October Update
Update for Oct 2009
Stock markets in the developed economies were mostly down in October, while Asian and emerging economies held up better. Commodities such as gold and crude oil made new highs in October.
The global financial markets have made a V-shaped recovery while the global economy has done a slow pickup. In the coming month, the financial markets will be take a breather while the economy catches up.
Developed countries
Australia has raised interest rates by 0.25%, for a second month. US and Europe kept their interest rates steady when their central banks met in October for review.
MAS has kept its policy unchanged on the Nominal Effective Exchange Rate, maintaining the policy band width and the level at which the Singapore dollar is centered. Singapore cut negative GDP for 2009; the government expects 3% growth in 2010.
IMF raised its 2009 and 2010 growth forecasts for Asia to 2.8% and 5.8% respectively. Asian Development Bank raised GDP forecast of Asia ex-Australia and New Zealand to 3.9%/ 2009 & 6.4%/ 2010.
China has been the brightest economy. China 3Q GDP expanded 8.9%. CBRC took steps to tighten personal lending rules, aiming to prevent the Chinese stock and property markets from overheating. China’s home prices rose at the fastest pace in a year in September.
South Korea 3Q GDP rose a seasonally adjusted 2.9% from 2Q.
Japan’s consumer prices dropped 2.3% in September from a year ago, the fifth month of decline. Unemployment improved in September, jobless rate declined. BOJ plans to end purchases of corporate debt by year-end.
Other economies, India, Japan, Malaysia, New Zealand and Poland maintained interest rates in October. Russia cut its benchmark rate to 9.5%.
Assessment
Summing up the assessment, all markets have enjoyed a handsome rally since March 2009. As such, the risk-to-reward ratio of jumping into the market now is no longer as attractive. While we reckon that some regions may have bottomed out, others are likely to see corrections in the coming months.
The present market conditions present an excellent opportunity for confident clients with a 3-5 year investment time frame to accumulate at attractive valuation and reap potentially good returns when the market recovers.
For existing clients, stay invested, continue with RSP or increase RSP quantum as correction occurs.
For new clients, start a RSP programme instead of lump sum investments. I propose clients not to take an all or nothing approach. Instead, split up the lump sum as to dollar cost average and avoid timing the market, and keeping some cash handy for deployment when opportunities arise as market corrects.
The ride ahead will be rocky, but consider current environment opportunistically for clients with a 3-year or longer investment horizon to accumulate at good value for market recovery.
For equity investments, focus on Asia and Emerging Markets that offer deep value and better potential in the market recovery. Investors with 3-5-year investment horizon will find equities, especially China (supported by strong fiscal stimuli, IPOs, potential corporate earnings upgrade)/ Asia ex-Japan (China-led, domestic consumption, strong reserves) attractive. Be mindful of continued volatility.
For Fixed Income investment, focus on short duration and strong credit as mark-to-market risk prevails.
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