China and Japan goes into political cold war. QE3 Unleashed!

I am quite late for this month newsletter. Apologises. I have to serve my reservist in-camp training during the first week of October. For some unknown reason, my intelligence level dropped drastically once I put on my green uniform, and any attempts to complete my newsletter while in-camp is derailed by total lack of inspiration and intelligence. So, do forgive me!

 

A Chinese protester attacks a Honda-branded police
car with an metal rod during an anti-Japanese
protest in Shenzhen, Guangdong province. 
(Photograph: Reuters)

For those who know me, they will know that I am the most efficient while working from a cafe in the middle of Bugis. That day, I was doing my work at a cafe, doing my usual stuff and overheard a couple of lovely elderly folks having a discussion.a

"Did you read about the Diao Yu Dao incident whereby the Chinese and the Japanese boats faced off??"

"Yeah, I  heard that the Chinese is mobilizing for war!"

"We better pull our investments out. The stock market is going to crash soon!"

Rumors are scary stuff.

The fact is, the chances of Japan and China going to war are probably non-existence. The contested Senkaku Islands, are protected under the 1960 US-Japan Security Treaty which US will have to Japan's aid if the Senkaku Islands are being attacked. The Chinese government has also hinted that they have the economic might to weather any economic fallout should there be a pullback of economic ties on both sides, but in reality, the Chinese government knows that the economic fallout will destroy the newly minted Chinese economy. The wealth of the Chinese, is tied to those in power within the Chinese society and is more fragile, while the Japanese wealth is fundamentally stronger as it is tied to technological improvements and efficiency, with a much better distribution of wealth, despite the sluggishness of the Japanese society. The much vaulted Chinese reserves is made up of mainly US, Euro and Yen and these currencies will be worth much to nothing should the Chinese decide to go to war with US and Japan. All these political posturing probably serve as a form of distractions from the economic woes these two countries are facing right now. The best solution to this issue is probably leave it unresolved for a long long time.

The stock market was given a boast in the month of September as central banks from both Europe and US took an aggressive stance of loosening monetary policy again. The much anticipated QE3 was unleashed at last, although most economists think that the impact will be minimal on the economy. The more important thing that must change, must be political restructuring and fiscal stimulants from the policy makers. As what I wrote previously, nothing will happen on this aspect, at least until after the November elections.

Gold and resource had a good run due to a falling USD thanks to the QE3. The rally should loose steam as we go into October as traders take profit again.  Malaysia, which was our best performing fund last month, lagged the peers and investors rotated out of Malaysia to more aggressive countries. I expect Malaysia stock market to pick up in October as the big money takes profit and rotate back into Malaysia again. 

 The portfolio did relatively well at 3.66% for this month as compared to the 1.32% for STI and 3.52% for the MSCI World Index. After a good rally for September, I will expect a slight pullback in the month of October as market takes profit. Any small little bad news will be taken as an excuse for traders to take profit, so there is no need for concern should the market starts to trend down during October. I still expecting a nice rally going into December and January after the new governments around the world gain new mandates to put in new measures to combat this global economic swamp.

Attached is the summary of fund performance for your reference.