Unexplainable Selloff of the Asian Markets. MENA Political Crisis!

I hope that you have enjoyed the 2010 Annual Report. I have received numerous complaints that the report is too long! On the bright side, many agree with me that it is a clear and comprehensive report. We are back to our short and concise monthly updates and I promise to minimize on the flowery languages and cut straight to the point! The month of Feb is a truly uniquely Asia experience as Asian bourses were sold down en-masses despite record growth from companies and countries. The middle-east/African chaos also raised some fears in the markets. Here are some of the important updates for month of Feb:

photo: AP / Alastair Grant

• Political chaos in parts of Middle-East and North Africa are leading to a greater fear of a new unpredictable Middle-East.
  
• Oil Prices hit a record high of $100 as Libya, a top oil producing country is hit by a political crisis. Gold prices advance back to above $1,400 after the Jan sell-down. 
  
  
• Asian markets were being sold down and lagged US markets as much as 10% in difference in returns at one point of time. The sell-down is homogenous with no Asian countries being spared. Taiwan & Korea are the worst hit for Feb.

I have attached the 6 months chart of US, Europe and Asia to illustrate the fall in the Asian markets. Red is US. Blue is Europe. Green is Asia.

The Bewildering “Asian Recession”

The  Asian markets lost up 10% at one in time when it “crashed” over the period of February, while the US and the European markets did extremely well. I have not seen this big a divergence in direction since the Great Recession. Analysts were left scratching their heads as growth in Asia is still doing well and there were no major crisis in the past month to warrant this magnitude of drop. Many attributed to “fund rotation” as global fund managers move funds back to the relatively “cheaper” US and Europe markets. However, the difference became slight narrower as the Middle-East crisis created a panic selling in the Western Markets in the past few days while the fall in the Asian markets remains controllable as they are already been oversold.  Korea & Taiwan, the best performing markets for December and January fell the most up to 7% in a short period of time.

A Change of Strategy?

I have written in my annual report that I will allocate 30% to US being the fact that USA is behind the curve in the recovery process. No sooner I sent out that report, the US market zoomed to the stratosphere. It is too late for me to shift our allocations from Asia to USA as this will risk investors selling at the low on the Asian markets and buying a high at the US markets. I do believe that the outflow of funds from Asia is temporary and investors who are looking for growth will move their monies back to Asia. The more interesting factor right now is the artificial high oil and gold prices due to the MENA (Middle East and North Africa) crisis. Since our portfolio allocation right now is mainly in resource and Asia, it may be a good time to sell and take some profit off the resource funds and move them to Asia, taking advantage of the horrid situation in Asia right now.

·         Sell a part of resource and gold reducing exposure to not more than 20% and move them to Asia Fund

·         Reallocate Asian funds to US funds when the Asian market move back up and reached parity with the American funds

I have added a new fund to the list of frequently used fund. Fidelity American SGD. This fund is the top performing SGD American fund in Singapore and the Fund has consistently beat or match the benchmarks. Attached is the performance of funds for the month of Feb 2011.