Dear Reader,
Welcome to the first issue of GYC Market Compass! We hope to share with you
investment opportunities and strategies to help you Grow Your Capital.
In this inaugural issue, we will be addressing concerns on the recent
turbulent markets and in particular, the following questions :
a) Where are Global Markets heading?
b) What should I be doing?
As Singapore is now plugged into the global financial markets, any external
shocks would be felt on our shores. As your Financial Advisor, we are here
to help you understand and make sense of what is happening in the markets
and how to steer through turbulent waters.
Lets start making smart decisions about your money!
Issue 1 - July 2006
Newsletter Hightlights
Overview
1. The second quarter has been a turbulent one. World equity markets did
well till the middle of May with some markets hitting new highs since the
bursting of the Internet bubble. Investors then experienced stomach churning
corrections over the 2nd half of the quarter. Most badly hit were the
emerging markets with some down as much as 25% at one stage. World equity
markets then staged a modest recovery towards the end of the quarter.
2. For the quarter, the US S&P index was down 1.9%. The higher beta,
tech-laden Nasdaq plunged 7.2%. In Asia, Japan and India both gave up about
9.0%. Amidst these poor results, China stocks did very well. Shenzhen A
index registered a gain of 35.5% on the back of a growing Chinese economy
and increased investors confidence following a slew of market reforms in
the Chinese capital markets.
| About GYC Investment Compass |
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| Where are Global Market Heading? |
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| Our Outlook |
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| What Should You be Doing? |
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| What is Your Perception? |
4. After 17 consecutive interest rate hikes by the US Federal Reserve (Fed), investors began to wonder if the Fed had overdone the tightening job. Three fears began to crop up on investors mind: Fear of Shrinking Liquidity, Fear of Recession triggered by overly aggressive tightening by the Fed and the Fear of Shrinking Corporate Profits as the world economy slides into a recession.
5. Looking ahead, we think that the world economic environment could be more benign than was discounted by the market participants. The US economy looks like it is entering a mid-cycle slowdown. Signs of slowing growth have begun to emerge. Inflation, while rising, is not surging. With companies still focusing on cutting costs, wages are unlikely to surge and thus unlikely to add to the inflationary pressures present today. On the macro front, we have localised asset bubbles, for example, the US real estate market. Even this has been deflated somewhat by the Fed via a series of hikes in lending rates. Central banks have chosen to be pre-emptive. They are concerned, but not reacting in alarm to the building inflationary pressures. Surveys shows that companies still do not have the necessary pricing power to pass on rising manufacturing costs to the consumer.
On the micro level, the health of the company balance sheet has never been better since 2001. Cash levels are high, valuations are reasonable to cheap. Recent sell-offs means that investors are vigilant and not carried away a necessary ingredient for a serious turn in both the economy and the markets.
The risks to our more benign outlook are the following :
a) Surging Inflation
b) Sharp and Swift Recession
c) Collapse of the US Dollar
d) Exogenous Shocks to the System
Any one of these events will be enough to bring in a bear market for equities. A combination of (a) and (b) will cause stagflation, an event that is bad for both equities and bonds. However, we know that while these events may drag capital markets down in the short term, they will not permanently affect the attractiveness of these assets for medium to long-term investors. History, in fact, has shown that these are great buying opportunities for those who dare!
There are basically two things you can do in reaction to what you have just read :
a) Do Nothing : Because you are not only fully invested, but rightly positioned for the future. Do not do nothing because you have been paralysed by fear arising from recent market moves (speak to your Financial Advisor to review your current holdings).
b) Act : Market declines are excellent opportunities to buy good investments on the cheap. If you are already in a dollar cost averaging investment programme, now is not the time to pull the plug. In fact, you should stick with the programme which has been shown to be the most profitable investment strategy ever known. If you are wrongly positioned, it is still not too late to reposition yourself that is switching from a poor investment to a good quality one that will benefit from the mid-cycle slowdown.
Our Financial Advisors have been briefed on what are the attractive investments to profit from the coming mid-cycle slowdown. They are at your disposal. Speak to them.
Finally, we advise all investors to overcome the emotional swings of greed and fear. When the markets are up, we are swamped by greed, focusing solely on returns and forgetting about risks and fundamentals. In turn, when the market corrects, we are gripped by fear, losing track of returns and the fact that good investments can now be gotten at a discount! To do this, we need professional help in the form of a knowledgeable Financial Advisor. Their role is to guide you along and provide you with valued counsel in terms of financial advice. The next key ingredient in the fight against greed and fear is to stick with a clearly laid out investment program that has been thought through and agreed in normal times. Just as good times will surely be followed by bad times, difficult times will in turn give way to a better tomorrow and richer returns to those who can manage their emotional swings with good advice and sticking with a well conceived investment program.
Look out for our next issue, where we continue to bring you more updates on the markets.
GYC Research and Investment Desk
This document has been produced based on GYC Financial Advisory's research and analysis and represents our house view. It may not be reproduced in any form without the express permission of GYC Financial Advisory Pte Ltd. Whilst GYC Financial Advisory believes that the information is correct at the date of this presentation, no warranty or representation is given to this effect and no responsibility can be accepted by GYC Financial Advisory for any action taken on the basis of the information. The above information is strictly for information purposes only and should not be construed as an offer or solicitation to deal in any product offered by GYC Financial Advisory. Any such investment product offered by GYC Financial Advisory are not obligations of, deposits in, or guaranteed by GYC Financial Advisory Pte Ltd. Any investment product, including investments in unit trusts, is subject to investment risks, including the possible loss of the principal amount invested. Investors may wish to seek advice from a financial adviser before making a commitment to invest in any investment product. In the event an investor chooses not to seek advice from a financial adviser, the investor should consider whether the investment product is suitable for him.
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is a licensed Financial Adviser and regulated by the Monetary Authority of Singapore under the Financial Advisers Act.1 Raffles Place, #44-01 OUB Centre, Singapore 048616
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