Let’s twist again! 23 June,
2013.
In June, the Federal Reserve decided to
continue “Operation Twist” and expand its program by USD 267 billion through
the end of the year. The USD 400 billion Operation Twist was
announced in September last year and would have expired in June. The
“Twist” is effective in keeping the interest rate curve in shape but less
impactful to the shape of US economy. It keeps the long term
interest rate low. The bulls were hoping for QE3 (Quantitative
Easing) to pump steroid to the market but the FED did not pull the
trigger. It is just a matter of time as Eurozone crisis has become
Hay Fever that comes around every summer.
Turkey is a winner outside the
EURO2012. Its credit rating was raised by Moody’s and its debt is
now Ba1 with a positive outlook. How does Turkey keep itself out of
trouble? Staying outside the Euro, focusing on managing their
current account deficit and maintaining a healthy debt structure were the
keys. Turkey government’s budget deficit is 1.4% of GDP, state debt
is 39% of GDP, the lowest in Europe after the Russia and Sweden. The
Dow Jones Turkey Titans 20 Index is up 14.6% this year as of 21 Jun in Turkish
Lira or 22.9% in EUR terms.
Every country has a ChinaTown and everyone
should be aware of the ChinaDown. Media and readers these days are
getting used to the Euro crisis. You can see the market mild
reaction to the Greek Elections in June. Now the spotlight is on “China
slowing down” and you often see articles in FT and Economist with a bearish
view on China. Well, looking at the valuation of MSCI BRIC Index
that track stocks in Brazil, Russia, India and China. It is at 8.9
times Price to Earnings Ratio (PE) and 3.5% dividend yield. Then see
S&P 500 that follows 500 stocks in US. S&P 500 is at 13.4
times PE and 2.1% dividend yield. The investors have voted with
their money as BRIC is now “cheaper” than US. We have all seen
summer sale where prices could be reduced and reduced again. So
cheap valuation could get cheaper if there is no buyer. Investors in
the developed countries such as US and Europe, have very significant holdings
in mutual funds. When they feel uncertain, they are likely to redeem
their dream and stay close to home. Hence redeeming their Emerging
Markets investment and staying with their home market. US, UK and
European blue chips may enjoy stickier money than emerging market stocks.
Talking about where the money is going,
every kid wants an iPhone, an iPad, a PS3. The men also get sucked into
the Samsung Galaxy and any colorful surface that they can stroke with their
fingers. Microsoft joined the game with "Surface", a serious
attempt to compete against iPad. Smartphones and tablets have evolved
from gadgets to necessity, like your wallet or purse. Feel awkward
leaving home with it. The sale of smartphones and tablet PCs drives
hardware and software innovation. The tech bubble was more than a decade
ago and some tech companies like Intel, IBM, Microsoft are probably more
"blue chip" than banking stocks these days. Yes, we all feel
sorry about the share prices of Nokia and Sony. There are always winners
and losers but you know you will buy more smartphones and tablet PCs for
yourself and as gifts in the next couple of years. Today, the future for
the tech sector is bright.
