22 June 2011

Market Update

Delaying the Rebalancing

Further to our last call for rebalancing the portfolios, we have delayed the rebalancing exercise due to the persistent weakness in the markets over the past weeks. Such market conditions do not provide a suitable opportunity to rebalance. We see the current weakness as a market correction rather than the start of a bear market; we would like to wait for markets to recover somewhat before proceeding to adjust the portfolios.

Correction, not bear market

The recent market action feels worse than it actually is due to the long losing streak. Nonetheless it is in line with corrections we have seen since the bull market that started in Mar 2009.

Figure 1: Movements in S&P 500 index

The current selloff has been triggered by poor economic data as a result of a slowing economy. Despite the economic slowdown, there are reasons to suggest that the odds of a recession remain low.

Corporate profits in the US economy continue to rise. This provides an incentive for businesses to expand and for entrepreneurs to initiate new business ventures. It is such activities that prolong the growth cycle. Hence, it is difficult to envisage a recession while profits are still rising.

Figure 2: Corporate Profits after tax

Furthermore, the recent decline in oil prices provides relief to consumers and businesses, reducing the odds of declining profit margins and hence recession risk.

Figure 3: Index of Crude Oil Prices

After the initial slowdown, economic growth is expected to pick up again when the benefits of lower energy prices and the lure of profits feed back into the economic system. When the news starts to turn positive, markets can begin to rally again. That could provide us with the opportunity to rebalance the portfolio.

IMPORTANT NOTES: This report is provided for the information of the intended recipient only and should not be reproduced, published, circulated or disclosed to any other person without the prior written consent of GYC. The information and opinions expressed herein reflect a judgment of the markets at its original date of publication and are subject to change without notice. GYC does not warrant the accuracy, adequacy or completeness of the information herein and expressly disclaims liability for any errors or omissions. The information is given on a general basis without obligation and on the understanding that any person acting upon or in reliance on it, does so entirely at his or her own risk. Any projections or other forward-looking statements regarding future events or performance of countries, markets or companies are not necessarily indicative of, and may differ from, actual events or results. Neither is past performance necessarily indicative of future performance. You should make your own assessment of the relevance, accuracy and adequacy of the information contained in the information provided and make such independent investigations as you may consider necessary or appropriate. Accordingly, neither GYC nor any of our directors, employees or Representatives can accept any liability whatsoever for any loss, whether direct or indirect, or consequential loss, that may arise from the use of information or opinions provided.

GYC FINANCIAL ADVISORY PTE LTD  1 Raffles Place #15-01 One Raffles Place, Singapore 048616
Tel: (65) 6349-1441 | Fax: (65) 6349-1440 | Email: enquiries@gyc.com.sg | Co Reg: 199806191-K
Website: www.gyc.com.sg