Happy New Year to all readers. Here are some new updates on current market outlook (supplements to eBook on Global Market Outlook 2015) when we welcome the Year of Sheep 2015.
1) China Market Rally
As shared in several workshops and publications since 1 year ago, 2000 points was a golden entry point for China SSEC Index (through A50 ETF) as it was at 25% Optimism, a rare opportunity for a major country index to be corrected. Indeed, in the past few months, after the Shanghai and Hong Kong stock markets are connected, it provides a reason for the traders and investors to push up the undervalued SSEC Index to 3330, appreciation by 65%!
Although SSEC or A50 still has more than 50% growing potential (before reaching 75% Optimism), a safer strategy now could be looking for individual undervalued stocks with low optimism (<25%) which are still lagging but having more potential to rise.
2) Oil & Gas Correction
Brent crude oil price has been dropping in the past few months, from US$115/barrel to the lowest of US$47/barrel recently. Global commodity price index has been below 25% Optimism when crude oil was still above US$100, the unstable high oil price at over 75% Optimism was triggered by a complex interactions of:
2.1) Recovery of US:
The US dollar is strengthened after QE3 is fully tapered since Oct 2014, following by anticipation of US interest rate hike in 2015. USD and commodity (eg. gold, oil, etc) usually move in opposite direction. With US unemployment rate drops to 5.6% in Dec 2014, the US recovery will continue in the next few years, oil will be under pressure.
2.2) Political Economy
There could be political considerations for oil producer vs oil consumer countries, OPEC and non-OPEC countries, conventional vs shale oil technology. The demand vs supply principle of economy is disturbed, resulting in high volatility in oil prices. The crude oil price is halved, the impact is as if a new form of global QE (Quantitative Easing) to stimulate the economy because the energy cost is lowered, there is more saving for spending or investing in near future, at the expense of oil producers who have accumulated significant reserves of wealth during the super bull run of oil from 1999 to 2014.
2.3) Trader Psychology
Profit taking or cut loss when prices drop from high point, resulting in falling-knife trend, few traders dare to catch to support the price. With more hedging and shorting sentiments, the oil price will be under correction, following the old foot step of gold prices a few years ago.
A crisis is usually an opportunity, a blessing in disguise. Oil price has resulted corrections in many stocks in Oil & Gas, some are below 25% or even 0% Optimism, which usually only observed during Global Financial Crisis, not in the middle of a bull market. Commodity has a much longer market cycle (eg. 20-30 years), may not be aligned with economy cycle. Each investment market (stocks, properties, forex, bonds, etc) has different investment clock, % Optimism strategy could be applied to buy low sell high. For long term Brent crude oil, 0% Optimism is at US$44/barrel, over-correction by the market will provide an excellent opportunity to both traders and investors but a proper strategy must be adopted, especially to overcome the market emotional swing due to short term volatility. The timing of crude oil recovery then will be the timing for oil & gas related stocks.
The sector correction will be rotated from time to time among various industries due to imperfect market, following the Optimism level, higher one will have higher risk, lower one will have higher potential. The oil correction will help the shipping sector (eg. NOL, SIA, etc) at low optimism to grow, higher outlook for profitability with lower energy cost. The rally in China market will help the Singapore S-chips to recover gradually, especially after the China economy is improved further. The last example was severe Singapore REITS correction in year 2013 after 50% rally, now in recovery phase but will have limited upside due to increasing mortgage rate (anticipation of US interest hike) and gloomy outlook of Singapore property market. Earlier example was storm in penny stocks, correcting many stocks, resulting in low trading volume due to negative sentiments. Based on the survival of the fittest, each correction will make the “giants” or strong-fundamental stocks become stronger after recovery from the valley of lower price. We want to look for giants who are falling down, helping them to recover at the right time, then the giants will reward us when becoming strong.
For those who are interested in the details of market outlook 2015 or Ein55 styles with Optimism Strategies, you may drop by to attend the next free workshops conducted by Dr Tee. All the best to all in trading and investing for year 2015!
