a bad thing (for UK) given the state of EU and Euro currently facing (the Greece debt since 2011).  UK after getting out of EU should be able to renegotiate better trade terms with China, US, Japan and its ally, commonwealth nations that benefit more to the nation than while it was still in EU.

Donald Trump winning the Presidential Election did not come as a surprise or shock to me either despite major world leaders either directly or indirectly voicing the disadvantages Trump could bring to the global economy should he win.  Some even indirectly voicing out the concern should Trump win using TPP as the talking point.  A very unwise and immature political strategy as ended up have to send congratulatory note and even resort to send invitation for Trump to visit the nation to mend the bridges.  Does nothing useful except providing entertainment by making a fool out of himself !

There should be no surprised by the outcome of Brexit and Donald Trump winning the President Election.  Everything in this world have both sides, positive and negative or pros and cons with only a fine line dividing the 2 sides.  Majority blamed populism as a backlash against globalization as the root cause for the 2 events to happen.  Is that really the case ?  The concept of globalization for a better global economy might have started on the positive side but due to complacency, lack of awareness, only focus on result and ignorance, that just shifted across the dividing line into the negative side.  Instead of pointing fingers at populism, self reflection must be done before being hit with further damage.  The 2 events are now serving as a stern warning to those who still refuse to acknowledge they are actually the one to blame for shifting it to the negative side.

Looking Ahead
2017 is never going to be smooth and rosy all the way despite all the optimism in global stock markets towards end of 2016 extending into first week of 2017.  There isn't lack of events in 2017 to make the stock market as volatile as in 2016.  If news were the main cause of volatility in 2016 then execution will be the one to continue the trend in 2017.  Brexit, US Presidential Election, etc were news (shocking news to some) then execution on those will be the one to watch in 2017.

Britain needs to trigger Article 50 to leave EU bloc and also need to propose a good plan for a clean break so that both parties (Britain and EU) can emerge in a win-win situation.  In addition to that, deals (trade) with non-EU nations will need to renegotiate so that they can provide boost to the economy.

US under Donald Trump will be all about execution too in 2017.  Could he execute those fiscal policies that he promised during his campaign ?  He might look like a mismatch for a US President but on the other hand he could be what US needed since 2008 to bring the nation economy forward.  Since the 2008 GFC, US economy hasn't been really fully recovered despite 3 round of QEs, this was mainly due to weak fiscal policies and heavily relying on Fed's monetary policies.  As a businessman, Trump's mindset is nevertheless different from that of a typical politician in particular knowing the basic of economy in depth.  However, that is only a short-term solution to US economy.  Running a country is like running an enterprise but in both vertical and horizontal dimension.  Trump or even Hilary Clinton (if she was elected then) unfortunately only possess one of those dimension.  Furthermore, the confrontation with China in particular trades will do no good for US or even global economy in the long run.  This is the the other dimension that he is lacking.  A trade war will lead to currency war and that will be very volatile for stock markets in general.  Russia (Putin lead Russia in specific) could be the key to smoothen the tension between US and China.

US Fed is posed to hike interest rate 3 times this year accordingly.  This could weigh in on global stock markets.  Given rest of the world still in loose monetary policies, the quicker pace (thrice in a year) could further diverge or out-of-sync US with others and is never an ideal scenario.  US Fed would need to monitor the situation carefully before execution to avoid causing unnecessary uncertainty in the perspective of over-tightening or lag behind the curve.  In 2015, US Fed expected to hike rate twice in 2016 but ended up only once.  In 2017 can the Fed execute what they have forecast in 2016 ?

There will be couple of major election in EU this year and fear that the so-called populism could enact the Brexit scenario.  With EU finally showing sign of recovery of the bloc economy, any further Brexit event will do no good for the recovery.

With OPEC and non-OPEC (less US) agreed on output cut, the oil market should be stabilized but unfortunately O&G companies would need to do damage repair before everything will be back on track.  Moreover, with the crude oil price above US$55/barrel, we can't guarantee that US shale gas producers won't over pump to destabilize the effort put in by OPEC led output cut.

In execution, we will be facing with execution risk that any outcome will fall short of expectation and that could really drive the stock markets in one way or the other going forward.

Singapore advance estimate 2016 GDP came in at 1.8%, the lowest since 2010 when the nation recovered from 2008 GFC.  That is to say from 2010 till now the nation economy is practically moving along a negative slope.  Most would cite global headwinds as the main reason for it and going forward, there isn't lack of those.

The latest news of new port intended to be developed at Carey Island, Malaysia does raise concern how it will affect Singapore in the long run despite authority rubs off the threat.  If there is no benefit to Malaysia (and disadvantage to others) why RM200 billion is being invested into it ?  Too much money and no place to spend ?.  If that does not raise concern, then the Thai's Kra Canal (do a google search for detail) news definitely will be a threat to Singapore if it really happen.  With the technology we are having now, that project is not difficult to execute.

Other notable headwinds include the much talk about TPP which President Donald Trump going to tear it off. The China One Belt, One Road project in what way Singapore can benefit from it and that ultimately will depend on how China going to share the pie with rest of the world (how well one maintain the relationship with China effectively and are Singapore doing right in that direction ?).

The Committee for Future Economy will reveal the detail proposal after CNY.  Let put it straight, don't be too optimistic with the proposal.  We have a similar one few years ago with the focus on increasing productivity and few years later, no sign of productivity improvement and the nation economy continues on the negative slope.  Hasn't stock market taught you the lesson of don't start counting the chicken before they are hatched ?

Many expecting the nation to focus on FinTech given the recent push from the Government but this raise more questions than answers going forward.  Firstly, do we have sufficient people with that specialize skills in that domain now ?  If we don't by the time we trained up the people for it will FinTech be already out of flavor ?  China has been in FinTech domain for the past 3 to 4 years already (myself also ventured into that in 2013 developing some programs to aid me in investing) and we only just starting to get into it.  Shanghai definitely has the intention to become Asia financial hub overtaking the like of Hong Kong and Singapore (isn't that obvious when they are trying so hard to get into MSCI and China's Yuan get the nod to be inside IMF reserve currencies last year).  Should that happen even with FinTech what will happen to Singapore ?

After all these years or decades, Singapore has been searching for that particular domain that could bring Singapore forward but most of those suggestions or proposals only serve short-term impact.  This all boil down to the fact that we do not have people with that kind of quality at the top.  Like mentioned running a country is like running an enterprise but in both vertical and horizontal dimension.  Trying to nurture so-called leader from a defined system (handpicked the elite, let them rose to the rank like having a star or 2 on the shoulder in the age when they should move horizontally to gain more life experiences and knowledge) is never going to work (them only be able to excel in one dimension).  The end product of lacking in think out-of-the box ability (politely they called it group think) can only at best produce an Administrator (only know how to mend cracks along the wall) and not Leader.  Though in recent years we have won numerous accreditation in our academic with Singapore having the highest number of pupils scoring the perfect IB score but what's the point when for the past 50 years we can only produce one Sim Wong Hoo ?

In strategy, attack is not the only way to move forward, one need defense too.  Instead of hunting for the next in thing, one should also focus on strengthening domestically.  With the technology we are having today, it is possible to leverage on it in health care and agriculture.  Using technology to solve the lacking of manpower in health care and using technology to bring back the agriculture (The New Economic Pillar -- Indoor Farming, written in 2014) could provide our economy a solid flooring if not we are like going to have a bottomless pit.  The 2 sectors are known to be defensive as regardless of economic conditions, economic activities will always be there.  Moreover, it is a good chance to make that as uniquely Singapore and provide that much needed cushion to the fast changing world economy (and headwinds) and a much sustainable economic growth model.

There is another concern which I have been doubting since 2 years ago.  That is the present MAS policy of tweaking the SGD against other currencies to curb inflation and at the same time serve as monetary booster.  This model has served us well in the past but with Central Bankers around the world (functioning on the traditional model of using interest rate) getting into uncharted terrain with negative interest rate or QEs (printing money), is that model still as effective as in the past ?  The authority will definitely denied that it has lost its shine but I still have doubt after all a $1 coffee and a $1.10 coffee make a lot of difference to most of us.  As a consumer who spend our income mostly on daily necessities (which unfortunately mostly imported), we are in a better position to detect the problem early than the authority.  Do think of solution to protect yourself before it is too late (when they finally realized the model is no longer effective).

Are we going to have or resume the bull run in 2017 ?  If the 10 years financial cycle still hold then good luck as global economy peaked in 2007.  Despite all the optimism we have going forward, global economy unfortunately still in "The Lost Decade" scenario that I have been talking in 2015 (refer here).  2017 is the Year of Rooster, in Chinese we have one phase regarding rooster, 金鸡独立.  If is going to perfectly describe what's going to happen in the Year of Rooster, good luck then as only one nation will stand out and the rest will be.................

Lastly, rounding up with one sentence that all should remember by hard.

The one and only big mistake politicians made is always think they are right and they only realize that mistake at their dying moment but too late to do anything. 


1 comment:

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