Global stock markets versus Apple 26 January, 2013.

Global stock markets versus Apple  26 January, 2013.

Good news is that major stock markets are all up.  Dow Jones Industrial Index, FTSE 100, Hang Seng Index are all making 4 years high.  US Debt Ceiling looks like a moving finishing line and turning into a political drama rather than a financial matter.  Wait until the rating agency shows US a yellow card for living on debt forever.  This could cause a wobble.  UK stock market has quietly outperformed its European peers.  If you ask UK citizens outside London, they probably struggle to understand why the stock market is so strong.  FTSE100 are dominated by global companies like BHP Billiton, Royal Dutch Shell, HSBC, Vodafone, BP that make money in many countries outside UK.  FTSE100 has little to do with domestic economy.  Hong Kong stock market has been turbo charged as institutional investors and media see upside in China stock markets.  Perhaps not so much because of China GDP growth, but a rebound after over 3 years of bear market due to lower valuation and lack of confidence in corporate governance.  Remember Paulson Fund losing USD 750m from their investment in Sino-Forest.  Anyway, the pendulum has swung back and institution money is flowing into ETFs listed in Hong Kong.  If trend is your friend, US, UK and Hong Kong could give you a ride.

Abenomics could be a catalyst to a weakening Japanese Yen.  Yen depreciates from JPY 78 to USD 1 in October to now hovering around 90 Yen to a Dollar.  That’s a 15% move in a major currency.  The weakest since mid-2010.  Investors expect a weaker Yen will improve Japanese exporters’ competitiveness and Nikkei 225 rallied from 9,500 level in the beginning of December to test 11,000 level in the end of January.  Abe Shinzo was Prime Minister from September 2006 to September 2007.  Since then, 5 people took the driving seat before Abe’s return.  Jose Mourinho left Chelsea FC in September 2007 and since then, 8 managers and Mourinho has not returned yet.  Between Obama in US, Xi Jinping in China and Abe in Japan, there is a clear favorite of who is going to leave the office first.  So Abe has to race against time and think out of the box to detour Japan from its 3^rd lost decade.  A weaker yen, a 24/7 money printing machine and 2% inflation are going to be painful to Japan’s aging population but in Abe’s eyes, necessary for the future generations.  There are institutional investors eyeing Japan market.  Is this just another season with high hope but no trophy like Arsenal?  Or a real game changer likes Manchester City?

An Apple a day, my money has chipped away.  Shocking.  When Apply launched iPhone 5, its share price hit USD 705 in September 2012.  It dropped to below USD450 after it reported record quarterly net profit of USD 13.1 billion.  Apple shares look very attractive at this level but the problem is that it already looked attractive at USD 600 in November and at USD 500 in December.  So the bargain hunters or value investors are getting run over by stop loss orders.  Again, if trend is your friend, this is not the right train.

Gold is going nowhere?  It has formed a downward zigzag trend since it tested USD 1,800 level in October.  It is at USD 1,660 level as of 26 January, 2013.  Gold as an inflation hedge maybe true but a rising stock markets have lured investor interest away from gold.  To hedge against inflation, perhaps property is a better investment.  Quite a few people have mentioned their recent investment in US single-family homes.  Buying them at distressed prices and collecting nice rental.  As yield seekers move in, prices of these single-family homes go up.  There are Real Estate Investment Trusts (“REITs”) focus on such investment.  Worth giving your financial advisor a call to find out more about REITs if you believe in mighty America recovery.

2013 and the year of Snake 4 January, 2013

2013 and the year of Snake  4 January, 2013

Congratulations to the world that the US government managed to steer the world economy away from the fiscal cliff.  How?  In short, buy a bit of time and worrying about it later.  Well, tax the rich more to show a gesture.  Just like any Hollywood action movie, the ending of a cliff hanging scene is only the beginning the next life threatening situation, the debt ceiling.  US government should not be issuing debt forever to fund their deficit.  There is a ceiling or a legal limit to US debt, some unimaginable number of USD 16 trillion.  If the ceiling is not raised around March, the mighty United States may not have enough money to pay for the bills.  The S&P 500 index put on 13.4% in 2012.  If you count the dividend, take into consideration USD has gone weaker against GBP,that is still 10.8% return in GBP terms.

The Euro zone is a parallel theme going on in 2013.  Despite all the drama, the Euro zone stayed together and the media has stopped mentioning Grexit.  Spain and Italy will still offer plenty of headlines while France is the next big worry with not so healthy balance sheet.  In 2012, Euro leaders show they really will do whatever it takes to maintain the single currency and the market is getting convinced.  Or at least it will take years rather than months to see it coming.  2012 turned out to be a great year for the European stock market with Eurostoxx 50 Index offering 16.3% total return (price performance plus dividend income) in GBP.  Who could have guessed the Eurostoxx 50 could beat US S&P in 2012.

China has its new leadership in full swing and the year of Snake is a year of settling and then progress.  Global demand is likely to be slow in 2013 and China continues to become more expensive as a manufacturing center.  However, the stock market might have priced in too much bad news and if you look at the Shanghai Exchange Composite Index, Santa loved China and the index rose from 1949.5 on 4 December, 2012 to end the year at 2269.1 points.  That’s a 16.4% rally within December and more importantly, like Chelsea winning Champions League last season, Shanghai Exchange Composite Index managed to give a +2% total return to investors in GBP terms.  So all the “China Down” and negative views were denied by the stock market performance.  Or perhaps the stock prices already priced in an even worse picture.

Apple, on the other hand, took a downhill run in Q4 2012 from USD 705.07 as of 21 September 2012 to end the year at USD 532.17.  Ops, that’s a very cold shower for iPhone 5.  Again, perhaps the expectation was too much and we did not expect Samsung Galaxy S3 and Note 2 to be so popular.  There are quite a lot of investors keen to get into Apple at USD 500 a share.  At 11 times 2013 expected earnings, that’s quite reasonable and it is the low end of estimated Price Earnings ratio that we have seen in the past 3 years.

Coming back to home, FTSE 100 had an amazing start of 2012 and closed at 6,027.37.  Nice to be above 6,000 again and that has been the top end for FTSE 100 since 2009.  It is hard to convince retail investors to buy stocks with the index at 6,000 level.  So who are the buyers in the market.  If it is not the ordinary salary people, then it could be the ordinary people in an un-ordinary seats such as fund managers, traders, Chief Investment Officers of Pension Funds.  Why do they buy at this level?  (1) it is not their money but other people’s money.  (2) they need to buy something and bonds have rallied so much that there is limited upside.  (3) sitting in cash is not really what they get paid for.  See, we have to be more understanding.  Sometimes, one has less choices than others think.