Investors are nervous this few weeks. The nonfarm payrolls data coming out of the US were well below expectations. 54,000 jobs created in May is a bad number no matter how much you spin it, especially when there are 13.9 million people out of work in the US where unemployment rate remains at a high 9.1%. The ongoing problems with Greece doesn’t help. The market can quite clearly see that Greece will need some of its debt restructured no matter how unwilling the EU is on the matter. And given the lagging nature of economic data, the numbers currently coming out of Japan which are mostly for April will be horrible since April will see the full impact of the triple disasters that hit Japan.
Despite all this though, I still put in $4,000 into my portfolio. $2,750 went into the DBS Enhanced Income fund. No matter what, I am still moving into my new place at the end of the year, so saving up for the renovation and the move will continue. The other $1,250 went into my Parvest Europe Alpha fund. The reason being that my portfolio remains heavily weighted towards Asia, and I am finding Europe interesting now.
It's not that Asia is no longer attractive. If it wasn’t I wouldn’t have so much of my portfolio into it. But Asia’s the “safe” investment bet actually. Everyone knows the long term growth story for Asia. And the shifting of the economic centre from the west to Asia will happen this century. It’s a matter of time, and as it happens, so will the market capitalization of Asia rise relative to western markets.
However, Europe is interesting to me currently because it is the beaten down market that nobody wants to look at. Because of Greece, nobody wants to touch Europe with a ten foot pole. Europe equities are not for the faint of heart right now. There is so much uncertainty. It has been one year already since the Europe crisis started, but its like an ongoing train wreck. However, that’s why its interesting. Will this all end badly for Europe? Nobody knows at this point. But there are a lot of people who would have much vested interest at least not seeing Europe spiral down into a financial disaster that will rock other markets as well. Also, while all this uncertainty remains, good companies in Europe, which are not going to be affected in a major way are being traded at low valuations because of the overall negative perception of the region right now.
There remains a lot of negativity with most markets right now. That also means that there is opportunity. A lot of equities are not showing their true value yet. Many companies are actually making a lot of money. They are cash rich, have surging sales, and their costs are not necessarily going up that much since they are not aggressively hiring. (They don’t have to since its an employers market in the west). The situation at the corporate level is very different from the debt ridden governments of the west who have to tackle massive deficits. Many markets are at record high earnings, and yet their market levels are well off their all time highs, as much as 20 off. This means that there is a lot of caution and negativity priced into markets already. And we have seen that because from last year till now, it has been all about the European crisis, whether the US economy can get back on its feet again, China’s rate hikes, and we can now add Japan’s triple disasters to the long list of worries as well.
However, a lot of this are priced into markets. Valuations across the board at this point are not expensive. The last time we were seeing such record high earnings in 2007, people were celebrating. Valuations were much higher. Today, even though earnings in many markets have risen back to the same level, and in some markets even passed it, people are more inclined to be cautious instead. Markets are at least 20% off from the 2007 all time highs. But eventually, I believe these concerns will eventually ebb and sentiment will shift towards the positive. Especially as earnings of companies continue to remain strong. But it is when these concerns are still strong, that’s when good bargains are there to be had. When there is no more uncertainty, markets would have zoomed away already.
So, I am happy to put in more now while markets are still cheap. I would have put in even more if not for my house move at the end of the year. (But let’s not get greedy here either, nothing is a sure thing and no matter what, I can’t tell my wife we can’t afford to move at the end of the year!). So, I will continue to put the bulk of new monies into short duration bond funds for now. After I have settled into my new place and paid for all of the renovation and moving expenses, then I can see to putting my monies to harder work in riskier markets.
No comments:
Post a Comment