The Light at the Start of 2008

The End of a Turbulent 2007. A New Hope in Year 2008

The end of 2007 is here and so far, the market has not shown any improvement since the start of the subprime debacle 6 months ago. No thing much has changed. The market is moving nowhere and my guess is that it will remain like this till the first 3 months of 2008. Goodbye Santa Claus Rally! While the equity market is going to be flat for a while, let us turn our attention to the Year 2008

The Developments Around the World

Various governments throughout the world have started to combat the threat of a possible from the fall out of the credit crunch. The US Government has lowered their interest rates 100 basis points (1.0%) and the Bank of Canada, Europe and Britain has lowered interest rates respectively to elevate the stress on their banking systems. On the contrary the Asian economies are still booming and is still combating raging inflation. Oil and commodity prices still continue to rise due to the rampant growth of the Asian economies. However, We cannot ignore the fact that the Asian consumption capacity, is still a faction of what the Americans consume. The Asian boom may slow down as the growth in US and Europe diminishes to zero.

The Americans: Between and Rock and a Wall

The Americans have a big problem. They are facing the worst housing slump even seen in the last 16 years. Foreclosures have soared to record highs. A drop in home prices left some people stuck with balances on their home mortgages that eclipsed the worth of their home. Oil prices have risen 57% this year and inflation refuses to retreat despite the risk of recession. The US government and the Central banks have their hands tied. Lower interest rates to much and the cost of production will go up and corporate profit will be squeezed with a higher cost of production and a falling demand. Do nothing and the economic might be tilted into a recession which no hopeful presidential candidate will want on the start of their election term.

The Hope at the Start of 2008

According to multiple analyst, the worst period will be between now and the first quarter of 2008. It couldn't get worst. More bad news and losses from the sub prime area will clobber the stock market. The wild swings of the second half of the 2007 will continue till early next year. Growth in Asia will probably slow down as a result of the US infection. This is probably good as the world takes a breather from the neck breaking pace she has been expanding since 2003. Well, it is better for a slow down to happen than a deep recession due to excess and greed like what we have seen during the dot com bubble. We will still probably see positive growth from the stock markets but don't expect the likes of what we have seen in the better part of the last few years.

The Strategy at Large

There is a few sector what we will advise our investors to focus on. Firstly, we are going to massively overweight in Asia and commodities producing emerging markets. We won't see the 20-30% growth we have seen for the region this year but that is probably where the best bets are going to be for the equity markets. With the political woes of Thailand and Taiwan that are probably going to be resolved with the change of leadership, these two undervalued countries may have the potential to perform in 2008. The BRIC (Brazil, Russia, India and China) nations will probably still do well with their huge domestic markets and will buffer against and fall in US lead exports in time to come. Sovereign US and European bonds will probably do will with the calls and expectations of these regions to cut their interest rates. Good dividend paying stocks in developed nations will do well in times of crisis like this. The overall asset allocation will be in favor of bonds during this season, but we do not expect the equity markets to fall any much further with the majority of the bad news being already factored in. The property market is starting to look cheap with global REITS falling as much as 40% from their peak.
So the Year of 2008 will be a challenging one for investor.

However, by no means that there is no profit to be seen. As the saying goes, " The greater the crisis, the greater the opportunity!"

Wishing you all a Happy and Prosperous New Year ahead and Good Luck in your Career, Family and Spiritual Growth!