Much has been written and reported on China property curbs by the central government. Much has been its dampening of the property market and property developers. The stock market has been hit to some extent as upside on property developer stocks have been limited. Is the market really so bearish or are we missing a different picture?
Let us look some indicators:
1) China’s 7+% GDP Growth moving forward is still amazing. Yes, it is not as good as before. They are in a “slow down”. But how many other countries have such growth numbers?
2) Consolidation within industries. We have all noted such announcements of public-listed companies but these numbers do not truly reflected the unreported private deals going on. The fact that big fish are taking out their smaller competitors by acquiring them is a bullish sign.
Now, think about why the China property market has boomed. We have all read about the “new rich” in Asia. Many business men have made their fortunes in China’s boom days. Some of their money has gotten to acquire property. Simple trend.
Now, consider that China has capital controls on the movement of RMB. Much money that has been earned from China’s domestic boom and growth in consumption is in RMB this money stays within China, mostly. Therefore, if there are property curbs in China to ease investment in the property market, the hot money has to flow somewhere else. China does not have a vibrant fixed-income (debt market). RMB is not a reserve currency for trading commodities. The simplest solution is to park money in stocks.
Shanghai Composite, SSE is trading at 10.97x P/E currently and at 8.56x FY14. This is attractive considering other major markets are trading above 10x FY14 P/E. The fact that China companies have been missing profit expectations puts a low base their earnings benchmarks. Any improvement in earnings in 2014 will make the market appear even cheaper in terms of FY 14 P/E.
I suggest we consider looking at blue-chips listed in Hong Kong and Singapore. December may be an excellent opportunity to accumulate when activity in the market is seasonally lower. Chinese New Year comes at the end of January 2014 so it may not be wise to be too hesitant.
Friday 29 November 2013
Thursday 21 November 2013
Special: Market Outlook 2014 in Brief
We are currently in a stagnant period. Stock prices seem a bit on the high side and the uncertainty discourages market participants from taking risk. As such, we see that markets tend to either creep higher on low volume or, maintain status quo on relatively low volume. There is nothing fundamentally wrong in the market at the moment so, the market is trading more “technically” rather than fundamentally.
Moving forward, H1 2014 may be a good time. Bernanke is stepping down on Jan 31 so he is unlikely to rock the boat for now. Yellen taking over seems to be a “politically correct” person and so we can expect stimulus to continue as it has been expected. The only limit to stimulus, in my opinion, is the debt limit. This is not expected to be changed in the next 6 months as suggested by a Bloomberg report today. Therefore, the probability of any sweeping measures in the near term is relatively low.
In Asia, China’s growth is slowing down as expected so we do not see the negative effects of it badly affecting the stock market. Abenomics has been having short-term positive inflationary effects in Japan. Comparing stock prices, there is still a chance that there may be a geographical shift in asset allocation favouring Asia in the coming months.
My only concern now is Europe. It has been too quiet at that end and it is a big “?” if anything negative may come from there to expand our downside risk.
So what does this mean for investors/traders?
The current market situation favours position traders. Scalpers may get frustrated by the uncertain swings. Position traders can look forward to taking mid-term positions of a few weeks to a few months on this pull-back. Markets are seasonally boring at this time of the year. Prices on certain stocks can be attractive to hold into Jan and Feb. I am not pin-pointing any sector or counter at the moment because a general upswing will benefit everyone.
H2 2014 is still very uncertain at this point in time. Therefore, it is important not to look beyond what we cannot reasonably forecast.
Moving forward, H1 2014 may be a good time. Bernanke is stepping down on Jan 31 so he is unlikely to rock the boat for now. Yellen taking over seems to be a “politically correct” person and so we can expect stimulus to continue as it has been expected. The only limit to stimulus, in my opinion, is the debt limit. This is not expected to be changed in the next 6 months as suggested by a Bloomberg report today. Therefore, the probability of any sweeping measures in the near term is relatively low.
In Asia, China’s growth is slowing down as expected so we do not see the negative effects of it badly affecting the stock market. Abenomics has been having short-term positive inflationary effects in Japan. Comparing stock prices, there is still a chance that there may be a geographical shift in asset allocation favouring Asia in the coming months.
My only concern now is Europe. It has been too quiet at that end and it is a big “?” if anything negative may come from there to expand our downside risk.
So what does this mean for investors/traders?
The current market situation favours position traders. Scalpers may get frustrated by the uncertain swings. Position traders can look forward to taking mid-term positions of a few weeks to a few months on this pull-back. Markets are seasonally boring at this time of the year. Prices on certain stocks can be attractive to hold into Jan and Feb. I am not pin-pointing any sector or counter at the moment because a general upswing will benefit everyone.
H2 2014 is still very uncertain at this point in time. Therefore, it is important not to look beyond what we cannot reasonably forecast.
Monday 11 November 2013
Special: Technical Observations
US Stocks
Daily index charts on the S&P500, Dow and Nasdaq do not appear meaningful at this point. A clearer picture can be found in weekly index charts. A great divergence in Moving Averages and “doji”s is a flag for caution. Currently, the US market seems to be supported by stability in the USD which is elaborated below.
USD
Dollardex has been ard the low 80s. 79 looks like a strong support. A look at the weekly trend over the past 2 years shows that the Fed is in control over the volatility of the USD. The stability of the USD despite the uncertainty and new measures in the US shall give confidence to investors of USD assets. This means that Bond and Stock markets have support and a sudden crash is not likely.
China, HK
Again, daily charts are not as meaningful. Weekly charts have turned clearly bearish with converging downside indicators and “dark clouds”. HK 10yr Gov bonds are swaying around high 93 – low 94, this is not normal and has a negative implication if it continues like this. As a benchmark, Singapore Gov Securities (SGS) are trading at high 104.
Singapore
SGD remains very strong with inflow above the norm. However, it seems that money is bring parked in the Bond market more than the Stock market, as we can see from the strength in SGS (SGS used as a benchmark for the Bond market). The Stock market shall remain stable as there is strength in the SGD so a sudden crash is also unlikely. However, weekly index chart is also more inclined to move negatively.
The bottom line
I suggest we take opportunity to unwind all positions. Any correction of as little as 5 – 10% shall give us an excellent opportunity to reposition. Blue-chips are generally more affected by macro trends but pennies may not be spared. Pennies that open high or get churned up may be “distributed” (in technical analysis terms) so it is necessary that we take caution.
Daily index charts on the S&P500, Dow and Nasdaq do not appear meaningful at this point. A clearer picture can be found in weekly index charts. A great divergence in Moving Averages and “doji”s is a flag for caution. Currently, the US market seems to be supported by stability in the USD which is elaborated below.
USD
Dollardex has been ard the low 80s. 79 looks like a strong support. A look at the weekly trend over the past 2 years shows that the Fed is in control over the volatility of the USD. The stability of the USD despite the uncertainty and new measures in the US shall give confidence to investors of USD assets. This means that Bond and Stock markets have support and a sudden crash is not likely.
China, HK
Again, daily charts are not as meaningful. Weekly charts have turned clearly bearish with converging downside indicators and “dark clouds”. HK 10yr Gov bonds are swaying around high 93 – low 94, this is not normal and has a negative implication if it continues like this. As a benchmark, Singapore Gov Securities (SGS) are trading at high 104.
Singapore
SGD remains very strong with inflow above the norm. However, it seems that money is bring parked in the Bond market more than the Stock market, as we can see from the strength in SGS (SGS used as a benchmark for the Bond market). The Stock market shall remain stable as there is strength in the SGD so a sudden crash is also unlikely. However, weekly index chart is also more inclined to move negatively.
The bottom line
I suggest we take opportunity to unwind all positions. Any correction of as little as 5 – 10% shall give us an excellent opportunity to reposition. Blue-chips are generally more affected by macro trends but pennies may not be spared. Pennies that open high or get churned up may be “distributed” (in technical analysis terms) so it is necessary that we take caution.
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