Sit Back and Enjoy the Ride Up! (24th July 2009)

The strong momentum from Asian stock markets these last two weeks has carried the STI index to over 2500 points. It helped that the US stock markets has been going through a great run, and earnings reports from many bell weather companies have all surprised on the upside.

If you have been following my blog, you would know that I was already heavily invested into the stock markets through unit trusts and I added when there were some minor corrections during the last two months. If you are like me, then right now, its time to sit back and enjoy the ride up. It looks to me like we are entering the second phase of the bull market and the next leg up is upon us.

For those that have missed out, there is still time if you have a longer term horizon in mind. I am not selling anything yet, and I intend to stay invested in my holdings for quite some time. The entire bull run will play out over the next 1 to 2 years since it takes time as well for the global economy starts to get back on track.

So, buy on dips. Nothing goes up in one straight line, so markets will inevitably correct and when they do, it would be a good time to buy in.

For those already sitting on profits, its ok to get greedy, but don’t get too greedy! We are far from the top of the cycle yet, but it doesn’t mean markets will only ever go up from here. So, make sure you are diversified, and rebalance once or twice a year. If you find yourself falling too much in love with any one particular market, then pull yourself back from committing even more to a market. Just because it has gone up by spades is not a guarantee it will continue to go up.

So, its been a great week, and it seems the second phase of the bull market is upon us. So, for investors, its time o sit back and enjoy the ride up, its going to be an exciting one!

US Leading Indicator Improves and a Flat Market (21 July 2009)

The Conference Board in the US reported that their index of leading indicators rose 0.7% in June. This is the third month in which this index has risen. This leading index is a gauge on the economic outlook of the US over the next two quarters. Hence, it is looked at very closely as it gives an indication on how the US economy may be faring in the next 3 to 6 months.

The leading index was up 12.8% on an annualized rate over the last 3 months and the fact that it has risen for 3 consecutive months in a row is also an indication that the worst is over for the US economy and that a recovery is happening. Where such economic data is concerned, sometimes, data for just one month may be a blip, but 3 months in a row generally denotes an unmistakable trend.

Given the importance of the US economy to Asian economies and hence, its markets in general, this is yet one more sign that investors were waiting for. More confirmation and “hard data” coming in to show that the economy is finally recovering. Asian markets have in fact been rising strongly since last week on the back of more positive data flowing in, including positive guidance from bell weather companies like Intel, JP Morgan and Goldman Sachs, and from the positive second quarter GDP results of China and Singapore.

More investors who were waiting on the sidelines before this will come back into the stock markets on such news. Others who have been desperately waiting for markets to come back down may also decide that they don’t want to wait any more for fear of missing the recovery entirely. These will increase rather than decrease as the next few months go by, because I see the data getting more positive, not less.

At times though, markets will trade flat for the day, or even experience corrections. This should be expected. In any type of market recovery, there will be profit taking and corrections. However, even when there are the “slower” days, the downside appears to be limited. The short sellers know they are facing an improving global economic environment. To short sell in such an environment takes a lot of bravery (or outright foolhardiness). Hence my strategy over the past few weeks where by once there is some dips in the markets, I put in fresh monies. I didn’t want to wait for some 15 to 20% fall because I don’t think it will happen.

As always though, be aware of your risks when investing and you will sleep well at night. Don’t over commit yourself to risky areas. I have been adding on dips since I started this blog, and though my stance on the upcoming economic recovery was quite clear, I still added 20% of my new monies into emerging market or high yield bond funds.

On a side note, Fundsupermart is now having a 1.5% sales charge promotion on 38 funds up till 15 August. Our research believes that as economies recover, markets will run up and so, we have chosen to further incentivize investors by having a huge number of funds at a lower sales charge of 1.5%. These funds are not only on our recommended list, they are also our most popular funds as you will recognize on the list. It shows our willingness to stand by our belief that to us, it is the customer that comes first, and we want you, our Fundsupermart customers to make money. Hence, because we believe so strongly that the second wave of the bull market is imminent and will happen over the next 6 to 12 months, so we are willing to demonstrate our belief by making less money from our sales commissions by charging a lower sales charge on so many funds. So, make use of this opportunity!

Good news from Intel, China, plus a bomb attack (17 July 2009)

Intel reported second quarter results which were much better than expected and more importantly, gave guidance of “a clear expectation for a seasonally stronger second half”. Given that Intel is a bellwether in the technology industry, this was a huge confidence booster that the industry was on the rebound.

China also reported that its GDP accelerated to 7.9% in the second quarter, on the back of an increase in consumer spending and increased factory output. The government estimates that China’s full year economic growth will be 8%. Despite the global recession, China just keeps chugging along, and continues to surprise analysts and economists alike with its ability to grow.

This coupled with the recently just announced 20.4% second quarter GDP growth of Singapore’ economy, are all indications that the global economy is turning around. We saw most Asian market trade sideways over the last few weeks after the strong surge up till May because people were waiting for more hard numbers to confirm the expectations.

I emphasized that patience was key. I was honestly expecting to have to remain patient for longer than one month, but already, it seems that the stronger numbers are starting to come in. These are the kind of numbers that investors are waiting for, to confirm that the worst is behind them, and that the global economy is turning.

We will see such economic news get increasingly positive in the next 6 to 12 months. The 1st quarter was so bad that it set a very low base. So, it will be relatively easy for many economies to show growth even if not in the 2nd quarter, then definitely the third. Companies which were previously very uncertain in their outlook, will also see substantial improvement in their sales and earnings and they will give more confident guidance, like what Intel did.

It’s a great time to position yourself for the second phase of the market recovery. I have been buying on dips over the last 2 months, and I have looking forward also to this second phase, I think it will be a good one.

In other news, just read that bombs went off at two hotels in Jakarta. Unfortunately, it seems that there are still terrorist elements there that are determined to make life unhappy for everyone. However, the Indonesia stock market hardly reacted to this. Terrorist bomb attacks in Indonesia simply no longer have the kind of shock factor they once had previously. As a result, they are almost a non-factor in stock market considerations now.

Don’t let such news deter you from investing. It is important to filter out headline news which are “sensational” but ultimately having little impact on the economy, versus the news that matter more. While such news are tragic, the actual impact on the economy is relatively small. Indonesia looks set to have a smooth election (relatively), and continues to be one of the more resilient economies this year. Two bombs are not going to change that!

Good news from the economic front! (14 July 2009)

Today, the trade ministry announced that the Singapore economy rose an annualized 20.4% in the second quarter in this year compared to the previous quarter. This is great news and the extent of the gain has caught most people, including me by surprise.

Markets were actually not expecting so fast a turnaround, nor to such a degree from Singapore, especially since we were one of the worst hit economy during this session because of the open nature of our economy. The Singapore economy had shrunk 12.7% in the 1st quarter. I had already written off not just the first quarter, but the second as well, instead looking forward to see a recovery start to take place in the third quarter onwards.

Now, this news could very well be a sign that other Asian economies will soon start to report a rebound in their economies as well starting in the second quarter of this year. Because Singapore sits as the hub for many a supply chain, this could also indicate that a turn around is in sight as well for the long suffering US economy. This is because you won’t see activity start to increase higher up the supply chain unless there is improvement at the end consumer level.

I do think that Singapore had other things going for it as well. Though we did not have a massive domestic economy from which we could use stimulus packages to help sustain during bad times, the government has been very forward looking and had diversified the economy into other areas. The development of the IR projects helped to prop up the construction sector in the big way. The massive investment into the pharmaceutical and medical sector is paying off dividends now as according to the trade ministry, it was one of the bright spots in the Singapore economy.

All these means that though Singapore’s economy was buffeted heavily by the financial storm from the US, it did not sink. And on the rebound, having these additional growth areas will supercharge Singapore’s economic recovery. The ride ahead, though not a smooth one, is going o be exciting for the Singapore market. I was very optimistic about Singapore, and this latest data about Singapore’s 2nd quarter GDP helped to reinforce my optimism.

As always, we need to temper our optimism by recognizing the realities of the global economy as well. The US economy is still in bad shape and will take some time to climb out of the hole it has fallen into. Despite this, I remain very optimistic about Asia. Asia will forge ahead, and Singapore is well positioned to benefit from the rise of giants like China and India as Asia moves in to fill the gaps left by US’s decline. I am just thankful that we have a forward looking government that is able to make proper long term strategic plans and stay committed to them.

At risk of sounding like a pro-government supporter, I believe that we are actually very lucky to have the current government in power. A good civil service and government are by no means a given, and it has held back many a country with far more resources and potential than Singapore in the race up the economic ladder. With the strong reserves that Singapore has, and the many long term investments it has pumped into all areas from education to infrastructure, to new potential growth sectors, Singapore will withstand any crisis that comes along. And since we were already making long term investments and preparations even during recessions, when the rebound comes, we will be ready.

By the way, Singapore is my largest single country holding. Part of this is because of home bias, but part of this is also because I believe that Singapore is more nimble and can grow faster than other countries.

Just invested another $10,000 (9 July 2009)

I was away at our Kuala Lumpur Fundsupermart office on a day trip yesterday. All the traveling plus meetings prevented me from writing an entry yesterday. I was also too busy to add to my portfolio yesterday, so I shall do so today. I invested an additional $10,000 today in the following funds.

Aberdeen Pacific Equity - $4,000
Aberdeen Indonesia Equity -$4,000
INF RF Emerging Markets Debt HC Eur - $2000

I will update my portfolio when the transactions are completed and priced. I continue to add to Asia equities (Aberdeen Pacific Equity is one of my core long term holdings), and in particular Indonesia. So far, Indonesia hasn’t been affected as badly by the current global crisis. It has a large population and a big domestic market, just like China. I have also been encouraged about the elections. We haven’t heard much from the current Indonesian elections but that is precisely why its good.

It looks like it will be a peaceful one, just like India’s, and the winners will get to do their job until the next round. This is great for Indonesia. While elections generally will not cause a stock market to move up or down by itself, a political deadlock situation where the loser party refuses to accept the results of a fair election and takes to the streets is generally bad, especially if it cannot be resolved.

If governments are not allowed to perform their role, businesses suffer. Furthermore, if political deadlock becomes so bad that people are taking to the streets, then it’s a further minus because it will generally be bad for business since people are unlikely to be that interested in shopping, working, etc if they are more interested in demonstrating in the streets.

That’s why I am adding to Indonesia right now. It could turn out to be the dark horse market this year. People think it’s a muslim country, they remember rioting in the streets from just a few years back, and its not a very important stock market in Asia anyway. But the Indonesia today is actually very peaceful and whether race or religion wise, everyone there is currently co-existing happily. More importantly, because of its large domestic market and population, Indonesia is in a position to use domestic consumption growth as a growth pillar and stimulus measures can be effective as well.

I also added to my emerging market bond fund. I can’t stress how important diversification is. It gives me the confidence to buy and stay invested in my equity funds because I know that I have something in bonds to lower the risk. Right now, I just don’t like global bonds that much. Interest rates are too low. Thus, when I buy bond funds, I go into either high yield bonds or emerging market bonds. These have a much higher yield of 8% or more. This means that even if interest rates don’t change from their present levels, they would give an 8% return.

Furthermore, bond holders are in a better position to recover their money. If a company goes into liquidation, all its assets get sold off and bond holders are one of the first parties in line to receive whatever is left from the sale. By the time we get to the stock holders, they are usually left with nothing. And if we are talking about emerging market bonds, then its even better because we are talking about government issued debt from emerging market countries. It is unlikely for a country to run out of money and be unable to pay off its debts. Cases of defaults on such a national level are quite rare and in most cases, the debts will be restructured.

That’s all from me for today. In short, I am using the current dip in markets to add more into my portfolio. I continued to add to my core Asia holding which is Aberdeen Pacific Equity fund, and I added to Indonesia which I continue to like, plus emerging market debt as diversification.

US non-farm payrolls (6 July 2009)

I was down with a cold last Friday. Went to see the doctor just to be safe since I was in Kuala Lumpur the day before. Doctors are currently doing a roaring business, the child care centre that my kid goes to insists that if there is the slightest hint of sniffles, I have to get a doctor’s letter certifying they can go to school. And of course, we have to pay the doctor even if they are perfectly fine.

Don’t take this to mean I am big on healthcare as a sector though. While the long term demographics are a positive on healthcare funds (graying populations worldwide), short term wise, many drug companies are suffering as they merge and it gets increasingly difficult to put out that next blockbuster drug.

On another note, markets have been falling since last Thursday on the back of weak US job data. Nonfarm payrolls for June, which had been expected to drop by 350,000, instead fell by 467,000. Unemployment in the US stood at 9.5%, the highest in over 25 years.

As I mentioned before, job data and unemployment are lagging numbers and typically, are not good indicators of where the economy is going. In the current environment where markets have rebounded somewhat, many investors are looking for solid numbers and data to justify further upside in markets. Some are expecting all numbers to turn positive as soon as possible to justify that the US economy has bottomed out. And Asian markets often take direction from how US markets fare.

The truth though is that the economy never turns around like that, and even positive data, is likely to turn up in dribs and drabs. For investors with patience, it will happen. And valuations at this point in time are not demanding, and with earnings are generally quite depressed. So, in a recovery situation, earnings could jump quite quickly.

I will be putting in another $10,000 or more into markets this week. Will keep you posted! And I apologise for not being able to post last Friday.

Unit trusts are doing great so far this year (1 July 2009)

Our half year report on the performance of funds in Singapore will be out by next Monday. But just based on where the FEFI index stands, funds in Singapore have done great this year. The FEFI index which is an index Fundsupermart created to measure the performance of Singapore equity funds, stands at 1,248.84 based on prices as at 26 June. It would probably end up highly by end of June, but just based on this, it means that equity funds here are up on average 24.9%.

If you were holding Asia ex Japan equity funds, or some of the higher risk single country funds like China, India, or the financial sector or commodities sector funds, you would almost certainly be outperforming this. Most importantly though, were you “in the market” or “out of the market” this last six months, that would have a big impact on how your holdings would have performed.

At the start of the year, things were originally looking up, markets had been trending up since the October 2008 lows, and it seemed the worst was over. But investors soon realized that the coming 1st and 2nd quarter of 2009 would actually see the worst economic numbers yet from all the major economies. Since markets as a rule only look forward on average 3 months, they tanked. Global and Asia markets all retreated. Many, like the Singapore market, retreated back to their October lows.

The temptation then must have been strong to throw in the towel and sell out. But in hindsight, it would have been the worst thing to do. Because after that, markets then recovered very strongly, and Asian markets in particular saw gains of 50% or more from March 9th to the half year mark where we stand now. (To find out how your own portfolio actually fared, click on this button called “Analyze my portfolio” on the top right hand side of your view holdings page, this will show you how your holdings fared over different time periods. Like when I do that to my portfolio, it says over 6 months, my portfolio was up 37.9%).

I wrote in my GM column in the Fundsupermart magazine at the start of the year that I felt that this year would surprise many investors by being a positive one (I think many of you have a copy, so you can go and check back for verification). So far, it has proven to be a very positive year with many funds up 30% or more. You didn’t have to have bought in at the March lows. Even if you have bought at the start of the year, if you had held it through the March lows until now, you would be well in the black.

Where do we go from here? Well, I remain optimistic about the prospects of Asian markets so I have stayed invested all this time, and had added to my investments during this last six months in fact. While I don’t anticipate the kind of sharp rebound that we have seen in the last three to four months, I do still see a general uptrend in markets as more and more positive economic data flows in.

So, anyway, in conclusion, many funds are turning in strong performances this year, and let’s drink to more of the same for the second half of the year as well!