Chinese New Year Rally? (9 Feb 2010)

Markets have continued to be volatile. But the Singapore, Taiwan and Hong Kong markets have shown unexpected strength today (Tuesday), after the selloff over the last two weeks. Could this be the start of a Chinese New Year Rally?

Even if it doesn’t start this week, I believe markets will start moving back up in the weeks after the Chinese New Year. Current troubles are mainly those occurring in regions outside of Asia. About Europe, which is where the main concerns seem to lie right now. To me, it is inconceivable that the Eurozone countries will allow the entire Eurozone to be dragged down by just a few country’s troubles. Yes, Greece has problems, but would they be allowed to balloon to such an extent that the Euro comes under jeopardy? I find that extremely hard to believe.

Would the likes of France, Germany, Switzerland, and the many other countries in the EC allow Greece to affect investor’s confidence of the Euro to such an extent that the Euro goes into freefall? I believe they would either bail out Greece, or if they don’t want to foot the bill, even take the more drastic step of delinking Greece’s currency from the Euro.

Notice that now, there is hardly any mention about China tightening any more? The reason is that it was a knee jerk reaction. Now that it is over and done with, as China continues to post strong economic growth numbers, we will see a rally because it shows that despite the tightening, growth can continue. In fact, this will hold true for the other concerns plaguing the market right now, including the current Greece troubles and the Euro coming under pressure.

As the economy continues to improve, many of these concerns will gradually fade away or at least become priced into the market. For now, because of the sharp sell off over the last two weeks, it is a good time for bargain hunting. As always though, maintain some diversification even as you bargain hunt and don’t take on more risk than you can bear. The worst would be if in hind sight, it was good to buy in now if you held it over 2 years, but you failed to hold it because the market then corrected another 5% before it hit bottom this year, and you panicked and sold out at the bottom.

I have only shifted 25% of my bond funds, so I still have 75% of what I started the year with, ready to take advantage of a any further drops. Even if we see a rally from here on, I would mind, because the amount I am shifting into equities is one which I am comfortable with. Sometimes, it better not be too greedy, although its better to be greedy when people are fearful and to be cautious when people are greedy.

Here's wishing everyone a fruitful and prosperous lunar new year! Gong Xi Fa Cai!