Archive for the ‘Economy’ Category
2012 – The Year Where It Happens
What happens? Actually, there are cross roads in 2012 for a lot of the economies. Back in 2011, it was said it will be a year of 2 halves. Now in 2012, that is being brought up again. I do think volatility will be lesser in 2012 as compared to 2H 2011.
U.S.
The economy has probably picked up speed in the last few months and will grow moderately in 2012, staving off the need for additional stimulus from the Federal Reserve, a Reuters poll in December. Payrolls rose 200,000 in December, double the gain in November. A weekly measure of consumer confidence ended 2011 at a five-month high. And manufacturers reported their business in December grew at the fastest pace in six months. Companies added 1.64 million employees in 2011, the best year for the American worker since 2006, after a 940,000 increase in 2010. Even with the gains, little headway has been made in recovering the 8.75 million jobs lost as a result of the recession that ended in June 2009. GDP grew 1.8 percent last year, according to the median forecast of economists surveyed by Bloomberg News.
Even though the jobless rate dropped to 8.5 percent, it is still very high. And the massive US$15.17 trillion debt is slowing rolling into the world’s concern. In 2012 GDP is estimated to expand by as much as 2.5 percent.
China
A fast growing economy always have numerous threats that surfaces. For China, the threat of inflation retreated somewhat with authorities considering lowering interest rates for the first time since 2008. China’s home prices fell for a fourth month in December, something the government hoped for in addressing a possible property bubble. Hard landing probability lowered with small manufacturing growth from China. However, there appears larger and not so visible signs of trouble. Local government debt through investment and financing platforms have attracted borrowings of conservatively estimated 10 trillion Yuan. The funds are used for infastructural and property projects and the key concern now is repayment.
To meet their commitments local governments need to generate income from land sales, which is fuelling unrest in the world’s second largest economy as residents increasingly complain that land is being unlawfully seized. A recent downturn in China’s housing market will also weigh on the finances of cities and provinces that had planned to pay off debt by selling land at high prices. Corruption allegations against local governments’ methods to raise money and pay debts have culminated in protests, another source of roadblock for economic growth.
After Optimism of A Plan To Save Europe, Crisis Again.
Just one week after European leaders agreed to bolster lenders’ capital and boost the region’s rescue fund in a bid to stem the debt crisis, Greece Prime Minister, at pressure holding on to political power, sends the world uneasy again with a decision.
Last week, European leaders agreed to boost the firepower of the region’s rescue fund to 1 trillion euros ($1.4 trillion) and persuaded bondholders to accept a 50 percent loss on their holdings of Greek government debt. Banks will, as part of the plan, need to raise capital to insulate themselves against losses on government debt. Still to be decided are the details of the haircut, what assets banks can count as capital, how banks will raise it, and whether future bank debt is backed by a national or European guarantee. The European Financial Stability Facility which includes the possibility of China, Brazil and Russia involvement. Having the an agreement on the plan assured global financial markets that the details will be worked out and Europe will avoid a messy default. The European Financial Stability Facility which includes the possibility of China, Brazil and Russia involvement.
Europe Banks and Financial Services Index rose 8.8 percent higher in London the following day. Societe Generale jumped 23 percent and Credit Agricole 22 percent. Barclays climbed 18 percent, BNP Paribas (BNP) SA 17 percent and Deutsche Bank AG (DBK), Germany’s largest lender, 16 percent.
After A Third Quarter Market Down Comes Opportunities
Past 2 months have seen financial markets took a turn for the worst. Beginning with the US government debt downgrade and following up with European debt crisis. Though, all of the reasons existed well before, it is the way investors flip-flop – focusing on just the positives at one moment and just the negatives at another – and the speed at which it happens that caused so much volatility.
The European Central Bank’s move to keep euro-area banks afloat is buying governments more time to recapitalize them as Greece edges closer to default. ECB will resume covered-bond purchases and reintroduce year-long loans for banks as the sovereign-debt crisis threatens to freeze money markets.
Equity markets will remain highly volatile given that Greece is under increasing difficulty to stick to
targets set for its austerity measures. The tough cost cutting measures in Greece have strung the economy and tax income making it even harder to lower budget deficit.
Broad Long Term Strategy
No one can get the markets truly right. Back a few months ago, things are looking calm. Global recovery is slowing, but markets are growing less volatile for a couple of months in May to July. This all changed in a matter of days around start of August. I will not go into the events for this post but focus on what I felt is an important long term wealth building mentality.
“Buy Low Sell High”
A lot of investors ends up buying high, selling low. Are you one of them? Did you sell of your investments meant for long term retirement, children’s education, or accumulation purpose in the last 2 weeks?
I’m not saying it is wrong to sell, but you must assess your reasons. Lets take a look at the following charts.
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Market Outlook for Q2 2011
These 3 months of the year, markets have contended with the ouster of Egyptian President Hosni Mubarak, battles between forces loyal to Libyan leader Muammar Qaddafi and rebels, protests in Saudi Arabia, Bahrain and Yemen, oil above $100 a barrel, record-high food costs and a magnitude 9.0 earthquake in Japan that killed more than 8,000 people and crippled a nuclear power plant.
Let’s touch on the events, country and situation one by one.
China
China’s inflation accelerated to a 4.9 percent annual pace in January, exceeding the government’s aims to limit consumer-price gains to 4 percent for 2011 for a fourth month. Banks extended 1.04 trillion yuan ($158 billion) of new loans, more than double December’s level.
China government targets inflation as top priority to cut risk of social unrest while encouraging private investment and allowing for stronger Chinese currency.
The front loading of interest rate increase by the Chinese government means in the first half of the year we will see substantial interest rate increase and increase in capital requirements of banks.
Reserve ratios stood at 19 percent for the biggest banks before today’s move, already the highest in more than two decades. 8th February, the People’s Bank of China (PBoC) announced that the one-year deposit rate and the one-year lending rate will rise by 25 basis points (bps) to 3% and 6.06% respectively.
Chinese banks, set to post record profits, are trading at their cheapest level in two years and may stay depressed in 2011 as investors bet faster inflation and capital requirements will erode earnings. Shares lost allure over the last three months. The nation’s five biggest lenders, with a combined $771 billion market value, trade at an average of 8.5 times forecast profits, compared with 10.4 times at the world’s 20 largest banks, according to Bloomberg. India’s five largest banks trade at an average of 19 times.
Forecast Of China By Major Brokerages
China’s stocks may slump for a second year as the central bank raises interest rates to tame inflation, according to Zhang Kun, the strategist at Guotai Junan Securities Co. who correctly predicted last year’s drop.
According to Zhang, whose Shanghai- based firm Guotai Junan is the nation’s second-largest brokerage by revenue, said. “Inflation is the biggest risk. The government will keep tightening.”
Guotai Junan is alone among China’s major brokerages in predicting declines for 2011. China International Capital Corp., the only other major Chinese brokerage to correctly forecast the index’s drop in 2010, also expects an advance this year.
The Shanghai Composite fell 14 percent in 2010 to 2808.08, making it the worst performer among benchmark indexes in the world’s 10 biggest markets. Premier Wen Jiabao’s government ordered banks to set aside more reserves six times and boosted rates twice since October to tame inflation and curb asset bubbles after record gains in lending and property prices.
The central bank will keep increasing borrowing costs to cap inflation at around 4 percent this year after it reached a 28-month high of 5.1 percent in November, Zhang said. Last March, he said the Shanghai gauge, which had already dropped 9.2 percent, would fall a further 17 percent to 2,500 in the first half as the government boosted measures to cool economic growth. The index slid 27 percent in the first six months of 2010.
Market Updates October 2010
I have decided to put forth my thought on portfolio strategy first
For clients with substantial portfolio, will look into entering the US market as a diversification. I believe US market is in a better place now, but returns of US market will likely be lower than growth markets. (note: a market need not be in a good place, lesser risk more upside to rally, as can be seen previously). US equity has been in the overbought region. As shown below, the S&P 500 index has been trading within the red zone (between 1 and 2 standard deviations above the 50-day) for some time now. It seldom goes above 2 standard deviations and everytime over the last 10 years it reach, it pulls back.
I still favour Asia and emerging markets, especially some of the less mentioned regions like Indonesia, Brazil, South Korea and South East Asia. I favour markets with good domestic consumption and commodities driven mix. It does seem like the markets are very correlated nowadays.
For fixed income I favour Asian emerging market bonds and high yield bond market. Lower risk fixed income will go to SGD, AUD money markets, countries more developed but stable.
Commodities have run up quite a lot and I believe it is a long term story. Pretty hard to reach a convincing conclusion about outperforming equity markets now.
Greed and Fear. Market Update Aug-Sep 2010
There has been not clear indication what is next for the global economy and also about decoupling of economies that affects where and what to invest in. These few months, markets has been reacting to data announcements, with each market having its general trend.
Over the past few weeks, risks of another recession and of deflation have increased then decreased again. The outlook for the global economy remains uncertain, particularly in developed countries where there has been divergent performance in recent weeks.
Data from U.S. includes non-farm payroll, ISM manufacturing index, unemployment claims, unemployment rate, trade deficit, US retail sales, etc. Shall not bore you with the numbers.
In Asia, China and India continued to show momentum despite variations such as India’s interest rate increase and China’s tightening measures. China’s PMI rose to 51.7 in August, marking an end to months of deceleration and also the 18th straight month the index is above the boom-bust level of 50. India reported GDP growth of 8.8% in 2Q10 vs. 2Q09. Expansion in the manufacturing and services drove India’s growth rate to its fastest pace since 2008.
The major indices fell in August as doubts about the economic recovery caused fear and uncertainty in the market. US equity indices fell between 6 and 8% while the Asian and Emerging Markets equities fared slightly better with some positive growth for August.
Market Updates May to Jul 2010
The past 3 months has been a ride for most investors and money managers. With a variety of issues such as Yuan value, China property bubble, European debt crisis, stake holders have been watching each reported data like hawks and volatility shot up.
We have reached a stage where things have settled down a bit. And also arrived at a realization that there is going to be a new normal in the global economy. I do feel that the new normal is a good thing if it eliminates the pattern of peaks and troughs in the economy.
Singapore Fastest Growing In The World
Singapore’s growth accelerated to a record 18.1 percent pace in the first half of 2010, spurring the currency, putting pressure on policy makers to check inflation with a stronger currency, and putting the island on course to be the fastest-growing economy in the world this year.
The government predicts GDP will rise 13 percent to 15 percent in 2010. Credit Suisse Group AG and Oversea-Chinese Banking Corp. forecasts for the island’s expansion this year range from 12.7 percent to 16.3 percent among the economists surveyed by Bloomberg.
By comparison, Goldman Sachs, BNP Paribas and Macquarie and China International Capital Corp estimates for China range from 9.5 percent to 10.1 percent in recent weeks.
