Still Early Days for Current Bull Run (11 Aug 2009)

There is currently a tug of war between China and US. The China Shenzhen and Shanghai stock markets fell last week, and these led the Asian markets to follow. There was a certain amount of profit taking as well since many Asian markets had run up quite a bit in the previous 3 weeks. This as despite the fact that in the US, data is getting more positive. Job losses were less than expected, and most analysts are coming out to say that the worst is over for the US.

So, which market will investors choose to take their cue from in the coming weeks? My answer would be that the US market would still be the more important one to look at in the end. While China is certainly on the up and coming, the China A share market is ultimately still a closed one. Only local investors can trade on that market. The US market on the other had, has fund managers and investors all over the world participating in it, and at this point in time, US is still the larger and more important export market to Asia than China.

US GDP numbers that have just come out show that it contracted only 1% in the second quarter. This was better than expected and shows clearly that the US economy is turning the corner. The US economy is likely to turn positive in the 3rd quarter. Company earnings have also been better than expectations in general. In the US, More than two thirds of the US companies have announced 2Q earnings, and 75% of them have beaten consensus estimates.

There will certainly be profit taking along the way and markets will remain volatile. But the current trend where both economic numbers continue to get more positive, and earnings of companies surprise on the upside will continue over the next  to 12 months. And that should be what we should be focusing on at this time. (Singapore actual 2Q GDP just came out and it proved to be even better than previous estimates. 2nd quarter GDP was up 20.7%).

I can’t forecast when we will have a negative week, or when some profit taking will set in, nor will I try to. Because my investment style has never been to look at the shorter term fluctuations of markets. To me, at this point in time, the full recovery story has not been played out yet or factored in. And that would give us further upside to Asian markets yet. This means that if there are corrections at this point, I would add to them if I had additional monies to do so. (I am almost fully invested already at this point).

For me, it is too son to consider things like taking profit, or getting out of markets because I feel that the upward trend of markets has not ended. This bull run will continue, though it will not move up in a straight line. Two years later, when we look back at this period, I believe we will realise that August was still early stages of the bull run yet.