STI ended the year 2018 at 3068.76, a loss of 334.16 points or 9.82%. STI was not the only bourses that ended red for the year and in fact majority of the bourses ended in the red with China Shanghai Composite, SSE performed the worst with more than 20% drop.
Recap
2018 started brightly for global market as the rally continued from late 2017. However, it soon took a brake near end January when US announced tariff increased on China imported goods. This effectively started the US-China trade war (tariff war) when China refused to give in and doing a tit-for-tat tactic by increasing tariff on US imported goods. For rest of the year, global markets were enrolled in the US-China trade war as concerned should a full-blown one kicks in, a global recession will occur. As such, global markets practically spent the rest of 2018 in correction territory despite a brief spell of market hitting new high between the period of April to May. In fact the fresh high was part of the correction if one went by the definition of Elliott Wave correction pattern.
Apart from the US-China trade war, concern of US Fed rate hike also worried investors worldwide after US Fed did a 4 hikes for 2018. Concern was US Fed could be over tightening. To a limited concern (for UK and EU) was the Brexit deal in which UK supposed to come out before the March 2019 deadline. Near the end of 2018, finally some positive news appeared during the G20 Summit in which US and China finally agreed on talks to defuse the US-China trade war. Putting a halt on the ongoing tariff war until March 2019. That piece of news eventually became the event that took global markets (majority of it) out of correction phase.
The above pretty much summarized the key events in 2018 for global stock markets.
Looking Ahead
As a continuation, the events that occupied 2018 roll over to 2019 but with a different perspective. There is still ongoing talk between US and China to finally iron out differences and close the chapter of tariff war. However, this time situation is different than in 2018. Both nations economy were in one way or another impact by trade war. The statement that in a trade war, no one ends up winning is never wrong. China economy for 2018 slowed down to 6.6% while US companies were taken a hit due to the trade war (just look at Apple). So the moral of the story is don't be so egoistic in believing there will be winner in trade war or trade war is easy to win. That is totally a naive way of thinking. Despite the fact that both China and US came out in reporting the other party wanted a deal, the actual fact is both wanted a deal. The tariff war should end in 2019 BUT the dispute and differences between China and US will not stop there. Should it be as what was suggested the ongoing tariff war is just an excuse for US to stop China in technology advance, there will be other form of "trade war" in future between the 2 nations.
For the past decades, US being world number 1 superpower mainly owning to the 3 things :-
1. USD as global reserve currency
2. US technology
3. US military power
Once all those 3 are gone, US will no longer be the superpower as it is once known and its economy will be overtaken, losing the number 1 spot. It is not impossible for US to lose all those 3 items. Euro launched a decade ago was seen as an alternative or even challenge USD as global reserve currency but after the EU screwed up itself with the EU debt by Greece, Euro just lost the challenge. In term of US technology losing the edge, they just have themselves to blame. US technology companies shifting their operation overseas (eg China) for lower operating cost so as to increase their profit margin pretty much contribute to other countries advance in technology. As for the weakening of US military strength, part of the reason will have to come from US itself. The forever tussle between the 2 political parties just keep ballooning up US national debts and one day US will have a tight budget to spend on military allowing other nations to catch up or overtake it. Just count how many time US Government has to raise the debt ceiling from 2008 till now. How many time US Government has either entered total or partial shutdown since 2008. The latest happened in end 2018 lasted a record of 35 days. While US could be see taking action to stop China overtake them, US in fact has themselves to blame to accelerate the process for China to overtake them.
UK is also running out of time as till now they have yet to agree on a Brexit deal to EU by its Parliament before the March 2019 deadline. Should a no deal happen then, this will cause a majority disruption to its economy but maybe not so much impacting rest of the world.
US Fed hike should continue to be the talking point of 2019. However, based on the latest comment by US Fed, they could be putting a hold on further rate hike this year, perhaps doing just 1 or 2 instead of 4 in 2018. This probably is a better news for investors and companies globally.
While most could be feeling optimistic about global stock markets believing the bull run will resume but do take cautious that any bull run this year could be the last before the next financial crisis kicks in. Good things never last and just don't be naive enough to believe in SuperCycle bull run. Even SuperCycle will end one day.
For Singapore, 2019 is a bicentennial year as 200 years ago in 1819, Sir Stamford Raffles discovered the little fishing island Singapore. It will be no surprise Singapore Government will be spending to celebrate that. However, instead of celebrating that, a better perspective is not be complacent about what Singapore has achieved for that 200 years. It should be a time for self reflection of what has done wrong, what has gone wrong in particular those policies governing the nation. Spotting those issues and rectify in time will prevent accumulating further and one day goes out of control and collapse. Nothing is perfect in this world so don't ever believe all along policies are working fine. Should there be a need to change political party to govern the nation then it has to be done. Nothing more, nothing less.
The Recap & Looking Ahead series was started in 2011 (Recap 2010 & Looking Ahead 2011) and doing non-stop annual analysis since then. This will be the 9th of the series and could be the last. Been blogging for more than a decade already so feeling tired nowadays in blogging this type of lengthy analysis. In the event this is the last series and could be a swan song, the following is the additional analysis going forward.
Has mentioned this point in one of the Market Analysis last year about a shift in the macroeconomics long run equilibrium line globally. Looking at how global stock markets performed over the year since 2008 GFC, it is not difficult to see the validity of that point. US stock market is on the last leg of the SuperCycle uptrend while China stock market is on the last leg of the SuperCycle downtrend. A total opposite of each other. Rest of the bourses are split in between, some following US while other tracking China. A layman term is global stock markets are out of sync compared to prior to 2008 GFC. This suggests the world is divided into 2 parts or regions now. One is led by US and the other China. This is not a bad sign given that the global debt we are facing now is in term of trillion USD. You don't need a Nobel prize economists to tell you how dangerous that is. Even Singapore own very (to the power of infinity) over-paid ministers also can't earn that amount in his/her lifetime.
For those well versed in 三国演义 will know the story of 赤壁之战. 曹操in the advice of 庞统(assisting 周瑜and孙权), iron-chained all his vessels together to get stability so that soldiers can walk on the vessels without falling over due to the rocking of the vessels by sea water. However, he failed to realize should one of the vessel caught fire, the fire will spread fast and burn the rest of them as all are being chained up. This is the concept the world is facing now. Should we just have 1 leader to lead the world in term of economy (rest of the world economy depending on this leader), the world will end up like those iron-chained vessels. A blown up in the global debt will drag everyone down. Having multiple leaders each holding up a region/part of the world will be like just chaining vessels in group. Should one group in trouble, the rest not in trouble could still be functioning and saving the group in trouble. The 2008 GFC already taught us the lesson that the cause originated from US and how it drag the global economy down with talk of another possible Great Depression. Such a case can only be prevented if the world is divided into regions with lose inter-region connection just to ensure the global trade system is still functioning and benefiting all.
To be exact and provide that stability required to counter the trillion USD global debt, the world need 4 pillars (legs) to uphold. US and China being 2 of them. EU, the 3rd but before that they have to fully recover from the debt issue. The 4th pillar should be ASEAN, a combine population of more than 600 million, 3rd largest populated entity behind China and India. Unfortunately, there is still a lot of work to be done for ASEAN to finally become the 4th pillar. One main reason is the lack of quality leadership. Even with Singapore being the more advance nation among ASEAN, still can't produce that kind of leadership quality to fully unite it. That the reason why the ministers are being very (to the power of infinity) over-paid.
This is what of expect for the world going forward if not a blown out of the global debt, another Great Depression will occur.
