Greece Election Resolved.Spain & Cyprus Asked for Bailout

  June had been a pretty tense month for the financial world. The world waited with abated breath for the results of the Greece election, and breathed a sign of relief as the pro-bailout coalition managed to scraped pass a narrow win. Looks like Greece will get to stay within the Euro zone a bit longer. Meanwhile, the European leaders signaled that they may be willing to renegotiate some of the harsh austerity measures imposed on the bankrupted country allowing the Greece to implement some pro-growth, money spending measures, instead of straight austerity.  Bad news continued to pile up after the Greece elections. Spain, the 4th largest economy in EU has asked for a bailout. Shortly after, Cyprus asked for help as their Greek reliant economy suffered a big blow with the decline of Greece. The G20 meeting saw emerging markets making contributions to the coffers of International Monetary Fund(IMF), while US, with its troubled economy back at home, refused to increase their funding. The data from China continued to show signs of weakness and the Chinese government for the first time in the past years, lowered their interest rates to soften the blow of the weakening economy. Leading indicators in US continued to be mixed , favoring more negatives than positives, giving hope that this will encourage the US Federal Reserves to take more concrete actions to boost the world's largest economy. The Fed decided to make some cosmetic upgrades to their "Operation Twist" and choose to observe the situation as they developed. Rating companies downgraded major US banks, like Citibank and Goldman, citing that their exposure to the European market threatens their stability. Meanwhile, on a bright note, the stock markets have stabilized a bit and is fluctuating in a narrow region, as traders sit by the sidelines observing the unfolding high drama of political maneuvering of the European politicians, trying to secure their personal power by implementing popular measures and trying to save the European Union at the same time. Looks that we are only taking a commercial break for now as more events will continue to unfold after this brief respite.

As compared to last year, the stock market is relatively orderly and calm. There has been a correction and some worries, but there a few instances of panic selling or buying. It seems like investors have acclimatized to the sudden twist and turns of the world events, and instead of making big bets, are making measured, calculated bets on both sides of the bull and bear. There has been many hedge fund managers who tried to second guess the market and were punished severely for their wrong speculations. The plight of these once successful fund managers, who are badly bruised from the market turbulence, served as a sobering lesson for all money managers around the world: Expect the unexpected.

A recent development in Europe allowed the stock markets to stage a small rally. News that Eurozone officials have allowed Spain's banks to be directly recapitalized with bailout funds once Europe sets up a single banking supervisor spurred a rally. The reason for why this news is so welcoming is actually quite complicated, but to put it in simple terms: It allows the Spanish banks to have access to an almost unlimited source of money, which allows them to lend out to spur the economy, minimizing the risks of a liquidity dry up like what happened to the banks, during the financial crisis. This sudden and unexpected news created a rush back into the stock market. On top of that, China announced a interest rates cuts, further encouraging investors to pile back into the markets.

However, the crux of the problem is still around. The US economy is slowing down again. Europe is in a mess. In Asia, China, the growth engine for Asia and the world from 2009-2011, is slowing down rapidly and its property market drifting downwards. There seems to be a lack of growth factor around the globe right now. Fortunately, these are the signs we are looking out for. The best profits are always made when all hope seems to be lost. US is contemplating the much anticipated QE3 which will unleash another new wave of liquidity into the market. Along with Europe and China lowering their interest rates simultaneously, this will be great news for commodities counters, which have been severely depressed for the past 2 years, ever since China embarked on a economic tightening program. The worst performing market of Asia, China, may see some light at last after 4 years of bear markets as the rates cuts will encourage a fresh wave of liquidity back into the Chinese market. A new change of leadership in US and China, will probably see a new wave of decisive policy making, that is sorely lacking, as politicians are afraid to make big economic policy changes, which may derail their political career. Given with all these positives, we still have the chronic illness of Europe, inflicting injuries on the global economic front every summer, so some caution is still needed despite many potential positive factors coming our way.

The fund appreciated 1.04% during the month of June. Take note that the returns from the individual unit trust is not reflective of the performance for this month as I took the monthly individual fund performance 5 days later than that of the average fund portfolio. The one week rally made quite a bit of difference in the performance and will be reflected in next month performance. The best performing sector for the month is north Asia, particularly China and Hong Kong. Singapore performed quite well too and both these countries are heavily weighted in the Aberdeen pacific and emerging market funds and the Legg Mason SEA fund. Commodities staged a big rally in June and is expected to do well as China and USA further loosen their economic policies.

I will be making a switch in coming weeks, probably before August, after making sure that the recent rally is not a fluke and fresh events from Europe will not knock the indices back to where we were 2 weeks ago. I will move half the of funds out of the Singapore bond fund, probably into North Asia or Commodities and keep another half in reserve, in case of a sudden turn of events in Europe. I will probably commit the other half in Sept in anticipation of the new positive policy changes, of the new leadership of the 2 major economies of the world. I will also conduct my semi-annual investment review with you, so you will be expecting a call from me soon! For those who are overseas, we can do a skype or a facetime chat to go through some of the concerns you might have. If you have other preference of doing the updates, please let me know and I will try my best to accommodate!