Dear Friends,
Some people termed the month of October as "Black October"
Let us reviewed what has happened so far and the impact to your investment portfolio
Bloodshed of the Asian Markets
The month of October was not well for most investors. Almost all categories of Asset Classes lost ground during this period of time with the exception of Gold. The market that was hit the most was the Asian Markets. Right on the top of the carnage is the Indian Market which fell 11%. The rest of the Asian Markets fell by 4%-9%. The Asian market on the whole, fell by 8%. What happened during this period? Let's examine the major events that took place.
Event 1: Oil Prices retreated from $70 to $60 (Good Factor)
Event 2: US Inflation Fears (Bad Factor)
Event 3: Companies and Corporates still announcing growth in profits (Good Factor)
Mr Market is a strange person. When it becomes pessimistic, it looks at the bad factors while ignoring the good factors. This time round, Mr Market is over pessimistic over inflation fears. Here are some of the reasons why we think Mr Market is overreacting.
Reason 1: The government try to curb inflation by adjusting interest rates. Traditionally, US corporate bonds yield is more sensitive to interest movement and inflation than US equities. Strangely, US corporate bonds yield barely moved while Asian Markets fell due to inflation fears. It is irrational to have equities reacting more than US bond yields.
Reason 2: The concern in inflation is generally caused by a rise in oil price. Remember 2 years ago, the Fed was very concerned about China and emerging market exporting deflation. Has China stopped exporting deflation? In fact, net export of China has increased over the years. This creates a balancing act for prices to stay neutral given these two forces are acting against each other. Therefore, there is a high possibility that the concern for inflation is short term and this sentiment will slowly erode as market forces exert their power.
Reason 3: Companies are still making profits. Sustainable growth is still highly possible. Valuations are still reasonable across the board.
Is there any reason for us not to stay invested or to make a major change in our investment strategy? There is no compelling reason for us to do so. There is still money to be made. In fact, this could be a good time to inject additional funds to take advantage of the fear in the market place.
Yours Sincerely,
Xeo Lye
Some people termed the month of October as "Black October"
Let us reviewed what has happened so far and the impact to your investment portfolio
Bloodshed of the Asian Markets
The month of October was not well for most investors. Almost all categories of Asset Classes lost ground during this period of time with the exception of Gold. The market that was hit the most was the Asian Markets. Right on the top of the carnage is the Indian Market which fell 11%. The rest of the Asian Markets fell by 4%-9%. The Asian market on the whole, fell by 8%. What happened during this period? Let's examine the major events that took place.
Event 1: Oil Prices retreated from $70 to $60 (Good Factor)
Event 2: US Inflation Fears (Bad Factor)
Event 3: Companies and Corporates still announcing growth in profits (Good Factor)
Mr Market is a strange person. When it becomes pessimistic, it looks at the bad factors while ignoring the good factors. This time round, Mr Market is over pessimistic over inflation fears. Here are some of the reasons why we think Mr Market is overreacting.
Reason 1: The government try to curb inflation by adjusting interest rates. Traditionally, US corporate bonds yield is more sensitive to interest movement and inflation than US equities. Strangely, US corporate bonds yield barely moved while Asian Markets fell due to inflation fears. It is irrational to have equities reacting more than US bond yields.
Reason 2: The concern in inflation is generally caused by a rise in oil price. Remember 2 years ago, the Fed was very concerned about China and emerging market exporting deflation. Has China stopped exporting deflation? In fact, net export of China has increased over the years. This creates a balancing act for prices to stay neutral given these two forces are acting against each other. Therefore, there is a high possibility that the concern for inflation is short term and this sentiment will slowly erode as market forces exert their power.
Reason 3: Companies are still making profits. Sustainable growth is still highly possible. Valuations are still reasonable across the board.
Is there any reason for us not to stay invested or to make a major change in our investment strategy? There is no compelling reason for us to do so. There is still money to be made. In fact, this could be a good time to inject additional funds to take advantage of the fear in the market place.
Yours Sincerely,
Xeo Lye
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