FTSE STI ended 1Q2013 at 3,308.10, up 141.02 points or 4.45% for 2013. The wild rally in the beginning of the year has tapered down towards end of 1Q. The wild rally which saw STI hitting a new record daily volume of almost 12 billion was mainly due to the excessive liquidity forcing investors switching to equity to search for gain given that bond prices have been compressed. Apart from that reason, secondary reason was due to the fundamental of the global economy slowly improving especially from China. However, the underlying still weak as the old problems that caused the global economies to stall in the past still remain unresolved. This was also the reason stock markets tapered down in end of 1Q, lacking of more positive catalysts to drive it further up, in general, stock prices over-run the fundamental and due to adjustment.
Recap the main key points mentioned in the begin of the year analysis, Recap 2012 & Looking Ahead 2013
1. 2013 could be jolly well the last leg of the bull markets which started in 2009
2. Do also keep option opens of what happen when US Fed withdraws the stimulus due to conditions meet (unemployment rate drops to below 6.5% or inflation hit more than 2.5% in which US Fed has to hike interest rate) and how that will affect stock markets.
3. Like the Chinese saying 水能載舟亦能覆舟 (water can transport a boat but also can capsize it), the excessive monies can stimulate economic growth but also cause rising inflation which eventually will be the cause of economy downturn. Bond and Tech bubbles are the other possible trigger that could sink the global economy into recession too. With all these threats, there is strong reason to believe stock markets are having the last leg of bull market now, still maintain cautiously optimistic, value/fundamental investing has to be selective, must know the downside risk and it is a trader market.
4. Stocks trading at deeply discounted NAV with strong cash flow (Cash in Hand per share) and most important of all a business model that is not complicated would be the
one that could bring you the biggest return for the year.
Another thing that need to keep in mind is the potential bubbles that could eventually drown the global economies into recession again. (After the rally, what's next ?). At the moment, global events are more biased towards the negative side with issues like :-
1. After Cyprus, who's mext ?
2. What will happen to US debt ceiling comes May ? Up another level ?
3. Will North Korea strikes ?
4. China H7N9 bird flu will it cause another SARS like worldwide ?
5. September Germany election, how the outcome will affect the EU and rest of the world ?
6. Can US economy especially unemployment finally recover ?
7. When will Central Banks stop or tighten monetary policies ?
Either of those above event can create another fear in the market. Well, there are still some positive events happening around at the moment.
1. BOJ like US Fed unleashes an aggressive quantitative easing (money printing) and together with what US Fed did, the whole world now is full of excessive liquidity and when no where to go, it will just flow into equity market.
2. Corporate earning is showing recovery, though might not be a the fastest pace one would like but they are definitely not falling off the cliff.
Positive events or news will be the catalysts to move market and stock prices higher, negative events or news will cause short-term pull back and bursting of bubbles will sink the global economies into recession again. This is something investors must keep in mind at all cost at current market condition.
Looking ahead, market should be bottoming this month before another wild rally up and then eventually having a muted end of 2013. Most are optimistic about stock market ending higher in end of 2013 but do not rule out option of another quiet and muted end of the year. Comes 2014 onwards, have to be extra careful in stock market, another bubble ripe enough to burst will start to sink global economies into recession.
Enjoy the last leg of bull, make full use of it and don't be greedy know when to exit.
