Early warning for a bad year
After a week of strong gains from world equity indices, the market slipped into red as a result of profit taking. The fall is minor, but, according to history trends, that may be a bad sign for the rest of the year.
Historically, when January gives the unwary investors bad surprises, the rest of the year tend to follow suit. A small decline is not exactly cause for alarm but a gain in this period would have been better, historically speaking.
Beyond JanuaryThere are many market indicators that suggest 2007 will be a strong year. The valuations of world economy is still relatively modest. With oil prices and commodity prices easing off from their highs, businesses will find that 2007 might be more profitable as the cost of running the business starts falling. Another plus is that 2007 is a year before the US presidential election. The Dow Jones industrial average hasn't fallen in a pre-election year since 1939, amid World War II. That's because in the year before and the year of a presidential election, the party in power does what it can to stay in power and not alienate voters, including keeping the economy strong and money in the hands of consumers.
The goods news is that January is not over yet. There is every chance that the market will rebound strongly after the investors decide that the market is not about to collapse at the start of the year and start to pour money back into the market.
The Strategy for the Year
The Strategy for the year will be similar to last year except with slight change. In the case of asset allocation, equities are still favored over bonds. Long Term Investment Grade Bonds are still expected to underperforms for the 1st half of the year and our bond strategy will still be using short term bonds. Commodity will have a lesser importance in the portfolio while property will gain weightage due to it's defensive nature during the boom cycle. Region wise, we still prefer Asia and with emphasis on western - Europe. This year could mark the end of the multi year bull run but it depends on how fast the economy slows down. As long as the slow down is not drastic, the next correction may still be many years away.
After a week of strong gains from world equity indices, the market slipped into red as a result of profit taking. The fall is minor, but, according to history trends, that may be a bad sign for the rest of the year.
Historically, when January gives the unwary investors bad surprises, the rest of the year tend to follow suit. A small decline is not exactly cause for alarm but a gain in this period would have been better, historically speaking.
Beyond JanuaryThere are many market indicators that suggest 2007 will be a strong year. The valuations of world economy is still relatively modest. With oil prices and commodity prices easing off from their highs, businesses will find that 2007 might be more profitable as the cost of running the business starts falling. Another plus is that 2007 is a year before the US presidential election. The Dow Jones industrial average hasn't fallen in a pre-election year since 1939, amid World War II. That's because in the year before and the year of a presidential election, the party in power does what it can to stay in power and not alienate voters, including keeping the economy strong and money in the hands of consumers.
The goods news is that January is not over yet. There is every chance that the market will rebound strongly after the investors decide that the market is not about to collapse at the start of the year and start to pour money back into the market.
The Strategy for the Year
The Strategy for the year will be similar to last year except with slight change. In the case of asset allocation, equities are still favored over bonds. Long Term Investment Grade Bonds are still expected to underperforms for the 1st half of the year and our bond strategy will still be using short term bonds. Commodity will have a lesser importance in the portfolio while property will gain weightage due to it's defensive nature during the boom cycle. Region wise, we still prefer Asia and with emphasis on western - Europe. This year could mark the end of the multi year bull run but it depends on how fast the economy slows down. As long as the slow down is not drastic, the next correction may still be many years away.
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