The last 3 months have been a tough quarter for the global stock market. the month of April and May were losing months and June will probably be a losing month too. The concerns around the world were so great that the spotlight fell on Doomsday economists again. Dr Nouriel Roubini, also popularly known as Dr Doom,predicted that we will see a double dip recession soon. The problem with Doomsday economists are that they are frequently wrong and always right because every other year will be a recession. Here is an example by Daryl Guppy, CEO at Guppytraders.com. Daryl Guppy is known for his Guppy Trading methods and is frequently interviewed by major media around the world. For those who are not familiar with the US Stock Market, the Dow is 26% higher since the time he predicted the “double-dip recession”.
Here is a Summary of the important events that happened in June:
- Greece is towards another bailout as the parliament comes together to pass the Bill and the main opposition party of Greece is adamant not to let the Bill pass. Huge strikes and protest around the country crippled major transportation services in the country. The Eurozone and IMF have prepared the bailout package and what is left is the political will of the country. This is the main factor bothering the global economy and stock market at the moment.
- Data in US continues to point towards a slow down in the pace of growth in US. Unemployment remains stubbornly high while major corporations in the country are holding record amount of cash reserve and are not employing them to increase hiring.
- China leading indicators are slowing and China leaders are hailing their success in directing the country towards a soft landing. The Chinese and Hong Kong stock indices rallied greatly on the news that tightening in China is going to end at last
- Japan economic indicators are showing data that the country is recovering quickly from the greatest disaster the country has ever faced. The stock market rallied on the news.
- Oil prices fell to $90. The OPEC countries resisted the call by developed countries to increase their production in order to depress the price of oil. This is to ensure that the global economy is not further derailed by an oil shock. In retaliation, the US Strategic Petroleum Reserve release oil from their reserve and oil prices tumbled. The impact is expected to last only in the immediate short term.
Are We Going Into The Pits?
Are we heading for another big dip? That is the question on everybody mind right now. The world seems to be in a fragile state. US growth is slowing, Eurozone having problem with debt crisis, China’s economy is slowing down and Japan is still trying to recover from the Triple Disaster. Any additional crisis may tip the global economy into a double dip recession. I wouldn’t say that will not come to pass but I strongly believe that the record amount of stimulants thrown into the global economy since the Great Recession will slowly bear fruits. The Greece government have passed the bailout bill and the fresh money is expected to last till Sept. Meanwhile, the global stock market has rallied strongly on the news that the crisis is over, for now. I believe that the market will have a major rally that will last till Aug at least and the long wait for a significant rally is over. We should see some decent returns at last!
The Convergence of The Market
3 months ago, I wrote about the under-performance of the Asian market and why the US, Euro and Asia will converge at one point in time, and therefore, any new investment should go to Asia and not to the other parts of the world. Here is a chart of the 3 major index in the world and their relative position to each other. The Green is MSCI Europe, Blue is US S&P500 and the Green is MSCI Asia Ex Japan.
Clearly from the chart, you can tell that the 3 lines have converge and should we have invested in US and Europe, the damage will be in much greater magnitude than investing in Asia. Another thing we can learn from the chart is that the global stock market has been trending downwards since March and therefore, giving miserable returns. Things just got better in the last 3 days and let’s hope things are smooth from here.
Fund Performance and Strategy
The portfolio lost less than the average index due to the concentration of funds in Asia and Emerging market. Resource are hit hard due to the fall in oil prices. I believe that the fall is temporary and any sign of recovery in the world will push commodities prices up again. Long term prospect of commodities is still bullish. Indonesia again outperformed the rest of the country and is still my favorite country to invest in at this moment in time. US and European funds are at the bottom of the heap and China has not done well last month. However given the current situation in China, I believe that it will do much better for the month of July. There is no change of strategy with most of the allocation in Emerging markets, Asia and resource. I do not see any need for any switch now as I believe that this allocation should be optimal at this point of time. Attached is the fund performance of the regularly selected funds. The best and worst performing funds in the fund universe are at the top and bottom for the purpose of comparison
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