2011 was not a good year for global stock markets with series of global events that made almost all the markets less US fell at least 15% for the year. US market probably was one of those that managed to edge up some small little gain.
A recap on 2011, in January global markets fell in particular emerging markets with Middle East unrest that sent crude oil price rocketed past US$100/barrel and caused the already high inflation in Asia to move up even higher and made Asian policy makers who have been putting measures since 2010 to curb rising inflation in another tough fight to bring inflation down. Then in March the unexpected Japan natural disaster of earthquake + tsunami brought Japanese economy into recession and hurting global supply chain. In June, when the 2nd Qualitative Easing stimulus of US expired, the ineffective of it to bring down high unemployment coupling with weak economic data sent fear to investors that US might be entering a double-dip recession. At the same time, Greece was in seek of a second bailout and that added on the worries that the 2-year European debt issue was escalating into a bigger risk. In August, the US debt ceiling has to wait till the final hour of the deadline before it was approved to be increased due to politicians unable to break deadlock earlier on led to S&P downgrade US crediting rating from AAA and that caused global markets to be tensed and volatile, wild swing in both direction. From then on, it was Europe that took center stage next with the debt crisis spreading to Italy ( a too big to bailout scenario ) caused several country leadership changing hand, EU leaders cracking their heads working overtime and pressure from rest of the world to get the debt situation under control. In October global stock markets sank to their year low when they realized the EU debt issue will cause global systemic risk should it not been contained or resolved. EU leaders finally made some positive steps in resolving the debt crisis with Greece private investors taking a 50% haircut and Greece was able to get the 2nd bailout funds in exchange with tough austerity measures must be implemented. Italy was not spared with the tough austerity measures either so as Spain and Portugal. Other EU nations were faced with stalled in economic growth. With ECB cutting interest rate, engaged in bond buying, extend its lending facilities to 3-year, lowered collateral requirement, EU nations leveraged up the EFSF, EU nations agreed on treaty changed to do a structural reform and 6 Central Banks led by US Fed to lower the swap line to solve liquidity issue, all these steps still not able to totally resolve the debt crisis. A bright spot in the last quarter was US economic data improving and unemployment rate came down to 8.6% but nevertheless, US still have more to do to improve the economy situation.
Coming into 2012, the EU debt crisis will be center stage again as investors will be looking at how EU going to solve the problem of bond maturing this year ( where the money from ) and what other steps EU leaders going to further take on to solve the problem. So far EU has been resisted in issuing joint-Euro bond and authorizing ECB to print money as a solution and instead chose the reforming solution to solve the problem. The restructuring process is a slow and reliable solution but takes a prolong time frames. US economy will be the next in focus for the year. 2012 is also a Presidential Election year for US and despite the improving economic data lately, US Government still have lot to do in particular creating massive amount of jobs to bring down the high unemployment rate. Asia countries though recorded reasonable economy growth in 2011 but with EU and US stalling, it also having impact in its growth. The high inflation problem in Asia has started to ease lately and that allowed policy markets some room to ease the monetary policies to stimulate growth. China, world 2nd economy will be in particular in focus. China has cut its RRR by 50 basis point the first since 2008 last month and potentially will embark on more monetary easing in 2012 to spur its economic growth due to monetary tightening in the past 2 years and impact from Europe. The first half of 2012 should be critical to investors and policy makers globally. This is the period when we will know how server the EU debt issue will be ( will EU get into recession and if so how deep will it be ), will US economy in particular employment situation continue to improve ? and Asia countries what measures or stimulus will they take to boost their economic growth. Should there is no unexpected events from EU ( like breaking up of Euro or more write down by other EU nations ), the EU debt situation should be able to stabilize in 2H2012 and Asia should be in focus then.
Singapore recorded a -4.9% contraction in 4Q2011 GDP and +4.8% 2011 GDP ( advanced estimate ), a sharp drop of +14.5% in 2010 with problems from US and Europe. 2012 will be another challenging year for Singapore Government as they could be starting to rolling out stimulus to boost the growth. February 2012 when Singapore Finance Minister revealed FY2012 budget will be closely watched to determine whether any stimulus package will be rolling out by the Government. Singapore inflation still on the higher end with +5.7% in last month data but should be taming soon after another property curbing measure being announced last month.
Despite all the ongoing problem, analysts still having mixed views for 2012. Some still continue to be bearish while others foreseeing a 2H2012 picking up. While it is too early to say which side of the camp is correct, investors just have to monitor the global situation carefully, namely the development in EU, US economy strength and Asia's measures to boost growth.
Investors will be in a situation whereby whether you see the glass as half-empty or half-filled scenario. Depend on which scenario you are looking at. As such, in order to minimize risk, investors should consider both cases and think of appropriate strategy to act on. Further downside to stock markets could be an opportunity to bargain hunt if one is taking the half-filled glass scenario. With current volatile stock markets, investors should know of their own risk before venturing into the stock markets, be patience and discipline and that the only way to minimize lost in a volatile stock markets.
